Prem, Tick, Trin, Vix, Etc.

G

Gordon Gekko

i know the smart guys here are going to think, "what a newb." but i have to learn this stuff.

i've noticed a lot of experienced traders keep track of PREM, TICK, TRIN, VIX, ETC. i'm not asking for elaborate descriptions of how these are used, but just a short summary of what they are and how they're used. i know i have to watch them and learn myself. however, as i start to watch them, i'd like to have a general idea of what i'm looking at.

i also have a few other questions..

-i've seen a TRINQ AND TICKQ. when would i look at these over the other TRIN AND TICK?

-should the time frame of these exactly match the timeframe i'm trading? for example, if i'm looking at a 15 min chart, is it ok to have PREM on 2 min chart or would i want it on 15 also?

-nitro once said to me that i should write down the value of spoos on my entries. where would i get the value of spoos?

NEWBIE QUESTIONS, I KNOW....but i gotta learn at some point.

thanks
 
Originally posted by Don Bright
OK...here try this. Take spx (spot) add FV (fair value for that day) to it. You get a number. This imaginary line is there all day, wherever the spot price goes...and this is where the Futures "should" be trading. Why would they trade above or below FV?? Well, they do trade above and below FV, for short periods of time...during these time frames the traders on the CME floor, and other places, will hedge their positions by buy stocks or selling stocks in unison. This has a direct effect on the market for a short time. Very basic, very simple, and one of the primary things you need to lookat before buying or selling. There are exceptions when the spot leads the futures (outside news etc. can cause a lag sometimes), but rarely do they. The futures ARE the leading indicator.

Hope this helps....

Don
More...
i also have another question. should i be watching what don said above? if i wanted to see what he's talking about, how would a newb go about setting this up?

thanks again
 
All of these things have value - basically as filters to confirm whatever signal you take to trigger a trade. But, and it's a big but, for a new trader the use of these indicators can and probably will amount to information overload.

Do a search on each, read and think about each, but go slow in implementing them in to your plan.
 
These are basic to trading the futures. Watch the TICK and TRIN and it will be obvious to you how to use them. The "spoos" is the S&P futures or ES futures. It often leads the cash, but can itself be influenced by action in big stocks like MSFT. Don is talking about program trading. If the value of the S&P futures deviates too much from the cash index, ie the PREM gets too big or small, then program traders will arb out the discrepancy. This will show up as spikes on the TICK. If the PREM is at the level where programs can trigger, it is very dangerous to be on the opposite side. For example, if the PREM is too high, you might think that is a good place to short the futures but you could run into a buy program that will cause the market to ramp.
 
I use the TICK

1. for divergence: If I am about to go long, but the TICK shows lower highs, while the DJIA shows higher highs in the last few minutes, I stay out.

2. In the case of an unexpected afternoon rally, TICK is usually the first signal, and it is very strong long before you see anything else starting to make an unusual upward move.
 
TRIN = is computed via a fraction where the numerator is the advancing issues divided by the declining issues, and the denominator is the upside volume divided by the downside volume. It basically indicates whether or not there is money coming into the market, ( when the fraction is below 1.0 ), or when money is leaving the market ( when TRIN is above 1.0 ).

On huge up days, it is not unusual to see TRIN close at something like .39 or .58. On big down days, the TRIN can be at 1.57 or even much higher.

One neat thing to do is to run a 10 day moving average of the TRIN. In this way, you can get a bit of an idea as to how overbought or oversold the market is. But remember, bull markets have a tendency to continue to be overbought for quite some time, and Bear markets have a tendency to stay oversold for quite some time.

TICK = simply the cummulative "net" upticks to downticks of all stocks on the NYSE.

TICKQ = The Tick for the Nasdaq

TRINQ = The Trin for the Nasdaq

VIX = The CBOE Volatility Index.
Whenever this indicator gets down into the low 20's, the market is too complacent, too many people are buying call options, and the market is too bullish. Thus, one would look for a sell-off to occur.

Whenever the VIX gets up into the high 30's, and even more recently ( depending on whether you are in a Bull of Bear Market ) when it gets up into the high 40's, there is a ton of put option buying that is occuring which would indicate that a market low is about to occur. Such high numbers obviously occur during periods when the market has been selling off dramatically.

PREMIUM: Due to "sentiment" and interest-rate ( cost of carry ) factors, the futures contract on the S&P can trade at a Premium or Discount to the actual "cash" stock-index, the SPX, or INX.

Believe it or not, 2 days after Black Monday of October '87, the S&P Futures contract traded at almost a 50 point discount to the actual underlying SPX "cash" index. In fact, the low for that day was 190, when in fact the cash never got anywhere near that number. How did this happen?

It happened due to "sentiment".
George Soros decided to try and unload 5,000 S&P Contracts at the "market" that day and as you can imagine, there weren' t too many bids to be found. All of the locals in the pit quickly caught on what the floor broker was trying to execute, and they "raced" him - - - hitting every single bid that they could to get short, so that they could benefit off of the fact that a ton of futures still had to be sold, and would undoubtedly be sold at much lower prices.

Buy or Sell programs can kick-in via "stock-index arbitrage" depending on how much of a premium or discount is occuring at any given point during the day.

Fair Value ( of the premium above the cash index ) is computed via typical financial formulas, kind of like the Black/Scholes options pricing model, that take into consideration interest rates, dividends, and where the actual cash index is, not too mention how many days are left until the contract expires.
 
Originally posted by waggie945
...It happened due to "sentiment".
George Soros decided to try and unload 5,000 S&P Contracts at the "market" that day and as you can imagine, there weren' t too many bids to be found. All of the locals in the pit quickly caught on what the floor broker was trying to execute, and they "raced" him - - - hitting every single bid that they could to get short, so that they could benefit off of the fact that a ton of futures still had to be sold, and would undoubtedly be sold at much lower prices.
...
More...
Yeah,

I worked for a company that traded futures mechanically. As the hedge fund grew in size and the orders became larger, the locals would front run the order. The solution was obvious - open several accounts with different brokers and break up the order amongst them.

nitro
 
thanks everyone for the help!

i understand if one was to trade the NQ, they would watch the TRINQ. (should you watch the TRIN also?)

when you trade the ES, then what do you watch? both the TRIN and TRINQ?

(this question also applies to TICK and TICKQ)

thanks
 
Hi,

I use NASDAQ TRIN to indicate sentiment on the Nasdaq market. Generally over 1 is bearish , under 1 is bullish, but I use more precision over 1.3 bearish, under 0.8 bullish, because range 0.8 to 1.2 means that there is war between bulls and bears and I do not know who will win.

If sentiment is bearish (over 1.3) then I expect that shorts will be longer lived then longs.

But be carefull , sometime market open very negativelly (with GAP DOWN), NAS TRIN (TRINQ or TRIN.NQ) is about 4, but market is oing up and TRIN is going down. It also happened several times.
 
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