I took a very small, and therefore not necessarily representative, sample of daily ranges for 4 indexes. Specifically, I looked at the RTH daily ranges between 9:30 AM and 4:15 PM EST over a 14-day period for ES, NQ, YM and TF. The approximate daily ranges, calculated in dollars, averaged as follows for the period March 15 to April 1, 2010, inclusive:
TF: $1,020
ES: $ 560
YM: $ 430
NQ: $ 420
Based on daily range and tick size, all else being equal, TF provides the best value. The index that provides the least value (again, all else being equal) appears to be ES. Let me explain.
The daily ranges noted above speak for themselves regarding implied opportunity. However, it is safe to assume that a trader regularly and normally incurs losses on trades and is not able to scratch on every trade that goes awry. Therefore, we must also look at protective stops, mental or actual, wherever they may be. For the moment, let us compare the two most liquid indexes of the four, specifically ES and NQ. (Admittedly, ES has substantially more volume than NQ.) So, if a trader uses a protective stop of, say, 4 ticks, that would amount to $50 for ES and $20 for NQ, excluding transaction costs. But while the protective stop is 150% higher in dollar terms for ES, the average daily range for ES during the period under review is only about 33% greater than that for NQ. Therefore, the risk/reward combination is better for NQ than it is for ES using this metric.
Of course, all else may not necessarily be equal. Some traders may find they generally need a larger protective stop in one index than they do in the other, in terms of tick size. Further, one index may provide better directional movement or more reliable setups. Some traders trade large size that limits the indexes available to them for their purposes. Those are the features that give each index its individual charm. However, to the extent that a trader can trade either one or the other, and he is not trading very large size, then an argument can be made that NQ provides better value than ES.
YM provides similar value to NQ, having a similar average daily range and identical tick size. And, as noted earlier, TF gives the best bang for the buck in terms of risk/reward based on the comparison of daily range to its tick size of $10. However, TF and YM are not as liquid as ES and NQ. Although I find TFâs range and tick size very appealing, I still find its price action at the turns to be somewhat herky-jerky for my own purposes. Perhaps as its appeal grows and its volume increases I will give it another look.
Again, I wish to emphasize that my sample size is necessarily very small because I am far too lazy to conduct a truly representative sampling of daily ranges that would be statistically sound. If anyone has already conducted a more exhaustive analysis of this nature, or is inclined to do so, then please share your findings with the rest of us.
I also wish to reassert that this is only one measure of value. You may find others to be more relevant.
TF: $1,020
ES: $ 560
YM: $ 430
NQ: $ 420
Based on daily range and tick size, all else being equal, TF provides the best value. The index that provides the least value (again, all else being equal) appears to be ES. Let me explain.
The daily ranges noted above speak for themselves regarding implied opportunity. However, it is safe to assume that a trader regularly and normally incurs losses on trades and is not able to scratch on every trade that goes awry. Therefore, we must also look at protective stops, mental or actual, wherever they may be. For the moment, let us compare the two most liquid indexes of the four, specifically ES and NQ. (Admittedly, ES has substantially more volume than NQ.) So, if a trader uses a protective stop of, say, 4 ticks, that would amount to $50 for ES and $20 for NQ, excluding transaction costs. But while the protective stop is 150% higher in dollar terms for ES, the average daily range for ES during the period under review is only about 33% greater than that for NQ. Therefore, the risk/reward combination is better for NQ than it is for ES using this metric.
Of course, all else may not necessarily be equal. Some traders may find they generally need a larger protective stop in one index than they do in the other, in terms of tick size. Further, one index may provide better directional movement or more reliable setups. Some traders trade large size that limits the indexes available to them for their purposes. Those are the features that give each index its individual charm. However, to the extent that a trader can trade either one or the other, and he is not trading very large size, then an argument can be made that NQ provides better value than ES.
YM provides similar value to NQ, having a similar average daily range and identical tick size. And, as noted earlier, TF gives the best bang for the buck in terms of risk/reward based on the comparison of daily range to its tick size of $10. However, TF and YM are not as liquid as ES and NQ. Although I find TFâs range and tick size very appealing, I still find its price action at the turns to be somewhat herky-jerky for my own purposes. Perhaps as its appeal grows and its volume increases I will give it another look.
Again, I wish to emphasize that my sample size is necessarily very small because I am far too lazy to conduct a truly representative sampling of daily ranges that would be statistically sound. If anyone has already conducted a more exhaustive analysis of this nature, or is inclined to do so, then please share your findings with the rest of us.
I also wish to reassert that this is only one measure of value. You may find others to be more relevant.