ES fill price anomaly question

[FB123]

Quote from leela:

You are so right. So many newbies with small accounts trade the ES due the "trading mentors" mainly trade the ES.

Mentors are only thinking of how ES is better for them as they trade big lots. They forget that their focus on ES may well put their students at a serious disadvantage.

NQ is a better vehicle for those who trade only a few contracts. It is less jumpy than YM as NQ has about twice the volume of YM. jmho.

The reason "trading mentors" do this is twofold. Some of them are just as stupid as the average newbie trader, and amazingly seem to have failed out of Grade 9 mathematics so they don't know how to do proper risk/reward calculations... which means they don't even KNOW how dumb they are by trying to trade the ES.

Others are perfectly aware of it, but choose to trade the ES because they can freely give out advice without having to worry about anyone front-running their trades, because of the volume. It also moves nice and slow in comparison to the DAX, so they can sit there and jawbone all day while giving out their stupid advice without missing too many trades. If they were teaching people how to trade crude, they couldn't do that, as it would require all of their attention. Most of the trading mentors I've seen make most of their money from their students anyways (and some just trade on simulators, ha ha!), so it really doesn't matter to them.

In any case, just because some stupid "educator" is trading ES and telling you to, doesn't mean that you have to. It's amazing how many people can't do the simple math that is required to understand the concepts I laid out. When I started trading futures, this was the first thing I looked at when I determined which contracts I wanted to trade.

A large part of being a good trader is understanding the environment in which you are trading, and knowing how to calculate risk vs. reward. Just as important as knowing where to place your trades is knowing what instrument to trade... something that should should actually be the FIRST thing that you think about.

 

[ET-trollbuster]

Quote from FB123:

What I said was that in an extreme example, even getting out a single tick higher is going to make you a decent profit on the DAX, which significantly increases your chances of making money over something like ES

extreme examples, no bother even mentioning then. wasted your time unless regular occurance.

you cannot fill between 2tick bid-ask spreads. spreads are wide because size is thin. thin size => tougher to fill. if size wasnt thin, bid-ask would be one tick.

if possible to commonly fill inside spreads, many here would make a living doing only that, nothing else. for a lot longer than et has been around. impossible

 

[FB123]

Quote from ET-trollbuster:

extreme examples, no bother even mentioning then. wasted your time unless regular occurance.

you cannot fill between 2tick bid-ask spreads. spreads are wide because size is thin. thin size => tougher to fill. if size wasnt thin, bid-ask would be one tick.

if possible to commonly fill inside spreads, many here would make a living doing only that, nothing else. for a lot longer than et has been around. impossible

You don't have to fill inside spreads. Even if you just get in and out at the market for a short move of a single ES point, it has serious advantages, as I just showed a couple of posts ago. The point is not whether you get inside the spread or try trading for 1-2 DAX ticks (which you shouldn't do). The point is that a 4 tick move on the ES is equivalent to a much better move on the DAX. ALL moves on the DAX have a risk/reward advantage over ALL moves on the ES... the larger the move the less it matters, but over a few ES points the difference is huge in terms of risk/reward. Being able to lock yourself into a small profit or break-even position after an equivalent move of 2-3 ES ticks is a HUGE advantage, as is the ability to not have to use limit orders to enter and exit your trades, not to mention the ability to use stops to enter positions on a heavily trending day. The latter means that you never have to guess how far a retracement is going to go.... you just trail a stop behind it, and as the market spikes back when it reverses to trend, you are instantly in a profit position and can trail it down. I don't know why I have to explain this basic grade 3 logic to people.

 

[Rickwitties]

Quote from Rickwitties:

ES vs NQ other considerations:

Compare 1% moves for each:
ES 1050 = 10.5 X $50 = $525 range
NQ 1700= 17 X $20 = $340 range

NQ is more volatile and tends to have a larger range but would have to average 1.5 times the ES range for the $ equivalent.

So depending on the strategy, if you`re holding for a longer period, intraday or swing, this ES advantage is relatively larger than the slippage per tick disadvantage.

However, if you are trading the higher intraday volatility of NQ, the lower slippage costs may balance out the $ disadvantage noted at the top.

Scalping for a few points on either seems relatively disadvantageous to me but I would think the overriding factor should be whether a particular system provides the best edge for that particular person, which also depends on personalities, purpose and contract volume among other considerations.

OK, sorry, this is incorrect. I only trade NQ so I forgot the outlay for ES is about 1.6 times so holding for a 1% move would get you about the same profit. About 5 NQ = 3 ES. Regarding slippage, however, for one tick you`d lose $25 on NQ but $37 on ES.

