Last Trade vs Settlement Price (and Aggregation at Open)

Hello everyone. I hope you'll permit me to ask a few questions. I've been trading for a while now but I'd like to take it more seriously and I'm coming up on issues I have little experience on.

I trade mostly /NQ and /ES, using ToS (thinkorswim) as the platform. I know it's not the best for execution and I might change it in the near future.

Firstly I'm wondering whether the standard for most people would be to use the settlement price for your daily/weekly/monthly candles instead of just the last traded price. All this time I've been using the last traded price instead of settlement without realizing many might be using something else (settlement). I've been doing pretty well while ignorantly using the last traded price on ToS for all my lines (support, resistance) but I'm not sure if that is introducing unnecessary inaccuracy.

Second, another thing I did not know was that many people aggregate their chart at market open so that for example the 1 hour candle will start at 9:30 am instead of 9:00 am. Same would of course apply to 2 hour, 4 hour, etc. This entire time I have of course been using the default on ToS. Just like ignorantly using the last traded price above, I have also been using the normal method of aggregation (9 am, 10 am, 11 am) instead of adjusting it for the market open. I am not sure which is more common and whether I am introducing more inaccuracy into my trading by not using aggregated data at the open like this. Though on ToS when I do aggregate it, it makes it hard to view extended hours accurately (so maybe optimally would be to turn it on during market hours and turn it off when I'm trading the evening/night session? Though I then worry I'll be technically trading two different charts).

Last little question. How inaccurate is it if I'm always only looking at the continuous contracts. Should I actually be looking at a bunch of different /NQ charts even if I'm only always trading the front month? I notice looking at the continuous contract there are some glaring differences, even when comparing the continuous to the forward month on daily candles just a few weeks old (/NQ1! vs NQH2022). Which should I be using or should I be using both/multiple?

As you can see, I am quite ignorant, but I'm really really eager to learn. Any books, videos, websites, etc. you guys think would help I'd be happy to look into as well. I am grateful for all this free advice as it is.

Thank you kindly,

Mollie

 

For NQ and ES, it is ok to look at the continuous contract.
Because someone is making sure the continuous contract is the contract with 'best'/biggest volume.

Not all futures have continuous contracts (eg micro-bitcoin futures no continuous contract).
also, some futures continuous contracts might not be based on 'best' volume
(eg currency futures).
so always do your homework.

 

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I frequent use last price,Mollie, except on weekly close/settlement. MAKE sure to record whatever you are trading/inverting in, ink. Any derivatives can be worse off more, so i makes sure to print charts..........................................................................................I use monthly+ 4 hour candlecharts some// but the legs of the lame are not equal + 4 hours chart is not equal to midpoint @ all/ok by me.
.I seldom if ever look @ extended market,[WSJ paper or any] but i do record premarket derivatives some Some times al the data can be confusing @ first/close price helps, 4 hour, day, month close.........

 

I asked my colleague Josh Meyers to contribute:

You have a great attitude to learn trading. If you’re concerned about skewed perception, you could try a 30m chart for the open @ 9:30am EST. Aggregating a 1H from 9:30 would work too, but you’ll have a different perception than those who trade default settings with it. You could use both together or cross-reference multiple? I usually have more than one chart up to provide better context.

I prefer to trade whatever contract is most liquid or has the highest traded volume. It’s easy to see on CME website. The continuous will usually be ok, but it never hurts to check. Usually the front-month (nearest expiry) is the most liquid, but it can vary especially when traders start rolling to the next expiration.

You’re on the right track. It’s good that you’re researching and learning about the nuances of your trading. There are plenty of futures platforms available, and we’d be happy to make a recommendation. Please feel free to reach out if you’d like to chat personally. All the best,

 

%%
Exactly;
and @ the end of the day, [if doing it that way ]last hour = really half hour/LOL

 

@maxinger @murray t turtle @CannonTrading_Ilan Thanks to all three of you for your responses! I am grateful to get such advice.

Just one question for Ilan, when you say you think the volume on the continuous contract will be ok, do you mean the front month contract? I was under the assumption that the continuous contract is not really an independent product and is just a clean aggregation of the data? I think when we trade the continuous contract that technically means we are trading the front month contract correct?

 

Hello @MollieJp and sorry for late reply....I asked Josh Meyers, my fellow series 3 broker here at Cannon:

The continuous contract should only affect how the chart looks. You’ll still have to specify which contract you’d like to trade. Generally, intraday traders will use the most active contract. Today’s instance for /ES would be the March(H) expiry. ESH22.

As front-month expiration draws near, watch how the volume moves into the next contract. Swing or position traders may utilize the continuous contract more than intraday traders, but each of us is unique.