Tick charts for SP

Discussion in 'Trading' started by J-Trade, Dec 6, 2001.

  1. J-Trade


    Still on my early-learning curve to day trade the emini with consistent success, I am now trying to learn more about the use of tick charts. The shortest time frame I presently use is the 1 min chart, but I understand there may be significant advantages to also use tick charts, perhaps of varying lengths (numbers of ticks), so is there anyone out there who could offer some guidance, please ?

    I imagine that as a tick chart is constructed from a selected number of ticks, eg. 25, 75, 144, whatever, volatility (or do I only mean volume ?) is effectively built-in, as the more trades there are, the more frequently the bars will appear.

    I have heard the comment, "Now that I use tick charts, I would never use regular time charts again (for day trading the emini)", so I am also wondering how many on this board would concur with that statement ?

  2. If I want to want to watch the mini's tick by tick I use a time and sales window.:)
  3. Tick charts of the S&P 500 and the Emini's are a must for any trader (futures or equities) since they give you the immeditate "tone" of the crowd. Many traders don't seem to understand that a tick is simply a trade, and in a single minute time frame, you may have 50 ticks or more. The individual ticks are not as important as the grouping trend, upward, downward, or lateral.

    You must also have a "premium/discount" window to show the trades as they relate to the day's current Fair Value, or else the ticks lose their meaning. You can always get fair value from www.programtrading.com (they broadcast the difference between "long" and "short" money in their calculations). Hope this helps.
  4. WarEagle

    WarEagle Moderator


    I like to see tick charts as well. The main reason is that it gives you a good indication when activity picks up. Of course, so will a T & S, but I like a tick chart better visually. Also, if you look at a continuous chart of the futures including the overnight globex session, the fewer ticks overnight create fewer bars, and thus a better looking chart without the long string of short, thin bars. This is really helpful if you are looking at any indicators, since the overnight session's thin data will throw them off.

    As a general rule, for the NQ I use 100 ticks for every minute that I want in the bar. So, for example, to approximate a 3 minute chart I will use 300 tick bars. Of course, this will never be exact, and over time you will have to make adjustments for increased volume in the underlying. In fact 100 is starting to be too small a number for 1 minute much of the time. But you can usually get a feel for when momentum picks up by seeing how fast the bars are printing. For example, during yesterday's run up, the NQ was printing 200 ticks almost every minute. It would fluctuate between 1 and 3 minutes, but stayed pretty fast throughout.

  5. Isn't Fair Value sort of useless for Intraday trading? This is calculated once a day using yesterday's closing value of the S&P. It's only supposed to tell you something about what effect program trading might have on opening prices.

    What do you mean 'the difference between long and short money'?


  6. Fair Value is extremely valuable for intra-day trading. If you show an uptrend in the futures but they are trading under value, the underlying securities won't follow the futures. The CME traders and institutions, when selling futures Over fair value, often times buy all the underlying securities to bring them up to fair value for that immediate second. Understanding this type of arbitrage is a must for intraday traders.
  7. Why is it good to watch the premium when you trade futures? I thought the purpose is to compare the premium/discount level to the level where programs kick in then you would go long or short stocks that are caught in the program. I don't see the use for trading the eminis.
  8. Don,

    Thanks for the answer, but I'm still not clear on one thing:

    Isn't Fair Value calculated using yesterday's closing value of the S&P?

    If the answer is 'yes,' then what use would it be for intra day trading? The difference between the value of the index and futures will vary all the time during the trading day. The only thing that stays constant throughout the day would be the interest rate and dividend rate (which are also part of the fair value calculation.)

    A few quotes from the fair value definition (the url I posted earlier.)

    Spread 5.00 BUY 6.00 Fair Value 5.00 SELL 4.00

    This means:
    a) The front month S&P 500 futures contract last closed 5.00 higher than the actual S&P 500 index, for a "spread" or "premium" of 5.00. b) Fair Value (which is provided to us by Prudential Securities) is also 5.00. FAIR VALUE DOES NOT CHANGE DURING THE DAY. However, as each day passes, it gets a little smaller, because the time left until futures expiration is part of the value. c) BUY programs are likely to be triggered if/when the spread widens to 6.00. d) SELL programs should be expected to hit stocks if/when the spread narrows to 4.00.


    F = S [1+(i-d)t/360]

    Where F = break even futures price

    S = spot index price

    i = interest rate (expressed as a money market yield)

    d = dividend rate (expressed as a money market yield)

    t = number of days from today's spot value date to the value date of the futures contract.

    First, the predictive value of the spread is very certain, but also very short-lived. In the morning, the effect is gone within the first few minutes of trading. The spread can tell you which direction the market will go AT THE OPEN, but once trading starts, things change quickly. Its primary value for the average investor is probably in the area of "market on open" orders. People who instruct their brokers to buy or sell when the market opens should be aware of how the open is likely to go. Its secondary value is peace of mind. Knowing that program trading is likely at the open, investors are less likely to become overly concerned if the market drops sharply in the first few minutes. It isn't people selling because they know something you don't, it's program trading that will probably run its course in a matter of minutes.

    It seems that to know exactly what the spread should be one should use the current value of the s&P, dividend rate, interest rate, number of days till the contract settles, and using those figure out what the price of the S&P future should be. But unless I misunderstood something, this is not what is commonly referred to as 'fair value.'

  9. WarEagle

    WarEagle Moderator


    I like to watch the premium when trading the minis. Its a little different than using it for stocks. My approach is to use it to get better entries. If there is a wide spread in the premium and I'm looking to go long, then I am "overpaying" for the futures relative to cash. If the spread is in the lower range for the day, then I am getting a discount. I like to get a long signal when the premium is tight and short signals when the spread is wide. Of course, usually a big move up is on a big premium since futures often lead the cash, so I never relied on it exclusively. But since the spread can fluctuate several points, this can make a big difference in the result of the trade if you can get long while its tight and exit when it spreads out. The longer your timeframe the less important this is, and as I've moved out to 30 minute bars, I use it less and less, but I still like to keep it an eye on it.

  10. J-Trade


    Hey, thanks everyone - a lot of interesting replies to consider.
    I've also just started watching the PREM.

    Anyone using multiple tick charts in grops , eg 25/75/150 ?

    #10     Dec 6, 2001