Most Influential Stocks of Dow & Nasdaq

[carltonp 10]

Hello Traders,

 

I have style of trading that monitors the components of the DJIA to trade YM and the components of Nasdaq 100 to trade NQ.

 

I was advised the best approach would be to monitor a select few stocks of each index rather than the whole set of components. It was suggested that a select few will dictate which direction the whole index takes.

 

I was wondering if someone could advise on the best approach to selecting the most influential stocks of each index?

 

I believe one approach is to monitor the stocks with highest weighting for each index, but I would love to hear your opinions.

 

Cheers

 

Carlton

[TheNegotiator 13]

Basically yeah. If they're big they'll more likely bias the index they're in. Also though it does vary. If this is your approach you really should be noting sector strength and weakness too. You could even spread the two off against each other if say techs are outperforming industrials or vice versa.

[Do Or Die 10]

I have style of trading that monitors the components of the DJIA to trade YM...

 

I was wondering if someone could advise on the best approach to selecting the most influential stocks of each index?...

 

Which components are you currently using? the precise choice of stocks will depend on your current methodology. Also, how exactly do you monitor it?

[carltonp 10]

Which components are you currently using? the precise choice of stocks will depend on your current methodology. Also, how exactly do you monitor it?

 

I use all the components of the nasdaq 100.

 

I use an Excel formula to monitor the components realtime. Why do you ask?

 

I was interested to know if someone could tell me the best approach in selecting those components that will move the index?

 

Cheers

[Do Or Die 10]

I use all the components of the nasdaq 100.

 

I use an Excel formula to monitor the components realtime. Why do you ask?

 

I was interested to know if someone could tell me the best approach in selecting those components that will move the index?

 

Cheers

 

I was asking about your methodology. Instead of watching the DOW itself, you watch ALL individual components, right? If you're using comparative relative strength as suggested by poster before me, your choice of components should depend upon those related to your method rather than which have more weighting in DOW.

[carltonp 10]

DorD,

 

Thanks for responding.

 

Yes I do watch ALL individual components.

 

I don't think the last poster mentioned anything about comparative relative strength. However, I would be very grateful if you would elaborate.

 

cheers

[Do Or Die 10]

Comparative Relative Strength is when you compare the performance of one ticker against another. It is the general term for sector strength comparison: http://www.traderslaboratory.com/forums/technical-analysis/10189-relative-strength-2.html#post126645

 

For example if you see BAC gapping up 10% and make a conclusion that it will drag the financials upwards with it. OR if you see financials showing extremely weakness you make an estimate that they will drag the entire market down.

 

What makes you track ALL DOW components instead of the DOW itself?

[carltonp 10]

 

What makes you track ALL DOW components instead of the DOW itself?

 

Thanks for the explanation.

 

I find that tracking the Dow components allows me to assess the eventual direction of the YM.

 

I have Interactive Brokers feed 100 components into my Excel program and assess the strength or weakness of any move with the help of my formula.

[Do Or Die 10]

Thanks for the explanation.

 

I find that tracking the Dow components allows me to assess the eventual direction of the YM.

 

...assess the strength or weakness of any move with the help of my formula.

 

If your formula puts more weight on certain components, pick the top 7-10.

 

If the formula always factors the movement of all components equally try picking the top 15 which have most weight in Dow; using less than 10 components may not work.

 

This is just my wild guess because I have no clue about what information the formula is extracting.

[carltonp 10]

This is just my wild guess because I have no clue about what information the formula is extracting.

 

Before I answer reply to quote, just wanna say I've been reading some of your posts and they provided plenty of food for thought. Thanks.

 

I think you have made a really good suggestion on possible ways to pick top components to monitor.

 

In answer to the quote, at present the formula applies the Trade Value Index to all 100 components in realtime. I'm not sure if you're familiar with TVI, however when each individula component are inline with the index there is a message of either strength or weakness with the YM (if looking at the 30 components of the DJIA). Alternatively, if I'm monitoring each individual component of the nasdaq 100 then there is a message in the NQ.

 

I hope that makes sense :-)

[TraderNono 10]

the question may be: wich one moves the other

 

index traders will look at stocks, stocks traders will look at futures. I'm personnally not that sure that stocks will decide since derivatives became so important in modern trading

[Do Or Die 10]

I've heard about trade value index with reference to NBA only. I did a google search and could not find the maths formula representing it.

 

... however when each individula component are inline with the index there is a message of either strength or weakness with the YM.

 

Anyways seems to me you are using the concept similar to market breadth. That is, if all components are showing strength then there is momentum in YM until it peaks out. Instead of dropping components I will suggest to use a heatmap for ALL 30 components (S&P 500 Map Heatmap ) or a similar map 'trend strength' which I posted in the link mentioned.

[carltonp 10]

I did a google search and could not find the maths formula representing it.

 

The formula for Vb.Net is

 

' Get the volume of the symbol, indexed by bar index.

Define volume() As Number = BarVolume(_symbolIndex, barIndex, length + 1)

' Get the closing prices of the symbol, indexed by bar index.

Define close() As Number = BarClose(_symbolIndex, barIndex, length + 1)

' Use for the latest trade volume index.

Define TVI As Number = IndicatorIndexValue()

' Use for the calculated indicator script values, indexed by bar index.

Define results(length - 1) As Number

' Calculate the indicator script values for the specified bar range.

For i As Integer = length - 1 To 0 Step -1

' Calculate the indicator script value for the current bar.

If (close(i) - close(i+1) > _MTV) Then

TVI = TVI + volume(i)

Else

TVI = TVI - volume(i)

End If

results(i) = TVI

Next

Return results

 

The formula I have programmed into Excel is:

 

=IF(E15-E14>1,H14+F15,H14-F15)

 

I reviewed the Heatmap, however I think I prefer 'trend strength.

[Do Or Die 10]

This is a great formula! it tracks performance of components and also weights recent volumes. I would suggest do not drop any components... just design a custom map for components which uses similar measures using bar range and volume. use the map as well as TVI.

[carltonp 10]

This is a great formula! it tracks performance of components and also weights recent volumes. I would suggest do not drop any components....

 

Brilliant, that's exactly what five other traders said at Trade2Win and few others at ET(don't know if its frowned upon to mention other forums) :crap:

 

However, I do like the idea of picking 7 - 10 components and putting them at the top of list.. uhmmmmmm ...

[carltonp 10]

DorD,

 

I have a couple more questions I'd like to ask. I hope you're going to be around later....

 

Cheers mate.

[Do Or Die 10]

Welcome on the questions.

 

The 'awesomeness' of the formula is in the fact that it dynamically weights each component based on recent volumes. Consider a case: suppose you kick out the 5 stocks with least weight. Now suppose heavy volume comes in that discarded stock- because of 52 week high, earnings or whatever. In this case it will drag Dow along with it up or down, but you will miss on this significant information.

 

Many pro traders use maps for visualization- go ahead and design you own. Should be easy since you are alreadt acquainted with macros and there are lot of resources on net.

[erierambler 10]

Hello Traders,

 

I was advised the best approach would be to monitor a select few stocks of each index rather than the whole set of components. It was suggested that a select few will dictate which direction the whole index takes.

 

Carlton

 

The person that advised the approach didn't help you ???

 

erie

[carltonp 10]

The person that advised the approach didn't help you ???

 

erie

 

Why do you say that?

[carltonp 10]

 

Many pro traders use maps for visualization- go ahead and design you

 

Thanks for the encouragement.

 

Cheers

[erierambler 10]

Why do you say that?

 

The person that advised you must know how to select the few stocks, so the question, " they didn't help you?"

 

erie

[carltonp 10]

The person that advised you must know how to select the few stocks, so the question, " they didn't help you?"

 

erie

 

Good point! That would have been helpful