I have been a bit absent lately and while I have been away, my mind has been wandering while I have been swinging a paint brush. I have been jotting down a few new ideas and trying to refine my normal trading style on a day to day basis.
Since many others on here have been good enough to post some of their overall trading plans, I thought it was about time I posted some thoughts of my own. Those that I converse with regularly on here will have a fair idea of how I view the world on a day to day basis but I thought I would put fingers to keyboard to explain how I look at the world each day.
I guess first up I had better explain what I trade. While I watch a lot of the global indicies, the ones I trade are the SPI, the FTSE futures (from herein referred to as the "foot") and the S&P 500 E-mini futures(from herein referred to as the "yanks"). I have also been watching the DAX (or undies as By50 calls them) as a new thing to play with, and also as a lead into the foot opening. I also keep and eye on asia, mainly Honkers and the Nikkei but they don't really influence my normal trading cycle and I haven't traded either.
So how do I break my day up into bight size chunks? I guess the best way to explain the way I view all the different markets is actually to call them one big global market. Each market has it's own characteristics,but they are all still part of one big picture.
As time moves around the planet it allows each market to open and close in a timely fashion and as each market does it's thing, it influences the "global" market in it's own individual way. While one market is open, it's news events and economic data releases will change the global picture and then it shuts allowing for the next market to have it's turn.
Now I here you asking, "How does this effect each individual market? The answer is quite simple. Because so many different types of business are linked globally these days it is a reasonable assumption that what effects one part of the world will have some sort of effect on another part of the world. Say for example the price of gold drops while the US market is open, that will have a negative effect on the gold producers around the world. The gold producers listed on the US stock exchanges will be impacted as the price drops. The gold miners on our market can't drop because the market is shut and so when our market opens, our gold producers have a lower value immediately at the open.
If the price of borrowing money changes overnight, that will have a similar effect on our banks. Of course it is actually a lot more complex than that because different business practices allowing gold producers to hedge or banks to lock in borrowing rates so the influence may not be exactly the same as the next market opens.
"Ok then Treggs, so how is all this info useful to trade with?"
Ah ha, now we are getting to the guts of it. The world futures markets and more specifically the index futures all move in sync with this global influence that each market exerts on the big picture. Each market does move slightly differently to it's peers as each market is made up of different components. For example, our market has a few big miners dominating it so we might move differently to say the UK market that has more or a banking flavour.
Still minors need to borrow money so again the intertwining of global trade is still there.
"Alright Treggs, time to show me how this works on some charts".
The markets I mentioned above that I keep and eye on all trade at different times. I'll talk specifically about the SPI, foot and the yanks.
The SPI is open from 9:50 - 16:30 EST and the night session is currently 17:10 - 7:00 EST
The foot is open from 17:00 - 6:00 EST
Yanks are pretty much 24 hrs with a small break at 7;30 EST for half an hour.
I have included the Dax in this discussion because it could be traded in place of the poms but I use it as an indication on where the foot will open with an eye to trading it in tandem with the foot in the future.
Ok so here is a chart showing the times that various things open in relation to a SPI 5 minute chart.
All the charts I am including are related to the time frame on the above 5 min chart, which starts on the morning of the 16th of this month.
Alright then, we have a time relationship going, how about a bit more detail.
Starting with our market, we open for the morning based on a few things which I will explain a bit further down the page after we have completed the cycle of the day, so just bear with me on this one.
We are open and do our thing for the day and depending on what news or economic data is out for the day we will move in a certain fashion. In the example above we have climbed into lunch and then lost our gains and some more. Into close is pretty sideways. At 16:00 our main market closes but the futures remain open for another half an hour. This half hour can be quite volatile and not for the faint hearted.
As our main market shuts, the Dax opens and is open for the last half hour of the spi session.
The next chart is a 1 min chart showing the day session of the spi. The second red line is when our market shuts and the dax opens.
I forgot to mention the times at the bottom of my charts are Adelaide local time, so add half an hour to them if you want to use them.
You will notice in the half hour after our main market shut, we took a bit of a dive. Many things can cause this but on this occasion it was probably to do with big boys hedging positions due to it being option expiry week. As I explained in my option expiry post, there will be plenty of unexplained moves during this week and that was one of them.
We are getting there. We have our market out of the way. Time for the Dax. Now in the case of the Dax it has opened down with a small gap because the world markets generally moved down while it was shut. Remember it has been shut since 6:00 EST.
In the time the Dax is open before the Foot opens, it manages to climb to a similar level to where it closed. This suggests that is was a little undervalued and the germans think the falls of the world weren't relevant to them while they slept and have "fixed" the problem. At the opening time of the foot, the dax price would suggest it will open around the same point as it closed as the german and uk market makeup is similar.
Alas when the foot opens, it's at pretty much the level it closed.
Here's the chart. The red line is the open.
If you compare the overall day move for the foot and the dax, although they don't exactly copy each other, the general theme is almost identical for the day session. This makes sense as similar news and economic data effects both markets in a similar fashion because of their geographical location and shared industry.
Once Europe has done it's thing, it's time for the biggest economy on the planet to have a turn. The yank futures have been open all day so far, although since it's out of their market hours, only big news will change what happens to the price and the market liquidity is low until their main market opens.
Once the yanks open, the eu futures move in a similar fashion to them. The three main indicies in the US (S&P, Dow and Nasdaq) will move in a very similar pattern but there are variances because of their makeup. I follow the S&P because it has a broad base compared to the Nasdaq and Dow.
At 6:00 the main US market shuts and so do the Foot and Dax futures. The SPI night session currently shuts at 7:00 but this varies with daylight saving. the US stays open except for their short break at 7:30.
As I mentioned further up the page, the reopen price of the SPI will depend on a few things like stock specific news events overnight or if the US futures move after the SPI night session has closed.
So the whole point of this long winded post was too show you that there is a "global" picture on futures markets. Since the US market and the SPI are open for most of the 24 hours, it is possible to put up a couple of charts to give you a direct comparison.
So here they are.
SPI first, yanks second. Both are 5 min charts of the period I have been discussing so you can relate them to the ftse and dax charts as well.
Notice that while the details and moves aren't identical, both have moved in a very similar pattern over the 24 hour period. The dax and foot also match the moves while they are open.
"So how is this all tradable?" As a global futures trader, news events are important. You have to figure out which ones to ignore and which ones to stay away from. Big economic data in any of the markets I have mentioned can cause price shocks and do damage to your trading account so I try and be out of positions around these.
Price extremes become quite obvious if you are watching all these markets and those can be traded against for profit but also nice trending markets in unison should also be taken advantage of.
Trading in this fashion has one or two advantages over normal stock markets. the biggest to me is the lack of untradable times. While markets are open, there are opportunites. Markets that are always open, don't gap overnight. Those that have held leveraged positions overnight on markets that are shut, know what I'm talking about. It doesn't help with sleep. If you can go to bed with stops in place that are on an open market, you know that the worst that can happen will be your stop will be hit while you are asleep.
Speaking of sleep, I think I have typed enough for one night. I hope this helps a few people in the same way other XJOer's have helped me, and sheds a little light on some of my shorter posts in the future. Hopefully you will know what I'm talking about ;)
(20min delay)