For me, personally, I trade stocks and options of tech stocks as well which is why I use the NQs. Sometimes its a hedge on stock positions, other times for straight day trading especially when I`m waiting for stock setups, and sometimes as a larger position swing trade when markets are extended like recently. On the daytrades I`m looking to profit firstly on the intraday range, so about .5% usually entered within the first hour. Later, I`ll go for the .25% moves if available.

Regarding the FDAX you need about 5.6 times the NQ margin and 3.5 times the ES so you need to calculate that into the slippage and profitability differences. Same for CL. Obviously, the larger value for each contract, the better efficiencies you get as a general business rule whether its equities, real estate, a container shipload etc. So the FDAX should have an advantage although I would guess it`s not as much as is being suggested if the money put up is larger.

Anyway, if you`re trading straight technical(absolutely no fundamentals) and high intraday volume or scalping, then this slippage and relative tick value would be quite important over the long run. If you`re using fundamentals and trading larger ranges, what should matter more is whether it`s oil, tech, financials or foreign countries(especially if you want a normal sleep schedule and rest) and your expertise in that area.

 

[FB123]

Quote from Rickwitties:

So the FDAX should have an advantage although I would guess it`s not as much as is being suggested if the money put up is larger.

This is not true, and is another common misconception. The amount that you have to put up on margin is actually SMALLER than the ES, not larger. Each DAX contract is 4-5 ES contracts in terms of how far it moves relatives to the profit/loss that you take, yet the margin as you state is only 3.5 times larger. So in order to get the same profit range on ES as you would get for 1 DAX contract, you would have to put up margin for 5 ES contracts. In effect, the margin is LOWER for the same level of dollar movement that you get.

This of course doesn't even take into account the fact that commissions are roughly SIX TO SEVEN TIMES cheaper on the DAX then on the ES. 5 contracts of ES runs you $20 in commissions, while one contract of DAX runs you $3. For you dummies that like paying commissions that are approximately 6.5 times higher for absolutely no reason at all... enjoy.

Anyway, if you`re trading straight technical(absolutely no fundamentals) and high intraday volume or scalping, then this slippage and relative tick value would be quite important over the long run.

It is extremely important even for a 2-4 point move in the ES, which a lot of people trade. Never mind the idiots that actually try to trade for 3 ticks of profit on the e-mini, those people are beyond stupid.

If you`re using fundamentals and trading larger ranges, it should matter more whether it`s oil, tech, financials or foreign countries(especially if you want a normal sleep schedule and rest).

Correct. The longer time frame you trade, the less that slippage and relative commissions matter. If you are trading ES moves that are targeted in the 5 to 10 point range or larger, it won't matter quite as much. If anyone insists on trading ES, then for god's sake use your brain and try to trade for longer moves. Trying to scalp this instrument is literally one of the most difficult and absolute stupidest things you can try to do as a trader, even if you're successful at it. Your time and energy is better spent elsewhere, on a better risk-to-reward ratio.

Hopefully if enough people start to catch onto this notion, we will see a bit more volume in some of the better contracts... that would be nice.

 

[Swan Noir]

Here is my story:

I am a relatively new and am trading a single NQ contract because I am risk averse and like the $5 tick. I pay $4.50 per RT and try to catch moves of three points plus. I try to stay with the trade on days that look to be trend and look to get out with something on days I think are range bound. I am marginally profitable but it really is pennies.

The profits are so small that they are not statistically relevant and would view the results about the same if the pennies in profit were pennies in loss.

BTW ... I spent three months on a simulator went live and in short order lost a bit under $1,000. Went back to the simulator for five more months before going live again.

Prior to reading the comments here I assumed that NQ's relatively large tick to commission ratio combined with its smaller dollar range daily meant that once I had some experience in this "risk averse" contract I would step up to ES. I now question that.

I am not yet ready to tackle the Dax or CL -- remember I trade single contracts -- but, if there were a reason I might switch to TF. My inclination is to continue in NQ because frankly I am pleased to be gaining experience everyday without a tuition bill. The modest loss the first go-round is history but currently I value the experience I am getting everyday.

I am at the screen from 8AM to 4:30 PM with an exercise break around mid day (I swim) of 1.5 hours. I wish I could shorten the break but I am putting my left ankle back in shape after an operation -- it goes very slowly but well -- and for the next four to six months the pool and therefore the 1.5 hours is a must.

I spend an hour or so every night to be sure I am ready for the next day. I can comfortably afford zero income and am trying to put one foot in front of the other ... a step at a time. I perceive blowing out as an easy thing for a novice to do. I am trying to have more brains than balls and to have more balls latter ... lol.

Talk to me guys. Critique, advice or whatever. But please speak into the microphone in ways the new guy can understand.

 

[leela]

To test how this entry/exit affect NQ vs ES:

Get a good simulator such as Ninja Zenfire that gives realistic fills. Do not use Tradestation simulator as it is filled when touch - no at all realistic.

