Almost every day I see a post from someone saying how they are going to stop trading equities and make the shift to index futures. The reasons cited include, new shorting rules, exchange misconduct, PDT, lack of volatility, and so on. So my question is, if a significant number of traders move to NQ or ES then (perhaps?) the volatility of individual stocks will be reduced. But since index movements are based on equity values, would index futures not become equally untradeable? Anyone?
Institutions move stocks.Day traders are like the birds that hang out on the backs of rhinos...In my humble opinion..
It is beginning to happen already.....EVERYONE is looking at the same numbers......an E-mini bubble???
There are connections among the markets. This aspect is not a significant one though. The key and fortunately very dynamic one is the leading relationship of the Dow compared to the ES emini. Since the Dow leads the ES emini, you can use the Dow cash and futures relational dynamic to telegraph the moves on the ES emini. I use terms like neutral, squeese and stretch to describe the Dow dynamic. Neutral describes times when there is no tendancy up or down for the moment. A moment is less than five minutes and about three or four moments occur per 5 minutes. The "squeese" and "stretch" work the same, once the moment is either, there will be movement (change) very very shortly (30 to 45 seconds) in the ES emini. A volume burst (on Emini) signals the move. You watch the "small" side of the "Market depth" the see when the move stalls out. The "small" dissappears and neutral (balance on market depth) resumes. For "long" moves the squeese is the rule. For "short" moves the stretch is the indicator. Fortunately, You can calibrate the values of the stretch, neutral and squeese on a daily basis. Today squeese varies between -1 and 3 neutral is 5 or 6 and stretch can range up to 9 so far today. The beginning of the quarter involved values like 36, and 24. OT for those who are familiar with the Dow for over 10 years, you can remember where the quarterly offset was 300 to the Bull side. Now a days the quarter began 36 points to the Bear. Thoughout the quarter the narrowing was normal for the quarter as usual. But a week and a half ago the beginning of the Xover from Bear to Bull started. today was the first day that a squeese got to -1 which is a Bullish value. Don't worry if this seems like BS to you. It will to most people as usual. But in fact, this aspect of using the lead of one market over another actually makes making money extremely simple and uncomplex. The market pace and "noise" levels , etc can also be determined by this dynamic. Especially congestion and consolidation periodicities. AMT4SWA commented on the duration required to get the T&S, streaming and market depth to be second nature (6 months), in this case the effort, if you log it using 7 columns and a graphic column for a trail of bar movement, it takes about two weeks for beginners. It is much less sophisticated than any other monitoring schema that is comprehensive.
VOL in the equity market has been collapsing since the first quarter of 2003. We are no longer in the grand old days where the VIX traded between 20 on the low side and up into the 40's on the high side. In fact, if you go back about 10 years to 1993-1994, the VIX traded in a range from between 9 and 20. Thus, we could just be going back to historical norms, and away from a HUGE aberration which was the 1999-2001 period. As a result, futures will provide much more liquidity, PLUS THEY ARE THE MARKET, as opposed to trying to trade a specific stock that may or may not move with the market on any given day, and they save a trader a ton of time researching and stock-screening for sectors or individuals stocks that are moving. And of course, you can get short without an uptick. As an earlier poster mentioned, only a handfull of stocks are needed to move an index, whereas many stocks can just sit there and hardly budge. Just look at the SMH for example; INTC, TXN, and AMAT make up roughly 70% of the index. Bottomline: Portfolio Managers use the S&P 500 Index as their "bogie" and measure of performance. The S&P 500 is what institutions pattern much of their portfolio's after, especially all the money in the world that is INDEXED to the S&P. Thus, why not make it easier on yourself and just trade the E-Minis since they are in fact THE market and will most likely see much of the program buying and selling that will create volatility, than concentrating on one stock and being stock specific in your trading.
I wouldn't worry too much about the absence of daytraders affecting the S&P's. This was the premier daytrading market long before the advent of the DAT crowd. Around 40% of the volume in stocks is program trading. I would say 90% of the big intraday moves in the futures are program-driven. The lowered volatility has indeed made it more difficult to catch the big intraday moves that make breakout systems fly. The percentage range has lowered, but the absolute range is still enough to make decent money. Back in the '93-'94 timeframe when vol's were extremely low, the range in the S&P's might only be 5-6 handles a day. Tough to make money in that environment, particularly when you had to call in orders and get clipped by the floor.
I actually agree with you (at least what I can derive from your mumbo jumbo) and I do not even trade futures but do watch them. But what you state does sound like complete BS and not because of the content but your choice of words and statements. "Peridiocities"??? This isn't study of language forum. What's funny is that your posts are easier to comprehend now than your older ones. However, you still have a long way to go though. Stop trying using statistical definitions to explain your point. Just explain your point and if someone wants more detailed numerical analysis you can provide it. Market trading is a psychological game, which is the reason why statistics apply to it so well. But behind the numbers is emotion, the basics of which does not need any statisticals analysis to explain. Try to stay simple in your conclusions and opinions.