I have an automated intraday strategy that seems to behave well on SPY. I want to look at how it would do on the ES. Before I roll up my sleeves and test things for myself, I would be grateful for shared insights from anyone with experience of something similar. How good is the correspondence between SPY and ES price action? If something works on SPY, will it generally work on ES, too? Do I just need to transform my target of say $0.20/SPY share to $2/ES contract, etc? Thanks in advance.
to answer your question,, YES, during day session,, price action of SPY is that of ES so the system you use for SPY should work for ES 1 ES contract = 500 SPY shares 1 ES pt = 0.10 SPY cents 1 ES pt is 50usd = 0.10 SPY cents (times 500shares) is 50usd The advantage with SPY is to trade with fractions of 1ES contract (example,, 1/5 of a ES contract would be just 100 SPY shares) but the downside is to be exposed to possible unfavorable gaps it's a really, really good idea to start trading shares of SPY before moving to ES futures,,, best wishes! good luck!
Many thanks, daniel_asimov. I am unclear about one part of your response: Do you mean that one of the relative "pluses" about SPY is that it will allow you to trade in smaller size (i.e. one could trade 100 shares, but not 1/5 of a contract)? And that one of the relative "minuses" is that SPY has gaps whereas ES does not? I don't understand why the later would be the case ... Thanks for clarifying!
Glad to help~~~ in regard to gaps,,, The advantage with ES is being able to trade after the close of the day session all night long until next day (unless it's a weekend), when orders are good til cancel, and stops in place, gaps are not much of a concern as it would be with SPY,, the disadvantage is that with ES , the value (not margin) of a single contract is worth 64,200usd (ES@ 1284 x 50usd)... so when it comes to setting stop losses, one has to feel comfortable with such risk. margins can be tempting, but in my opinion one must feel comfortable with the size of risk when trading futures, otherwise can be very expensive and stressful I regret starting 2009 trading futures full time instead of getting acclimatized to price action trading SPY... wrongly I thought trading 1 single contract would be relatively safe, but i was wrong,, the advantage of multiple lots its being able to scale in and out, in my opinion there's where the meat of trading is... for somebody starting with futures and not feeling comfortable with risk involved of multiple lots,, would be better to trade multiple shares of SPY,,
The biggest benefits with SPY over ES are the smaller tick size (and thus less slip) and that you may be able to get rebates on SPY. The downside to SPY over ES is higher margin requirements.
Not to mention the favorable tax treatment for futures in the US. If you day trade SPY, it's all short term cap gain. ES trading gets the favorable 60/40 long/short term cap gain treatment.
I've backtested continuous contract intraday data on the ES and intraday data on the SPY. You will find a greater edge in the SPY simply because of the slippage to daily range ratio. A profitable strategy in the SPY with a profit factor of lets say 1.2 turns into barley breakeven when you backtest the same strategy on the SPY. Sure the correlation is there but the tick size and slippage on the ES is too clunky compared to the SPY.
Fair enough. I wonder if ES "leveragedness" outweighs ES "clunkiness"? And what ES slippage did you use for your backtest? For SPY, I don't feel I need more than max $0.01 during regular trading hours.