Say No To Thin E-mini Spread
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Your assertions are not borne out by the facts: Average daily ranges generally remain, in percentage terms, well above pre-decimalization historical levels, if currently below the periodic extreme high levels they've reached during crash phases (pre- and post-decimalization). That's true for stocks as well as for the indices and index instruments.
And, really, why should decimalization or any other narrowing of the trading spread have ANY effect on ranges in longer time periods?
I don't believe that even in the very short, daytrading timeframes, substantial moves have anything to do with or are in any significant way affected by the trading spread. The mechanics of extremely short-term trading are affected, as are those traders who operate mainly within that terrain. If there are any effects on stocks and indices in other time frames, they are impossible to measure accurately, as other, arguably much more significant factors also come into play.
Though I've already conceded that unique factors cause the QQQ and the SPY to produce wider average ranges per intraday bar than the NQ or the ES, the fact remains that these tradables closely track the same underlying indices, yet the ones that trade in penny spreads are more volatile from intraday bar to intraday bar. For reasons that should be obvious, they produce nearly identical total daily ranges - which, as seems equally obvious to me, have darn close to nothing to do with the trading spreads.
Maybe my assertions are not borne out by the facts. My assertions came from watching an average daily range table on about 40 stocks that was posted daily on a webpage called http://www.parttimetrader.com/range.htm
This used to be my homepage back when stocks were trading in fractions. There were typically 40 or more stocks that were in the table. Many of these stocks would range 8 - 15 bux or more. I watched this range table and printed it every day.
When the market went to decimals, the list of stocks with wide ranges decreased dramatically. Within a few days the ranges had dropped to the point that very few stocks had an average daily range of more than 5 bux.
So maybe my assertions are not borne out by the facts, but even a one eyed field rat could have seen the difference in daily (ranges that dramatically declined with the advent of trading with decimals) That was plenty enough 'facts' for me.
Plumlazy
This used to be my homepage back when stocks were trading in fractions. There were typically 40 or more stocks that were in the table. Many of these stocks would range 8 - 15 bux or more. I watched this range table and printed it every day.
When the market went to decimals, the list of stocks with wide ranges decreased dramatically. Within a few days the ranges had dropped to the point that very few stocks had an average daily range of more than 5 bux.
So maybe my assertions are not borne out by the facts, but even a one eyed field rat could have seen the difference in daily (ranges that dramatically declined with the advent of trading with decimals) That was plenty enough 'facts' for me.
Plumlazy
Gee, you or a rat wouldn't mebbe think that a ca. 70-75% drop in the Nasdaq and similar or greater, uh, alterations in the price of former leadership stocks might just possibly have had something to do with reductions in the total absolute range (i.e., in points rather than percentages) of the top tradables? Or do you or a rat have a thing against dealing with percentages of any kind? Would you or a rat possibly consider that some other factors might be affecting stock prices other than the trading spread?
Sure,
The drop in prices have had plenty to do with the narrowing of the price ranges. Plenty to do with it. I have never denied this fact and agree with you on this.
However, the ranges dropped sigificantly with the advent of using decimals. THE SAME WEEK !!! The same day for that matter.
I was watching this phenomenon as it happened.
Of course the market falling and the drop in prices causes a drop in daily price range, that's easy enough to see.
What I am talking about is the drop in daily price range that occured at the time of decimalization. It was a noticeable difference, right then, same day, same week, easy to see.
I'm not talking about percentages here, never was talking about percentages. I'm talking about average "daily" price range changing at the time of the narrowing of the spread. Not over the period of time of 2-3 years of the market going down.
The drop in prices have had plenty to do with the narrowing of the price ranges. Plenty to do with it. I have never denied this fact and agree with you on this.
However, the ranges dropped sigificantly with the advent of using decimals. THE SAME WEEK !!! The same day for that matter.
I was watching this phenomenon as it happened.
Of course the market falling and the drop in prices causes a drop in daily price range, that's easy enough to see.
What I am talking about is the drop in daily price range that occured at the time of decimalization. It was a noticeable difference, right then, same day, same week, easy to see.
I'm not talking about percentages here, never was talking about percentages. I'm talking about average "daily" price range changing at the time of the narrowing of the spread. Not over the period of time of 2-3 years of the market going down.
KymarFye--
I not sure what periodic post and pre crash means in terms of time frames. Would you mind being more specific about range in percentage terms and what type of measurement were you using. I ask this because last summer when I put up charts looking at ranges of stocks the atr's were significantly lower of stocks that I still traded. Most of these stocks were the stocks that were still above 25 dollars and most higher than that. But there is zero doubt that as of last summer the ranges of the high priced NYSE stocks that I traded were dramatically reduced. Precent change was not the cause.
So my research concluded that the range of high priced stocks was down significantly based on an atr measurement.
