I've been doing some comparison of index futures to the underlying indexes, and the differences are striking. For instance test the following simple stop and reverse system: If short then buy on stop when the next day's price exceeds today's close plus today open to close range. Exact opposite for shorts. Without commission and slippage, this approach is consistently profitable on just about any index. Move from the cash index to the big futures, and the system is downright mediocre. Move from the big futures to the minis and it falls apart completely. Does anyone understand the reason for such drastic differences? Are the futures, especialy the minis, just a whole lot noisier and tend to overshoot the true price in every direction? -blueberrycake
Yes. Noise. "Measure it with a micrometer, mark it with a paintbrush, cut it with an axe". In other words, mark you params with a fat crayon rather than a razor.
Don't know the reason why, but I has known it for few years. I feel the index usually lags behind the futures. So it is not likely we can use the charts of the index to trade the futures.