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IMPORTANT: The only index worth trading is the SandP!!


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IMPORTANT: The only index worth trading is the SandP!!

  #1 (permalink)
London UK
 
Experience: Intermediate
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IMPORTANT: The only index worth trading is the SandP!!

What's up Big Mikers!

Have been trading for years, self taught and done some courses too, many stumbles along the way but now get how the market works. I trade the Dow Jones and the Dax as I like the indexes with wider swings a lot more as it's easier to get an entry/fill on futures.

But with one small problem (or big) problem
Despite being profitable a lot of trades at important levels sometimes just don't work out because they don't stop at the expected Support/Resistance. Maybe the Dax wiill perform a reversal pattern at the swing high, or maybe it will just blow through and perform the first reversal, in areas that don't make as much sense. So what the hell is going on?

I have a friend who is an excellent intraday swing trader and have chatted to him recently, and as a result have also had a live SandP chart up on screen and I now have the answer to the baffling moves that occur in other indices.
And the simple fact is, if the SandP has not yet hit it's major support/resistance zones, then any other index is going to keep moving in the current swing direction, and will only react when the SandP reacts

So for example, in the morning (UK) session, the Dax is dropping to a beaten swing high made yesterday on heavy volume and starts to make a reversal pattern. The SandP, even in the UK morning session, has not yet reached the similar beaten swing high made yesterday.

So as a Dax trader, I'll be going long-reversal pattern at previous S/R-boom. Done. And then it fails.
It keeps going and then performs a reversal pattern later on at a far less obvious area and the trade works out. Of course, you can always justify why the reversal happened at a certain spot, but the actual reason is somple.
The SandP hadn't made it to the same area and was not ready to reverse, therefore there was no actual reversal happening on the Dax.

Of course, you could make this into some sort of trading strategy if you wanted to.
Or you could just trade the SandP, even in the European morning session, and be done with all the others.

I highly recommend having an SandP chart up if you do trade other indices and then you'll see what I mean.
The Dow jones in the afternoon is just the same as the Dax-moves extend and only occur when the SandP has reached it's zones and is ready to reverse.

But in the meantime, any thoughts on this? Obviously German/Euro centric news releases negates this theory, but on a day in day out basis I can't see any issues.

{EDIT} As you can see below there is some disagreement below.
I have read this post and realised that I focussed on European markets i.e. the Dax whilst this was not the main/only thrust of my argument. We can argue about the Dax vs the SandP in terms of importance during the European session-I gave the example above as I wrote it during the European session and saw an example of what I was talking about.

Bearing this in mind, when it comes to the Dow vs the SandP I have seen it happen far too many times now. The same situation happens : the Dow reaches a strong S/r level and just blows through it, and then reverses at rather odd places. And that's because it's waiting for the SandP. If the SandP hasn't reached it's levels and reversed (if that is what it is going to do) then the levels on the Dow, in general, don't mean much.
Now everyone relaaaaaaaax


Last edited by Keab; October 25th, 2018 at 09:34 AM.
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  #3 (permalink)
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Experience: Intermediate
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I should add that a good example has happened on the Dax this morning (25th October).
It slightly overshot a beaten swing from yesterday made at 9.45am and then reversed. Why reverse slightly above this swing low? WHYYYYYYY.
And then you look across at the SandP. It hasn't reached the major resistance made yesterday at 7pm which was a beaten swing made off the previous day's low.
Only when the SandP reached it and reacted did the Dax then react.

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  #4 (permalink)
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The correlation between ES/DAX is pretty high in the last 30 days but it is not that high on the last 90 days. Correlations like that is not constant, it oscillates over time but it is worth keeping an eye on them.

https://www.mrci.com/special/corr030e.php



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  #5 (permalink)
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hi there,

Thanks for the reply.
Your statistics confirm a strong correlation, and of course this can change.
As I stated, "Obviously German/Euro centric news releases negates this theory, but on a day in day out basis I can't see any issues."
So on days when there is strong fundamental news coming out of Europe, or related to Germany in particular e.g. surprise election results, surprise economic news, then the correlation between the two indices will weaken.


But in the absence of these types of events which is pretty much most of the time (80%+?) then the SandP is the tail that wags the dog.

An important point to note, I'm not saying that they move perfectly in tandem with each other which is what your statistics say (the high correlation).

I am actually highlighting the fact that they don't move in perfect tandem when it comes to timing, hence why I say the Dax and Dow can and do overshoot previously defined levels. This is because the SandP hasn't reached it's own levels yet, and if the expected reversals are to occur, you have to wait for the SandP to reach it's levels, and then wait and see if it will also reverse.

So I am not saying it is down to perfect correlation. As an intraday trader, where timing is key, I am saying that you must beware taking trades in stock indices that are not the SandP as they most likely will not react until the SandP does. And the SandP will react when it reaches it's own levels.

For example, the Dax reaches a resistance level, the SandP hasn't reached it's own resistance level yet. In the absence of euro centric news, if you take a short purely based on the Dax then you will most likely get burned as the SandP hasn't reached it's level yet.
In this scenario, the Dax will keep on going, and when the SandP does reach it's resistance level, say 10 mins later, and then reacts as expected, then THIS is the time the Dax will turn. The same with the Dow.

If you are trading without this knowledge and understanding then it can be baffling as well as expensive.

Of course at the end of the day you can use a correlation measurement and say they are perfectly correlated.
To repeat: that is not the case in terms of timing, and timing is everything in intraday trading!

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  #6 (permalink)
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you can be sure that during the European session (most of the time) the ES is following the FDAX and not the FDAX the ES

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  #7 (permalink)
London UK
 
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I'm sure that I completely disagree, hence why I wrote the original post!
Have a good trading day

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  #8 (permalink)
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I guess because you think you found the Holy Grail on Oct 25th 2018?
I trade ES mostly and the FDAX is one of the best indicators to trade it.

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  #9 (permalink)
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tr8er View Post
I guess because you think you found the Holy Grail on Oct 25th 2018?
I trade ES mostly and the FDAX is one of the best indicators to trade it.

Yikes the insults and sniping has started on the second posted reply, surely a record even for a trading forum!
We clearly have different opinions on the matter.

Thanks for your kind and considered response and happy trading with whatever system you choose.

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  #10 (permalink)
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Sorry, if you think this has to do with insulting you are completely wrong, this is not what I want to do.


I watch this correlation since years (and yes with success) and I see it again and again that the ES follows the FDAX, but if you think it is the other way, this is ok, each trader should use it, how it works best. So, trade well and don't be offended that fast.

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