Market Correlation for Intraday Trading

[Soultrader 12]

I read across a couple of interesting threads on candles and VSA. One of the things that popped into my mind was filtering out trades and reading market direction one step ahead of futures.

 

Here in Japan, the banking, securities, and electronic sectors are considered the heavy weight.

 

Banking especially because a stock like Mitsubishi is priced at over $15k which is ridiculous. Therefore each tick is BIG. One of the techniques I recently picked up was to watch some of these BIG tick stocks. Mitsubishi's asking price changing to a bid is considered weakness and I have seen the futures fall plenty of times because of this. This information has been quite mind blowing for me.

 

For US traders, do any traders here rely on stocks to trade index futures? Do you pay attention to heavily weighted stocks for the S&P or Dow to determine strength vs weakness?

[brownsfan019 17]

I read across a couple of interesting threads on candles and VSA. One of the things that popped into my mind was filtering out trades and reading market direction one step ahead of futures.

 

Here in Japan, the banking, securities, and electronic sectors are considered the heavy weight.

 

Banking especially because a stock like Mitsubishi is priced at over $15k which is ridiculous. Therefore each tick is BIG. One of the techniques I recently picked up was to watch some of these BIG tick stocks. Mitsubishi's asking price changing to a bid is considered weakness and I have seen the futures fall plenty of times because of this. This information has been quite mind blowing for me.

 

For US traders, do any traders here rely on stocks to trade index futures? Do you pay attention to heavily weighted stocks for the S&P or Dow to determine strength vs weakness?

 

That's a good idea James. I personally have never done anything with the S&P or Dow heavy weights, but I could see the validity there for sure. I guess it comes down to how much can one person properly watch and screen during the day.

 

Question for you - what timeframes are you now using in your trading? Just curious what you are using that would allow monitoring of stocks and futures.

[Soultrader 12]

I use a 5min and 30min chart for the Nikkei, 5 min chart for the 10 year JGB (bonds), 10 min chart for stocks I trade, and just pull up a dozen or so Level 2 screens for heavy weight stocks.

 

The JGB bonds here tend to give heads up on the futures direction so is a fairly handy way of viewing the markets.

[feb2865 10]

James

 

Have you ever try a screen based on sectors?? That could give you a head start before a big move

[kenpo 10]

I use the ADD and VOLD along with SPX to see the true direction of the markets breath. This helps me to be on the right side of the trade, and more importantly it tells me when to stay out and stand on the sideline and wait for clear setup without getting chopped up like ground beef.

 

Hope this helps.

[Nick1984 10]

James the situation you describe is very very similar to our stock market here in Aus. Like feb said watching a chart of a sector is a great tool for trading the equities. If you're trading any of the financials keep a watch on the 90 day bank bill market as well as this has a huge correlation with any financial companies that are primarily lenders i.e banks, mortgage brokers etc.

 

For electronic sector stocks believe it or not the price of Nickel is correlated as its used extensively through electronics manufacture. These are all things I kept track of when trading stocks.

 

Of course the big players in the market will have a huge effect on the market itself, so its a good thing to keep an eye on your major players.

 

Keeping to a longer time frame chart in stocks where markets are prone to gapping is a sensible idea. Have you considered also using a longer time frame anchor chart for the stocks or only for futures?

[Soultrader 12]

Oh yes, I watch all the major sectors. Trading the Nikkei is a whole lot of fun as there are correlations in alot of areas of stocks, sectors, and bonds.

 

Feb, by sector screen... are you referring to something like a matrix spreadsheet or simple charts?

[feb2865 10]

Oh yes, I watch all the major sectors. Trading the Nikkei is a whole lot of fun as there are correlations in alot of areas of stocks, sectors, and bonds.

 

Feb, by sector screen... are you referring to something like a matrix spreadsheet or simple charts?

 

 

Matrix spreadsheet

 

 

I did it for a long time when I switched to electronic trading. Back then banks and brokers were something to watch as they normally gave you a head start on a move. As the matrix moves by tick very much like the tape, I normally had a gut feeling on the speed on the matrix. Some people watch and wait for a rate of change on the matrix, to me that's lagging.

 

James I am curious. You're looking to watch the stocks to anticipate a move on the Nikkei. Would you care to elaborate a little more? I trade the other way around using NQ(leading) as a mirror image on the cubes (qqqq)

 

I mean, without compromise anything as I know you're trading with prop firm now.

 

Thanks

[Soultrader 12]

Matrix spreadsheet

 

 

I did it for a long time when I switched to electronic trading. Back then banks and brokers were something to watch as they normally gave you a head start on a move. As the matrix moves by tick very much like the tape, I normally had a gut feeling on the speed on the matrix. Some people watch and wait for a rate of change on the matrix, to me that's lagging.

 

James I am curious. You're looking to watch the stocks to anticipate a move on the Nikkei. Would you care to elaborate a little more? I trade the other way around using NQ(leading) as a mirror image on the cubes (qqqq)

 

I mean, without compromise anything as I know you're trading with prop firm now.

 

Thanks

 

 

Hi feb,

 

The tick value of the big bank stocks in Japan are huge. This is why when the banks move up/down by 1-2ticks, it is a good warning signal for market direction including futures. What happens is that the banks tend to drag the rest of the stocks down especially the securities and electric. Hence, most of the big stocks are included in these 3 sectors. This gives it a heads up warning for the Nikkei.

 

Many traders will observe the premarket bid/ask to determine morning strenght vs weakness and play it accordingly as well. In Japan, the futures do not lead the stocks as much as the US index futures do. This is something I had to unlearn when trading the Japanese markets. The only leading indicator I watch is the 10 year JGB bond futures. I watch the major sectors for confirmation on particular setups and strategies.

 

One of the things I have noticed is that there are only a few speculative stocks. A majority of stocks only move through insitutional orders and a good amount of stocks have limited float as parent companies tend to hold a good portion of their "kogaisha" companies. Which is why the Nikkei weighting is supposed to change (or has been) taking into account the available float of each stock.

[feb2865 10]

Hi feb,

 

The tick value of the big bank stocks in Japan are huge. This is why when the banks move up/down by 1-2ticks, it is a good warning signal for market direction including futures. What happens is that the banks tend to drag the rest of the stocks down especially the securities and electric. Hence, most of the big stocks are included in these 3 sectors. This gives it a heads up warning for the Nikkei.

 

Many traders will observe the premarket bid/ask to determine morning strenght vs weakness and play it accordingly as well. In Japan, the futures do not lead the stocks as much as the US index futures do. This is something I had to unlearn when trading the Japanese markets. The only leading indicator I watch is the 10 year JGB bond futures. I watch the major sectors for confirmation on particular setups and strategies.

 

One of the things I have noticed is that there are only a few speculative stocks. A majority of stocks only move through insitutional orders and a good amount of stocks have limited float as parent companies tend to hold a good portion of their "kogaisha" companies. Which is why the Nikkei weighting is supposed to change (or has been) taking into account the available float of each stock.

 

James

 

so you mean that the japanese markets are more stable than wall street??

 

That's interesting

 

any restrictions like shorting etc?

 

I have to take a close look on the Nikkei. Are you trading the Nikkei or just prop?

[Soultrader 12]

Stable as in less jumpier intraday? If so, absolutely to a point where many stocks will bore you to death. Most stocks are not suitable for intraday trading because of this as well.

 

Im currently prop trading Nikkei and a handful of stocks that actually move intraday. Regarding shorting, we still have the downtick rule but hopefully they will start to remove it now that the US has. With futures, its the same as the US.