Can Underlying Issues Move Futures?

[carltonp]

Hello Traders,

I'm still relatively new to trading and I was wondering if you guys/gals can shed some light on what's been happening with the markets over the past week.

Basically, I've been having reasonable success trading YM(mini-dow) by focusing on the movement of the underlying issues of the DJIA. I have a very basic signal to alert me as to when to buy contract(s), however I won't enter until I see strength in the underlying issues in the direction inwhich I want to take the trade. I use the opposite method to get out i.e. when I see weakness in the underlying issues.

As I've mentioned, its been working quite well for me, however over the past couple of weeks the strength of the underlying issues simply won't move the YM. There have been situations, (even as I write this post) where every single issue of the DJIA has been trending up but the YM still won't move with the issues.

Now, I'm assuming the mini-dow would follow the underlying issues of the DJIA, unless told otherwise?

I'm beginning to think the past few months was just luck.

Can someone please advise if they believe observing the underlying issues as a method to trade Minis, whether it be S&P 500 for es-minis or DJIA for the mini-dow is a feasible/viable method?

Now, I'm aware that the markets are simply wild at the moment and no matter which direction the strength of the market is at any moment in time it seems to be turning in the opposite direction in a split second.

As you've probably guessed I day trade.

For those that take the time to respond, please be constructive in your comments with pros/cons.
You comments, suggestions and advice will be very much welcomed.

Cheers

Carlton

 

[carltonp]

Guys,

I just thought I would add that I use a custom calculation with Excel to assess the strength of the underlying stock. Also, by underlying stock, I mean the 30 stocks that make up the DJIA.

I very much look forward to your comments.

Cheers

 

[Rhody Trader]

The relationship between the futures and the underlying is a two way street. Since both are directly traded, the flow is both ways. That said, since futures are faster to transact than trading the whole basket of the index, they will tend to be first to react to general market events.

 

[tommog]

Absolutely underlying components will move the market. But different companies are weighted to different degrees. So a company that makes up 5% of the index will move it way more than one that makes up 0.5%.

Also its not so much the market "follows" the companies. They are connected. The dow is an average price of all the companies that make up the index, so if one moves the dow has to move. And vice versa, if someone sells the dow jones they are influencing the price of the companies that form it.


You will learn, there is no strategy that works all the time. Keep an eye on the big companies that make up the index around earnings reports

 

[timsk]

Hi Carlton,
Like you, I trade the YM and my core approach is very similar to yours in as much as I only want to trade when I see the futures and equities moving in sync. However, although I trade the YM, I don't just look at the 30 stocks that comprise the cash index - it's way too small a sample. I use the NYSE $Tick for broad market sentiment. It does the job I want it to do extremely well - give it a shot and see how you get on.
Tim.

 

[carltonp]

Thanks chaps for the positive comments.

I got some really negative feedback when posted the same question on a different forum.

The comments are very much welcomed....

 

[carltonp]

Hi Carlton,
Like you, I trade the YM and my core approach is very similar to yours in as much as I only want to trade when I see the futures and equities moving in sync. However, although I trade the YM, I don't just look at the 30 stocks that comprise the cash index - it's way too small a sample. I use the NYSE $Tick for broad market sentiment. It does the job I want it to do extremely well - give it a shot and see how you get on.
Tim.

Hi Tim

It looks like I'm in sync with you, as I too use NYSE $Tick, and it certainy helps.

Cheers mate

 

[scose-no-doubt]

Hi Carlton,
Like you, I trade the YM and my core approach is very similar to yours in as much as I only want to trade when I see the futures and equities moving in sync. However, although I trade the YM, I don't just look at the 30 stocks that comprise the cash index - it's way too small a sample. I use the NYSE $Tick for broad market sentiment. It does the job I want it to do extremely well - give it a shot and see how you get on.
Tim.

John Carter method?

 

[carltonp]

John Carter method?

Correct, but a little more complicated. John F Carters method appear more visual, whereas I have compiled a system that assess the strength of all 30 stocks realtime with Excel.

Cheers

 

[timsk]

John Carter method?

Hi s-n-d,
Not me, no. Broadly speaking, my approach is along the lines of Chris' at Fulcrum Trader.
Tim.

http://youtu.be/2UP1LWUKS_k