Let's start a real conversation about spreading index futures intraday. My observations: NQ/ES is a spread that is incredibly useful. It can lead the ES outright. It is incredibly important for day trading. Buying NQ boosts ES and buying in ES boosts NQ. Bottom line, when cash goes into equities, it very much affects these indexes. A leading indicator for scalping outright. This spread has a BETA > 1. NQ/YM is a scalpers dream come true. Heavy institutional participation in this spread. Tilt the spread either direction or balance it. Awesome to establish a position when you are unsure of direction. YM/RTY has great and slow range. It trends and trends and trends more. Very interesting to see the action as the broad market climbs or falls. Keep an eye on this one. What do you guys think? I would love to hear your opinions on these or other index spreads.
Can you post correlations for timeframes? I'm having a hard time seeing how some of them are tradeable.
Sure. Here's a TOS chart of Friday Aug 16 RTH. The spread is weighted Long 2 NQU9 and short 3 YMU9. ES is in blue and the spread is in white. ES values on left and the cash value (notional) of the spread is on the right. Lower chart is detrended against the red line. The red line is a polynomial regression on the spread. I'm still building these systems so its a work in progress. Look at the range on the right side. Seems tradable to me. As for correlation, you can see that visually.
I like spread trading the indicies but just got to be cognizant of the underlying, like 5 stocks in the YM and NQ make up around 50% of the entire index. Curious how you are calculating the spread? you mention 2 NQ for 3 YM. Is that just the notional value? the micros could probably get that a lot closer
Yea its a 2/3 spread on the E-mini contracts NQ/YM. I just chart the notionals (using the contract multipliers). Most of the time these are just indicators that help me trade outright direction. My other stuff is all scripts and algorithms that aid me in my directional trading. This spread can measure bullishness in the underlying names even while ES is being hammered by speculators. The micros are cool but haven't really found a use for them yet.
good luck getting filled. hft will blast you. doesnt take too many unfilled legs to make you understand why most people trade outright. theoretical values always chart great but real life 40 dollar spreads a contract in and 40 out can get costly for your day trading. u really just cant compete with the hft. who get priority in the outrights thus loving to hang u! twice the commission. twice the fees. half the margin so twice the leverage risk. no thanks. been there done that
Can't get hanged on a market orders. The commission is tiny relative to the P/L. How does hft hurt somebody sending an order for NQ/YM @ market? Hft provides and lifts/fills marketable orders. That spread gained ~1000 dollars in 20 minutes. Paying the bid-ask is literally negligible comparatively.
Here's the 1:1 NQ-YM chart in total notional value (at the moment $22700): https://it.tradingview.com/symbols/spread/CME_MINI:NQ1!*20-CBOT_MINI:YM1!*5/ Here's a video about Pairs Trading Equity Indices: