Trading the FTSE ?????

[Chorlton]

Hi All,

I've got a question thats been bothering me for quite a while.

There are many people who trade the FTSE. However as the FTSE is made up of 100 companies (FTSE100), how can anyone successfully trade this especially using TA as a tool???

For example, I can understand how Support & Resistance levels can be useful when trading stocks but when you have 100 companies (all individual & thus acting differently) how can support or resistance levels be accurate or effective???

Just interested in peoples thoughts..............


Chorlton

 

[tomorton]

Hi Chorlton -

Not sure I understand the question (possibly on account of the wine). The FTSE is what it is i.e. it has a daily range and a volume and a chart just like an individual equity. Whereas it has a different relationship to day the Dow than the Nikkei does, neverthless, TA on the FTSE chart is just like TA on the Vodafone chart.

Or am I missing something from your meaning?

Tom

 

[Chorlton]

Hi Tom,

To be honest, you've probably interpreted my question correctly. I've also been on the wine and decided to post as this question had been bothering me for a while.

I just find it hard to understand how TA can be used effectively with indices. I appreciate that they have volumes and a daily range but i just find it difficult to understand how TA can be used to predict future short-term movements due to their complexity compared to for example a single stock.

As I haven't actually spent any time monitoring the FTSE with regard to TA, I think I will do so, and consequently see what I discover..................

 

[Mornington Crescent]

FTSE 100 ?

sometimes its FTSE101

lol


Sorry mate, but you cannot trade Ftse100. there is no such security.

Try Ftse futures.
or Options even, but not the Index itself.

 

[badtrader]

FTSE 100 ?

sometimes its FTSE101

lol


Sorry mate, but you cannot trade Ftse100. there is no such security.

Try Ftse futures.
or Options even, but not the Index itself.

You can, try S.B the cash 2 point spread.

Double six I think you also been on the Wine. I am a a little p..st,on the Larger see :cheesy:

 

[Mornington Crescent]

lol, badtrader.

thats not the index.

Its futures less ? (fair value) or ?

but definitely not repeat not the Index .

Cheers

 

[harryc]

TA works on ANY security , try it

 

[blackcab]

There are many people who trade the FTSE. However as the FTSE is made up of 100 companies (FTSE100), how can anyone successfully trade this especially using TA as a tool???

For example, I can understand how Support & Resistance levels can be useful when trading stocks but when you have 100 companies (all individual & thus acting differently) how can support or resistance levels be accurate or effective???

I'll have a go at this because it'll make me think about this question that's been bothering me as well. I'm a complete newbie, so check all of this out yourself in case I'm wrong - and then tell me.

The question seems clear: if you have identified price levels on individual stocks at which buyers or sellers seem to have behaved in a certain way in the recent past for whatever reason (maybe you want to call those levels support and resistance or maybe not), then will the sum of many stock prices, i.e. an index, exhibit similar levels? If so, why, when that sum comprises uncorrelated stocks behaving in different ways at different times?

Indices aren't traded direct. (Spreadbetting isn't trading an index, it's trading an bookie's price based on an index that the bookie may decide to hedge in the related future or anything else they feel like, if they hedge at all.)

The closest would be to trade the index futures direct. The future is the index (some sum of the constituent stocks) plus/minus 'fair value'. The future might not seem to be any more of an individual animal based on that, but because it is traded directly, it has its own buying and selling pressures, driven by the usual fear and greed of participants, whether they're technicians, fundamentalists, hobbyists, hedge funds, gamblers, etc. If the futures price gets out of line with the underlying index, arbitrage traders quickly bring it back by simultaneously buying the futures and selling the constituents or vice versa.

So some of the movement in the index futures is caused by the constituent stocks as a whole rising or falling and arbitrageurs doing what they need to do to make the futures stay in line. Some is caused by non-arbitrageurs trading the futures outright without touching the constituents. Some is caused by other behaviour, but I would guess those are the two big ones. Whichever it is, the futures move because they're bought and sold, but the dynamics behind the scenes are more complex than for individual stocks.

