One of the measurements traders use to determine opportunity in a market is the average range. A stock or index with a higher average range will offer traders more opportunities to profit. Traders are also concerned with the liquidity of any given product for the simple reason that wealth is built by trading with larger sizes.
A close examination the Emini Nasdaq 100 Futures contract indicates that opportunities continue to erode, while risk continues to expand. Average Ranges in the Nasdaq have been in a steady downtrend for some time and have most recently ranged between $520 and $760 per day. This compares to an average daily range of $1230-$1550 in the Emini Dow and $1310 and $1575 in the Emini S&P500. Unfortunately for those who trade the NQ, this reduction in average range has not co-incided with a reduction of stop sizes (risk) on the average trade. Stops on most trades remains between 6 and 12 points, some of this because of the Nasdaq's tendency to "overshoot" support and resistance levels. This means that on an individual trade one must risk between 15% and 30% of the average daily range on a single daytrade. Given that a very good trader will look for profits of 20 to 30% of the daily range on a DAILY basis the risk of trading the NQ is steadily reaching a point of not being justified by the potential gains. Finally, in addition to the diminished daily range liquidity is also constricting. This can be seen by looking at average daily volume vs. the average # of trades on any given day. On the surface volume is up 20% over the last several months in the NQ, while in the same period of time the total number of trades has gone up 35%. This shows us that transaction sizes are slowly eroding over time, even while volume is expanding. The constricting of the range is driving a lot of traders out of the NQ. This is resulting in more "air pockets" , or price areas in which it is very difficult to transact with size.
Overall then a careful analysis suggests that traders who primarily transact in the NQ and or the QQQ would be well advised, as a general rule, to look towards other markets to meet their goals. Obviously there are specific cases were this is not the case, but as a general rule there is starting to be more risk then potential for benefit in the NQ for a daytrader.
As alternatives traders might want to start looking more at the Emini S&P500 and the Chicago Board of Trades new Emini Dow contract. The S&P500 has held steady and maintains its position as the leading contract for professional traders world wide. Recently the CBOTs has launched their Emini Dow contract. Already it is doing nearly 20,000 contracts per day, which is the rough equivalent of 10 Million shares of the Diamonds (DIA). Very quickly it has become one of the worlds leading futures contracts. I have found that traders can easily trade 5 to 10 contracts, so though you really can not trade huge size, you can still make a decent living in the DOW because of its volatility.
Brandon
A close examination the Emini Nasdaq 100 Futures contract indicates that opportunities continue to erode, while risk continues to expand. Average Ranges in the Nasdaq have been in a steady downtrend for some time and have most recently ranged between $520 and $760 per day. This compares to an average daily range of $1230-$1550 in the Emini Dow and $1310 and $1575 in the Emini S&P500. Unfortunately for those who trade the NQ, this reduction in average range has not co-incided with a reduction of stop sizes (risk) on the average trade. Stops on most trades remains between 6 and 12 points, some of this because of the Nasdaq's tendency to "overshoot" support and resistance levels. This means that on an individual trade one must risk between 15% and 30% of the average daily range on a single daytrade. Given that a very good trader will look for profits of 20 to 30% of the daily range on a DAILY basis the risk of trading the NQ is steadily reaching a point of not being justified by the potential gains. Finally, in addition to the diminished daily range liquidity is also constricting. This can be seen by looking at average daily volume vs. the average # of trades on any given day. On the surface volume is up 20% over the last several months in the NQ, while in the same period of time the total number of trades has gone up 35%. This shows us that transaction sizes are slowly eroding over time, even while volume is expanding. The constricting of the range is driving a lot of traders out of the NQ. This is resulting in more "air pockets" , or price areas in which it is very difficult to transact with size.
Overall then a careful analysis suggests that traders who primarily transact in the NQ and or the QQQ would be well advised, as a general rule, to look towards other markets to meet their goals. Obviously there are specific cases were this is not the case, but as a general rule there is starting to be more risk then potential for benefit in the NQ for a daytrader.
As alternatives traders might want to start looking more at the Emini S&P500 and the Chicago Board of Trades new Emini Dow contract. The S&P500 has held steady and maintains its position as the leading contract for professional traders world wide. Recently the CBOTs has launched their Emini Dow contract. Already it is doing nearly 20,000 contracts per day, which is the rough equivalent of 10 Million shares of the Diamonds (DIA). Very quickly it has become one of the worlds leading futures contracts. I have found that traders can easily trade 5 to 10 contracts, so though you really can not trade huge size, you can still make a decent living in the DOW because of its volatility.
Brandon
