A quick look at the US indexes

Discussion in 'Index Futures' started by Gabfly1, Apr 2, 2010.

  1. I took a very small, and therefore not necessarily representative, sample of daily ranges for 4 indexes. Specifically, I looked at the RTH daily ranges between 9:30 AM and 4:15 PM EST over a 14-day period for ES, NQ, YM and TF. The approximate daily ranges, calculated in dollars, averaged as follows for the period March 15 to April 1, 2010, inclusive:

    TF: $1,020
    ES: $ 560
    YM: $ 430
    NQ: $ 420

    Based on daily range and tick size, all else being equal, TF provides the best value. The index that provides the least value (again, all else being equal) appears to be ES. Let me explain.

    The daily ranges noted above speak for themselves regarding implied opportunity. However, it is safe to assume that a trader regularly and normally incurs losses on trades and is not able to scratch on every trade that goes awry. Therefore, we must also look at protective stops, mental or actual, wherever they may be. For the moment, let us compare the two most liquid indexes of the four, specifically ES and NQ. (Admittedly, ES has substantially more volume than NQ.) So, if a trader uses a protective stop of, say, 4 ticks, that would amount to $50 for ES and $20 for NQ, excluding transaction costs. But while the protective stop is 150% higher in dollar terms for ES, the average daily range for ES during the period under review is only about 33% greater than that for NQ. Therefore, the risk/reward combination is better for NQ than it is for ES using this metric.

    Of course, all else may not necessarily be equal. Some traders may find they generally need a larger protective stop in one index than they do in the other, in terms of tick size. Further, one index may provide better directional movement or more reliable setups. Some traders trade large size that limits the indexes available to them for their purposes. Those are the features that give each index its individual charm. However, to the extent that a trader can trade either one or the other, and he is not trading very large size, then an argument can be made that NQ provides better value than ES.

    YM provides similar value to NQ, having a similar average daily range and identical tick size. And, as noted earlier, TF gives the best bang for the buck in terms of risk/reward based on the comparison of daily range to its tick size of $10. However, TF and YM are not as liquid as ES and NQ. Although I find TF’s range and tick size very appealing, I still find its price action at the turns to be somewhat herky-jerky for my own purposes. Perhaps as its appeal grows and its volume increases I will give it another look.

    Again, I wish to emphasize that my sample size is necessarily very small because I am far too lazy to conduct a truly representative sampling of daily ranges that would be statistically sound. If anyone has already conducted a more exhaustive analysis of this nature, or is inclined to do so, then please share your findings with the rest of us.

    I also wish to reassert that this is only one measure of value. You may find others to be more relevant.
  2. I am so sorry to be responding to your heavily popular thread, but I made so much money trading today that I had to spend it all on Gloria, and so am dead drunk, or maybe it is the herbicide I snorted today. What is the tick value of those ranges you researched? In my strunken dupor I think that is what counts. Yes, yes, I could look it up myself, but this IS ET, pretend I am a noob. I'll help you out, the tick on NQ is $5, so $420 is equivalent to 21 points, of course that number has no significunts, just fiveget I said it, don't bother backtesting reversing at that range, it doesn't work, don't think I haven't tried, but it IS odd, doncha think? Anyway, no hurry responding, I am out until tomorrow.
  3. Dr. Deco, I'm not sure we're on the same page here. (Figuratively, of course, since we are on the same page literally in this thread thus far.)

    My only point in this thread is to compare the daily range, as expressed in dollars, to the instrument's tick size, also expressed in dollars. Before I traded NQ, I traded ES. My method is largely the same, and I have found that I generally had to risk as many ticks on an ES trade as I presently do on an NQ trade. ES's tick size of $12.50 is 2.5 times NQ's tick size of $5, or 150% larger. Therefore, in broad brush terms, ES's range should be 150% larger than that of NQ for it to be a wash. However, ES's daily range is only about 33% larger than NQ's daily range. Therefore, on the basis of this measure alone, trading ES is not as attractive trading NQ. However, if I had to risk proportionately more ticks for an NQ trade than I did for an ES trade, then the NQ advantage would not be so clear.
  4. Really? No comments one way or the other?
  5. The only thing ES has to offer is liquidity. If you need the liquidity or anticipate you will need it in the future, then ES should be your game.

    If you have no need to be throwing 20+ cars at the market or are not very sensitive to slippage, then TF or something else is a much better choice than ES.
  6. Yes, I am with you, sound logic, thanks for the help. But I must confess, for me it is almost sexual. NQ gets me off. And I don't care that it is a hand job. At the last second, she takes it in her mouth.
  7. Well, I don't know about all that, Dr. Deco, but I will concede that NQ offers a number of attractive openings in which to take a position during the course of an average day.
  8. Indeed. NQ makes possible the elusive 3X.
  9. Well, that might be stretching it a tad.
  10. NQ has one of the greatest tick ranges out of the indexes if not the greatest. For me I rather make 10 ticks in NQ for my $50 then a lousy 4 ticks in ES. Which in tight ranges means better fills. NQ can handle 10 or 20 lots a wack too, so no concern there. Anyone who says ES is better and not trading large size isn't experienced enough or just doesn't have a clear picture.

    #10     Apr 5, 2010