I'm new to futures, and just started trading. Can anyone tell me which one leads? The index, or the future? Like if DOW index keeps going up, then futures (Let's say YM) should be up too? Or sometimes futures lead? How do I decide? Do I watch future alone or should I watch both? Is it that futures lead before market open, and indices lead after market open? Can someone enlighten me? Thanks.
I don´t think anyone leads all the time. If it did, market participants would notice and the difference would be gone. It´s a dynamic game with lots of arbitrage going on.
In a general sense they move exactly the same, but in off hours, the futures contract appears to *lead* simply because the cash market isn't open to reflect the new info which futures now reflects. As for signaling a *move*, the futures will again appear to lead simply because the price change gets reflected more quickly there than on the tape. There are also false leading moves as some player either hits the bids or offer and causes the futures to move momentarily, but that same speculation is never felt in the cash. As far as there being a consistency of one leading the other for an astute trader to exploit.... there isn't one.
The futures leads in your example. You can use this in a powerful way. If you see what appears to be the index leading, in short order you will find that the index will have a "failure" to really lead. It will then shift back to following the futures. For making observations on trends, you can discern which is which by measuring the offset between the two. Currently, the INDU (cash) is higher than the futures (YM04H). The range of variation on Friday was from 15 to 27. The middle of that variation apears during comgestion and midday usually. For the beginning of a long trend you will find the lower part of the range prevails. If the pace of the markets is fast, you will see the extreme of the range. I call this "squeese". For the beginning of a short trend you will find the upper part of the range prevails. I call this "stretch". As any trend weakens and price formations begin to fail, you will find the range oscillates narrowly in the central part of the range. To use these phenomena best (meaning trading ahead of the smart money), there are several opportunities. All futures indexes are tied to cash indexes. You can now see there is an offset that exists per quarter. The convergence of the two procedes as the quarter ensues; it ends at roll over, of course. Intraday, the offset is reestablished at the beginning, usually during the first four bars (5 min chart). Since the futures opens before the cash, the adjustment largely relates to the cash, but because of the niavte of futures traders there is usally a play to handle that opportunity. At the end of each day, the futures continues after the close of the cash. You can use the offset data here during the last 45 minutes of the cash to particular advantage. With respect to markets approaching R or S. And for price ranges well away from pivots, the offset and leading nature of the futures are especially important for judging the price transitions to the limits that are being reached. This follows a striking parallel to the volume performance relative to price. As an overview, consider how the physics of a stetched rubber band works. The linear progression of increased difficulty to maintain a price value is at play. It takes "more squeese" to get to a greater extreme of R or a fib value. You can capitalize on "failures" at these extremes. They are telegraphed to you by the "offset" status no longer producing more extreme results. What ensues is a collapse by "smart money" first then an agressive reversal. Often you see "stops cascading" which asyou trade ahead of the market is one of the fastest paced capital appreciations possible. The greatest opportunity comes by watching one market and playing another on the same basis. This is not an ET sort of thing it turns out. The example you used, however, it the best pairing to track for making money in other markets. All of the above is fairly focussed. To best understand it, use the attached form for a few days. As you use it, you will begin to see how everthing relates. You can make up a blank one that suits your data taking. The one attached is for Friday the 13th of JAN. It was used by a beginner to net 17 plus % of margin for the day. The gross of margin was about 30% of margin. Obviously the questions you pose are the kind that lead to making a great deal of money. Someone suggested here that no one will share stuff that is of great value. Do not draw the conclusion that what I posted is oflittle value. Your questions are of great value. All the answers you get have value as well. What is required to make money is an effort to really get the drill down. To make an effort to undrstand the situation and use what it gives you to become a smart money trader... After that you can learn to trade ahead of the smart money.
interesting but i cant make out the form clear enough to understand it. can you make it bigger and clearer? tia
Is there software available that plots and shows the difference between the futures and the cash market in real time?
Hey Jack... Thanks for the attached pic.. it really clarifies exactly what u are saying... Before the pic I understood a little.. now I understand absolutely nothing. By the way that little scribble u drew on the upper left of the market log looks like a crown on a king's fat head. Keep up the good work. -MIKE