ES newbie

Discussion in 'Automated Trading' started by ssrrkk, Sep 30, 2011.

  1. ssrrkk


    I have been implementing and testing various day trading strategies on the IB TWS Java API. My recent strategies involve entry / exit signals generated from pivots and daily ranges. I have been monitoring the SPX but trading either SPX options or the SSO ETF. I am thinking about shifting to ES contracts because of the leverage available. I was wondering if there are any "gotchas" or things to look out for before I start trading ES contracts. In particular, do I need to change all my signals to be triggered directly by the ES price, or can I still use my signals from the SPX to trigger buy and sells? any advice will be appreciated.
  2. When you do the back tests, you may want to use actual contracts instead of the continuous contract.

    With higher leverage, you need to be even more careful about potential bugs in your algorithms and/or order management system. (What if it decides to flip in and out of a contract at market inside an infinite loop?)
  3. ssrrkk


    Okay, thanks. The potential for bugs is why I am thinking I would probably continue to use the same buy and sell triggers as I have been before, based on the SPX index, rather than the ES price. This algorithm has been very well tested over the last 6 months but I have been trading the SSO. I am thinking about simply swapping SSO with ES but otherwise using the exact same triggers / algorithm. I only trade during regular stock market trading hours. I will paper trade on my sim account to see if this works. Thanks again.
  4. You may want to PAPER trade both (SSO and ES) side-by-side for a while and see if the results are similar.

    IF your results are significantly different, there is a chance that for some reasons your strategy may not apply to ES at all. (Micro-structure, etc.)
  5. ssrrkk


    That's a good idea. I think I can actually implement this (trade both) very easily. Thanks for the tip!!
  6. my .02, test your strategy on one non leveraged instrument such as spx if you're worried about continuous cars and then trade one non leveraged instrument such as the ES. ES is better than sso for all the reasons we already know (better liquidity, tight b/a, lower, taxes, no compounding issue, etc).
  7. Huh?

    How can you back-test a short-term trading system on something you cannot trade (SPX is an index)? The price actions in lower time-frames are just so different.
  8. ssrrkk


    hi lev,
    I am using the SPX to trigger trades. Up to now, I have been buying and selling SSO, and I have flirted with SPY options. What I would like to do is buy and sell ES using the same SPX signals. You partially answered my question regarding whether I can do that -- basically you believe that the ES moves so differently from the SPX that it is dangerous to use the signals from the SPX to trade the ES. That's precisely what I am planning to forward and backtest.
  9. Hi ssrrkk,

    Sorry, I should have been more clear.

    I think it may be fine to trigger trade using an index like SPX and back-test the signal on a real instrument like ES. If the back-test looks good, you may have a winning system.

    However, it is NOT okay to use SPX for both signal and execution because there is no market for SPX in real life. :)

    In short:

    Signal: SPX
    Execution: SPX

    Signal: SPX
    Execution: ES

    Make sure you have enough data to back-test.

    You can use anything for your signals. However, it is important to simulate the execution your actual trading vehicle as much as possible in back-tests.

    Trading is risky. Software is risky. Trading by software is doubly risky.
  10. ssrrkk


    Okay, so I have been forward testing my algorithm buying and selling ES and SSO side by side, and so far it is working out. My profits and losses from ES are pretty much a magnified version of my SSO trade results.

    My next question is this: is there anything to look out for on the day of expiration for the ES contract? Can I just continue trading it until the very last day, and then simply switch to the next expiration date the following day?
    #10     Nov 3, 2011