A 2-tick moves in ES and equivalent to 5-tick moves in NQ in dollar term ($25).

Make simultaneous entries in NQ & ES (market or limit at market is good for this test). Pre-set a 2-tick target and 2-tick stop for ES. and a 5-tick target and 5-tick for the NQ. Both pre-set for a $25 move.

See if ES is more likely to hit stop than NQ and if NQ is more likely to hit target than ES.

Now increase the distance - like a 4-tick test for ES & 10-tick for NQ (now $50 in distance). NQ still has advantage.

Try other targets and stops if u like. Just make sure the dollar amount moves in both is the same for both ES & NQ to see how entry/exits affect your trading results.

The disadvantage of ES is most significant for those trading for small gains/loss. ES screws scalpers!!!

Test this for yourself in different market conditions.

 

[FB123]

Quote from Swan Noir:

Talk to me guys. Critique, advice or whatever. But please speak into the microphone in ways the new guy can understand.

Analyzing the contracts in terms of tick size, movement, and range-to-slippage ratio, the DAX is the best index to trade. However, it is rather large and you can't trade it as a newcomer, especially if your account size is small.

The next best for the indices is the Russell (TF), which has a great commission to range ratio (commissions are around $3, each tick is $10 in size), and generally it has a bit of a tighter spread than the DAX. (The spread is 1-2 ticks, but it is more often at 1 tick than the DAX is.)

After that, I would suggest NQ. The commissions are fairly high for a tick size of only $5, however the contract itself is easier to trade than the ES, and there is a huge advantage in having as small a tick size as possible if you are starting out and don't have a lot of cash. I think you are in exactly the right contract at the moment.

There is no point in trading YM, it is set up exactly like NQ but not as liquid... so avoid it.

ES is garbage in general as I said... if you have the size to be trading it, then you should be trading TF instead. If you have the size to be trading 3-4 ES contracts, you should be trading DAX. TF is by far the best US-based index to be trading. The only reason to be trading ES is if you need to bang in and out with 200+ contracts, in which case you wouldn't be on these boards asking for advice anyways.

So my advice: stick with NQ, but fire up TF on the simulator and see how it feels. The risk on it is actually not that big if you know how to trade with tight stops, but you have to get used to it, and know where to place the stop properly. You should be able to get away with 3-5 tick stop losses on TF if you know what you're doing as a scalper. If you are trading for longer moves, stick with NQ until you have built up a fair bit more money.

Some other contracts you might want to look at:

CL is in between TF and FDAX in terms of the way it moves, but it's closer to FDAX. It's also more "whippy", so you have to be pretty good on the trigger if you want to trade this one short term. But next to DAX, it's a close tie for my favorite contract.

ZS (soybeans) is also pretty good... it's pretty similar to TF, and has nice moves right at the open at 10:30 AM EST every day, and sometimes near the close from 2:00 to 2:15. You can check it out. The commissions are significantly higher though, expect to pay closer to $6 in commissions for this one, although the tick size is also a little larger at $12.50.

Check out 6B (the british pound)... it has a tick size of around $6.25, although the spread on it is wider than NQ, so you can expect to be paying a 2-tick spread on it fairly often. However, the range is a lot better... you might find this to be a decent contract in between NQ and TF. It whipsaws a fair bit too, so you have to get used to it.

6A (australian dollar) and 6C (cdn dollar) are also not bad, however the commissions are higher than TF, the liquidity is lower, and the spread isn't as good. Only trade these if nothing else is moving.

Gold (GC) is also pretty decent, but doesn't have any particular advantages over some of the others I listed.

 

[zx12]

FB123, thanks for all the insight you have given in this thread. Has really opened my eyes!

I used to trade the TF a little back when it was the ER. When ICE took over, I figured I'd try the ES. ER definitely treated me better than the ES! I think I'll stick with the NQ for awhile, and look into the TF, when I get more of the mkts money than it gets of mine!

 

[FB123]

Quote from zx12:

FB123, thanks for all the insight you have given in this thread. Has really opened my eyes!

I used to trade the TF a little back when it was the ER. When ICE took over, I figured I'd try the ES. ER definitely treated me better than the ES! I think I'll stick with the NQ for awhile, and look into the TF, when I get more of the mkts money than it gets of mine!

No problems... I really don't know how one of the worst index contracts in the world (ES) got to be the most popular with day traders. It's the same thing with FESX... yet another ridiculously stupid contract the way that it is set up, but it seems to be more popular than the DAX on the European markets. You would think that people would gravitate to the contracts that were actually set up to give short-term traders an advantage, but for some odd reason that just doesn't seem to be the case.

Hopefully this thread has helped some ES traders to realize the error of their ways... I think we really should be seeing more volume in the some of the better contracts, if you ask me.