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I have read that when trading futures, the continuous back-adjusted contracts work best for day trading and more specifically for spotting support and resistance levels.
I trade the CME Euro FX contract which is very high correlated with the spot cash market (EUR/USD).
So I think identifying the same levels which big spot market participants can see is very crucial.
However I have realized that in Sierra, the back-adjusted contract is way off compared to the spot EUR/USD chart and the non-adjusted one is actually way closer to the spot chart.
So what is your opinion on it? Which one should I use?
I have attached two screenshots displaying exactly what I mean.
Thanks
Can you help answer these questions from other members on NexusFi?
Next step then: Getting what different kinds of back-adjustments do and - above all - WHY and WHEN back-adjustments make sense.
With this proviso: The "insight" that the spread between futures and their underlyings isn't time-stable
- and therefore neither their S/Rs are - is pretty trivial. Virtually pressing these different assets (futures
and cash) into one in order to generate artificially "equal" S/Rs is a bit of a logical nonsense because you
ignore market facts like expiries and arbitrage.
Once and for all in plain rookie language: Whatever you do: Futures and cash are not the same and
they will not be, neither will be their spreads nor their S/Rs.
Cut.
Instead of trying to make different animals the same, best practice would be:
Find out which assets (futures, cash, ETFs, etc.) you can afford in terms of risk and money management;
Figure out your other requirements; if you need e.g. volume data, then FOREX, CFDs etc are ruled out.
Derive S/R from the asset that fits the requirements and trade that asset. I.e.: If you trade futures,
then their S/R is relevant; if you trade cash, it's cash S/R.
Maybe I did not set my question in a clear and concise way. Actually my strategy is based on analyzing TPOs and volume profiles so I am confident that the Euro FX futures is a suitable asset for me. Lets leave out the spot market, I just got carried away because I could not find any source that explains which type of adjustment of the expired future contracts works best.
In your opinion which is it, back adjusted or not, and why?
Basically that depends on how short-term your TPO trading is.
If you are only trading intraday and/or primarily scalping, the current contract without any
adjustments is sufficient. If your trading involves OTF trades, you will need back-adjusted contracts, esp around the expiries and for longer look back periods.
The back-adjustment standard is date for CME index, FX, and interest rate futures. The CME Group
publishes the schedule in advance and normally volume runs in accordance. For commodities volume
is more reliable.