However, to add my two cents. When I am in a profitable position I prefer to let the spread work for me. I assume that most traders come to the same conclusion over time. So to argue for small spreads is to argue for cheap market crossing. If you are crossing the market all the time you are probably trading incorrectly. (I know there may be exceptions to the rule)
I not sure what periodic post and pre crash means in terms of time frames. Would you mind being more specific about range in percentage terms and what type of measurement were you using. I ask this because last summer when I put up charts looking at ranges of stocks the atr's were significantly lower of stocks that I still traded. Most of these stocks were the stocks that were still above 25 dollars and most higher than that. But there is zero doubt that as of last summer the ranges of the high priced NYSE stocks that I traded were dramatically reduced. Precent change was not the cause.
So my research concluded that the range of high priced stocks was down significantly based on an atr measurement.
However, to add my two cents. When I am in a profitable position I prefer to let the spread work for me. I assume that most traders come to the same conclusion over time. So to argue for small spreads is to argue for cheap market crossing. If you are crossing the market all the time you are probably trading incorrectly. (I know there may be exceptions to the rule)
Your wish is my command:
Here's a link to the earlier post, which you may have missed, comparing the intraday 3-min bars of the QQQ and the NQ in percentage range terms. I don't intend to make too big a deal out of it, as there are obviously other explanations, but the fact remains that the Nasdaq 100 ETF trading at a .01 spread producers wider ranges over very small time frames than does the Nasdaq 100 Futures contract, though the daily ranges are, for obvious reasons (reasons entirely extraneous to the trading spread) are nearly identical - as identical as the arbs can make them.
http://www.elitetrader.com/vb/showthread.php?s=&threadid=11912&perpage=6&pagenumber=20
I'm uploading a six-year double-wide chart of the NDX with both a 50 day average percentage range indicator and a 50-day ATR. The chart shows pretty clearly where the exaggerated crash periods are, and also shows that, even during the typical Winter and Summer range stalls, such as the recent one, average daily tradable ranges have remained at or above what once upon a time (pre-decimalization) were peak levels. I consider the ATR measurement a bit misleading, as it merely measures total points without adjusting for rather extreme changes in the in index, and also, of course, includes gaps.
To me, it seems rather absurd, and perhaps suggestive of a trader's overestimation of his or her own importance, to think that bids and asks lining up by the penny or by some fraction is likely to influence the larger forces that determine where a stock or contract trades over the course of an entire session. In any event, reaching any meaningful judgment of the unique effects of decimalization on daily trading ranges would seem difficult if not impossible in light of the much more significant unrelated factors affecting price action overall.
BTW - anyone happen to have to hand the exact dates that decimalization took effect?
I don't remember the date that decimalization came into effect and to be honest I don't care enough about it to look for it. Was it around March 2001 ? Best I can come up with right off the top of my head.
I wish I still had the daily range tables on the nas "stocks" that I was printing at the time. I tossed those long ago.
There was a noticable difference in the daily ranges of the higher volatility nas stocks, when it happened.
Anyway, have fun. Live long and make lots of cash.
plumlazy
I wish I still had the daily range tables on the nas "stocks" that I was printing at the time. I tossed those long ago.
There was a noticable difference in the daily ranges of the higher volatility nas stocks, when it happened.
Anyway, have fun. Live long and make lots of cash.
plumlazy
kymar- thanks
I did just take a look at a few stocks and while not very scientific and not at all conclusive I believe 1991 was a good year on the whole for the atrs of nyse stocks. I looked at aig, ibm, ko some of other bank stocks and dow stocks (some of the stocks I traded back then) that have not collapsed. And when taking into account percent change perhaps the atr have not shrunk as dramatically as I stated previously but according to my non scientific study they do seem smaller on a precentage basis. I was taking into account time of year and price. Then when I tried to get more serious my tradestation 6 stoped working. so perhaps the naz has stayed voilitile on a percentage basis but I still think the tradable range on a daily basis on high priced nyse stocks is down even considering percent change.
Perhaps this is not just due to decimals as we have also seen that people say range and expected changes in earnings are highly correlated. But nevertheless I think decimals suck because it has allowed some specialists on the nyse to really play games with my momentum exits forcing me to abandon a style that use to be very consistent and profitable accross a range of stocks. Now, I have to be very particular about my methods and I also now choose to trade the es on low volume days. Which while a tough adjustment has started to complement my trading stocks on good liquidity days.
I did just take a look at a few stocks and while not very scientific and not at all conclusive I believe 1991 was a good year on the whole for the atrs of nyse stocks. I looked at aig, ibm, ko some of other bank stocks and dow stocks (some of the stocks I traded back then) that have not collapsed. And when taking into account percent change perhaps the atr have not shrunk as dramatically as I stated previously but according to my non scientific study they do seem smaller on a precentage basis. I was taking into account time of year and price. Then when I tried to get more serious my tradestation 6 stoped working. so perhaps the naz has stayed voilitile on a percentage basis but I still think the tradable range on a daily basis on high priced nyse stocks is down even considering percent change.
Perhaps this is not just due to decimals as we have also seen that people say range and expected changes in earnings are highly correlated. But nevertheless I think decimals suck because it has allowed some specialists on the nyse to really play games with my momentum exits forcing me to abandon a style that use to be very consistent and profitable accross a range of stocks. Now, I have to be very particular about my methods and I also now choose to trade the es on low volume days. Which while a tough adjustment has started to complement my trading stocks on good liquidity days.