Have a look through the Traderpedia, e.g.:

http://www.trade2win.com/traderpedia/Index
http://www.trade2win.com/traderpedia/Futures
http://www.trade2win.com/traderpedia/Arbitrage

 

[Mornington Crescent]

Blackcab
"The future is the index (some sum of the constituent stocks) plus/minus 'fair value'. "

this is just plain WRONG
Futures are traded independantly of Index
and if futures exceed Index plus fair value then you may see traders come in to restore the balance (but not always) but you cannot tell whether they will sell futures or buy the Index.


also Futures usually lead the market.

 

[blackcab]

D6 - thanks for the corrections.

 

[Mornington Crescent]

its even more complicated.

dont forget that traders in options will use futures to hedge sometimes.

when a marketmaker sells you an option ; he has to hedge too.

 

[ukhero]

Chorlton,

You've opened Pandora's box. Quick, put the lid back on....too late!

The FTSE: Stands for Financial Times Stock Exchange. The FTSE UK indices are the benchmark for measuring how companies are performing in the market. The FTSE 100 Index was created in 1984 with a base of 1,000 to contain the 100 largest UK companies by market capitalisation.

As an example, and to answer a question: at the moment there are 102 companies listed within the FTSE 100, of which 1/5 are, in value and sector, oil related, BP, RDS ect. So a major rise or fall in the price of oil will, in effect, dramatically alter the FTSE's movement. So, in regards to using charts or technical analysis to predict the FTSE's direction, I can only comment on my own personal experience: of all the data I acquire, a stringent effort to predict which hat the FTSE will wear, charts and there debatable information only add a meagre 35% towards my final decision. That's not to say they should be treated lightly, its all a question of personal preference and style of trading.

To help you further, there are many Internet betting companies out there in the big bad world of WWW that have the FTSE 100 as a Rolling Daily and as a Future Index, such as 'City Index' and 'Capital Spreads' to name but two.

Unlike a stock market company which can be described as a single entity, the FTSE has over one hundred parts and therefore it is more susceptible to UK and world events, and likewise, more difficult to predict with a degree of certainty in regards to its daily and long term direction. Its not for the faint hearted.

Consider 'Capital Spreads' as your first port of call. It has a useful 'Help Facility' and the ability to 'Paper Trade.' Furthermore, there's a forum here within T2W where a senior CS manager 'Simon,' provides assistance with general questions in regards to trading at that site.

Hope the above helps

Yours

UK

 

[Mornington Crescent]

why does TA work on an Index ?

dont think any of us have really answered that yet.

so consider this as an example.

1) I buy 200 call option contracts. What does the guy do who sells them to me ?
2)He will sell the calls and probably buy the futures. What does the guy do who sells him the futures ?
2)He will sell the futures and buy the Cash.
They are all market makers remember not traders. They are happy with the "turn" as profit and no or negligible risk.

How does he buy the Cash. Its impractical to buy all 100 stocks so buys a basket of 10 which he feels represents the volatility of the Index. ( By market cap).

That transaction will itself affect FTSE Index and could produce a spike.(which he will try to avoid).
When that transaction is complete, there may be no follow through.
The Index will then decline, hunting for more business.

So now you have a reference point or what you would call resistance on the chart.

when the market next approches that level on the Index, traders will place there stops both above and below that reference point. Some will win and some will lose. And we may then get another top.

In the meantime, I have a profit on my calls which I can protect by selling the futures.
and so it goes on and round and round.


Its a very complicated and continued interaction of activities.
and I havent mentioned Aunt Agatha who has just bought 10,000 shares in Glaxo because the ointment worked so well.

q.e.d ?

hope this helps

 

[Chorlton]

Thanks for all the comments posted to date.

When I posted the originally question, I wasn't sure whether I would get any replies let alone detailed explanations & opinions!!


Cheers to all,

Chorlton