Overnight Pairs Trade - NQ and RTY Futures - Thoughts?

[MidwesternTrader]

I am considering putting this trade at market close Mon - Thu, trade put on close of day Friday due to the weekend.

NQ regular session will signal the trade. Open the pairs trade at regular session close.

If NQ is up during regular session, 1 NQ long with 1 RTY short overnight.
If NQ is down during regular session, 1 NQ short with 1 RTY long overnight.

No stop losses. One trade will act as a hedge against the other. Close pairs trade pre-market next day.

NQ seems to have more elasticity than RTY during overnight session, meaning if NQ continues the regular session move overnight it will do so a larger % than RTY. But opposite is true if NQ reverses overnight.

Does anyone currently play this overnight pairs trade now? What risks are there in thinking the opposite RTY trade will be an appropriate hedge against the NQ trade?

Don't give me the "Just overnight long NQ, it's free money" line, enough of that already in the SP500 thread...

 

[Trader13]

No edge.

 

[i960]

No stop losses. One trade will act as a hedge against the other. Close pairs trade pre-market next day.

I've lost 5000$ in a single Nasdaq panic bid while trading the NQ/YM spread in the past. While it's not the same set of products, the gist is the same - in that it tends to follow a risk on/risk off pattern these days due to lack of structural balance in the various indexes and too much overlap. When risk is on, they're piling into Nasdaq, when risk is off they're moving out of Nasdaq. Only a few times a year does the Russell do it's own thing enough that it can be safely isolated in a spread.

Don't try to trade this stuff from one day to another - that's a waste of time and money. You want to be trading at a higher timeframe. Also, those ratios are wrong, it's 2 NQ to 3 RTY: http://www.cmegroup.com/trading/equ...sector=EQUITY+INDEX&exchange=CME&pageNumber=1

 

[lawrence-lugar]

I am considering putting this trade

Don't give me the "Just overnight

No edge.

If you have no edge, you might as well step on a ledge.
Because the same, inevitable, effect will happen.

If you have to ask for opinions/thoughts on your trade from other ET, extraterrestrial traders, you're not prepared to trade.
You should have your own backbone and convictions and rationality. -- on a loose, dynamic, malleable scale.

I've never been to the Midwest, but I hear the BBQ is fan-tastic.
Can you confirm, or deny, my assumption, -- and no one looks good in a baby blue shirt. ...is that even a shirt in your avatar, or are you wearing pajamas, or even a hospital gown,

 

[maxinger]

Do note that past few days NQ RTY do move significantly outside RTH session and also during RTH session.
At times, it move significantly during RTH session only.
And at times, it move significantly during non RTH session only.
Do note that the Asians and Europeans are trading NQ RTY ES YM actively outside RTH session.

Do note sometimes NQ RTY are correlated, sometimes anti correlated.
Lately NQ RTY ES YM are rather correlated due to inflation / bond news.

I don't understand your logic of doing NQ RTY spread.

You probably have to do more studies before you do the NQ RTY spread.
You should plot the chart of NQ-RTY spread and understand if there is any pattern;
it is trending up / down, or reversing to its mean or whatever.

 

[tommcginnis]

I know your timeframe is different, but I would want concrete evidence that I was not entering into a stealth Directional trade.

I'm not all that familiar with StockCharts, but the fact that these two guys start off in the same place, and do not regularly cross, suggests that if you end up on the wrong side at the get-go, you could end up sporting a sizeable and growing Bad Trade for a goodly amount of time.

 

[i960]

It's not a matter if they cross or not it's a matter of relative performance of each instrument. That said it is a risk on vs risk off trade and also a dollar strong vs dollar weak trade depending on the context.

 

[tommcginnis]

It's not a matter if they cross or not it's a matter of relative performance of each instrument.

And relatively speaking, if the wrong direction is chosen, and the pair do not "cross" again, the OP is in for an extended hold of a crappy trade. Sorry, but there's no other way to tell the tale: it's math.