Index Spread Traders

[Real Money]

Yes. I am making new tools now. I am using IB TWS EXCEL DDE and VBA scripting to make charts of indexes and futures using Excel!

I make really good tools by programming the ThinkorSwim software. I use ThinkScript to make indicators and study and mathematics and statistics functions.

That's what I did above. The lower study is the spread minus the polynomial regression study I wrote that is the red line. I made the lower study. I also make very, very complicated tools to analyze high frequency trading!

I also use VWAP study for ES with standard deviations of VWAP.

I don't like calendar spread very much. The reason is because calendar spread in index is not very liquid.

I love index spreads because they can become outright trades and an outright trade can become a spread.

If you leg into a spread, that is trending, then you can make money instead of being flat after an outright trade. This can actually reduce commissions by leaving positions on instead of getting flat.

 

[qlai]

Here is a link to an interview with somebody who talks about the PREM and program trading.

Thanks for sharing that! Very interesting.

 

[qlai]

2) Is it worth trading intraday at retail level?

I think expecting the spreads to move by the end of the session enough to make money is not practical. I may be wrong, but I think @bone is advising swing trading for a reason.

 

[qlai]

But I must caution you - unless you are automated and with a very good ($$$) ECN - your ability to take advantage of order flows is nil. None. It is already being arbitraged away by seriously capitalized proprietary trading firms. Arbitrageurs are leading the order flows.

Yeah, I'm sure you are right on this as well.

 

[bone]

I love index spreads because they can become outright trades and an outright trade can become a spread.

If you leg into a spread, that is trending, then you can make money instead of being flat after an outright trade. This can actually reduce commissions by leaving positions on instead of getting flat.

I love the rest of your posts - but I must express alarm over retail-type traders doing this "open legging". It's ruinous in the long run for the majority of those who try it.

If you're going to trade spreads - trade the spread. Moving back and forth between 'scalp' mode and 'spread' mode can create some really destructive habits; I speak from experience working with clients.

If you want to use your winnings on a position to buy a bear put spread or a bull call spread or a strangle then by all means go for it.

 

[Real Money]

I think expecting the spreads to move by the end of the session enough to make money is not practical. I may be wrong, but I think @bone is advising swing trading for a reason.

There is a good reason to swing trade index spreads. Here is a chart of weekly NQ/YM spread.

The NQ/YM index spread is trending higher this week. In my opinion you can see the large speculator group sizing in on late Monday and early Tuesday. It looks like they became bearish on the spread towards the end of the week.

Very large speculators enjoy trading this spread over medium time frames.

In my opinion, it is being aware of this type of trading activity that can give a trader a great advantage. It is very important to understand that large institutional trading groups like index spreads (they feel safer to trade them!). They like them a lot!

 

[bone]

There is a good reason to swing trade index spreads. Here is a chart of weekly NQ/YM spread.

View attachment 208505

The NQ/YM index spread is trending higher this week. In my opinion you can see the large speculator group sizing in on late Monday and early Tuesday. It looks like they became bearish on the spread towards the end of the week.

Very large speculators enjoy trading this spread over medium time frames.

In my opinion, it is being aware of this type of trading activity that can give a trader a great advantage. It is very important to understand that large institutional trading groups like index spreads (they feel safer to trade them!). They like them a lot!

Well, there is always quite a bit of rotation from big commercials and institutional investors into and out of sectors: large caps, mid caps, small caps, tech, industrials, consumer products, entertainment, banking/financials, utilities... and so on and so on. And that's where you get your index spread swing trading opportunities. And ETFs are wonderful spread trading vehicles as well.

 

[Real Money]

rotation from big commercials and institutional investors into and out of sectors: large caps, mid caps, small caps, tech, industrials, consumer products, entertainment, banking/financials, utilities

Yes. It's important to realize that this type of trading is based on fundamentals and market structure. The index spreads can tell you what these groups are doing. These are the market participants who's actions will determine the index values in the near and medium term.

ETFs are wonderful spread trading vehicle

My only problem with ETF is that stock margin is much more expensive. I can lever the futures spreads in much more capital efficient manner. Thanks Bone for you comments on these topics. Your posts helped me a lot.

 

[Overnight]

There is a good reason to swing trade index spreads. Here is a chart of weekly NQ/YM spread.

View attachment 208505

What is the dollar-tick value of an exchange-traded spread like the one above? My broker does not offer those products.

 

[Real Money]

The dollar value of the spread is on the right side of the chart. There isn't really a tick value because the long leg ticks at 40 dollars per NQ point and the short leg ticks at 15 dollars per Dow point.

I just send a basket order for both contracts using basket trader. This is a basket trade or simultaneous orders for both the long and short contracts.