Hi, guys. Hi from Andrea Unger, and some infos about index futures today.
I live in Italy; I’m in Europe—the first name that comes into my mind is the DAX future.
Sorry about that. Doesn’t write, but we have to write it out. GX is the code you normally find, or FDAX, okay? DAX Future is on Eurex, Germany; and it’s a very liquid future, very active. It was very well responding to a number of inputs and models. Lately, in the last years, it became a little bit choppier or, I might say, more difficult to respond to certain inputs. So, it’s still a good market to develop on, but it’s getting harder and harder to find good strategies on DAX. In any case, the main characteristic is to be trend-following.
If you develop on DAX, the outcomes are in Euro. I might tell you that a good intraday strategy should be developed with a stop loss not smaller than 50 points, but better in direction of 1700 points. Which means: €1250, up to €2500 stop loss. Believe me, it’s heavy. So, consider this only if you are well capitalised for your trading. And DAX can be traded intraday and overnight, but if you feel that it is too expensive for you, you might consider his younger brother, the mini DAX. Mini DAX has one-fifth of the value of DAX future and moves pretty much very similar to it because Germans are very strict to the rules.
The difference is the DAX moves in half a point; mini DAX, full point. So actually, if you develop strategies, you better develop on DAX data, and then you apply trades to the mini-DAX—it’s the best way to go. Also, considering that the mini DAX is still very young and that it was born in 2015, so actually, you would not even have a long enough dataset to develop on.
That said, there is also the Eurostoxx in Eurex, but I will not suggest you to focus on that market or even write it here because, Eurostoxx, it’s very difficult to find good models to work on. For long-term trend-following, it might be fine, no problem. But on intraday or short-term overnight strategies, it’s very difficult to find something that works properly. Even though it is highly correlated to the DAX. But in spite of that, probably due to the weight of the tick value, compared to the tick move, it does not offer a good way to enter and exit the market. At least, this is my experience. So, I’ll mention the DAX and, eventually, mini DAX if you want to trade smaller.
If you go on the other side of the ocean, get into the US, obviously, you have the E-mini S&P. Code is ES&P 500. E-mini S&P is most probably the most liquid market in the world. It was born in ‘98. Sorry, dropped my pen. Here it is. It was a black swan. And the E-mini S&P changed the characteristics of the index market in the States. Actually, if you look at the S&P 500, what worked on the S&P 500 changed completely after the E-mini S&P was born because this electronic market changed so much. The level of efficiency it reached changed, completely, the world of trading in the States. And now, today, E-mini S&P is very well responding to mean-reverting approach, and it’s very hard to find a good trend-following strategy on the E-mini S&P. So, if you want to develop on the E-mini S&P, but you better look in the direction of something which is counter-trend, rather than trend-following.
Also, don’t forget that it works much better on the long side in a systematic way, rather than on the short; even though we remember periods of time such as 2002 and 2008, when the markets dropped dramatically. Also, in those years, long entry counter-trend models worked and produced money, while it had been difficult to find good short entries, even in those markets. I got models. I got it, but it was difficult to find. So, it’s better to develop in the long entry because the short moves are very hectic and it’s difficult to find a clean way to trade them because systematic trading is a clean and modelled way to trade. So, when the market is crazy, it’s difficult to adapt to it.
In the States, you always very well know the E-mini NASDAQ, but I would suggest not to consider E-mini NASDAQ too much for automated trading. Maybe it’s my limits, but I never was able to find something that worked properly on the E-mini NASDAQ. It’s not only my experience. I can tell you, also students of mine, and also colleagues of mine had trouble in developing stuff on the E-mini NASDAQ. So, I mean, I don’t suggest you to focus on it. If you want, perfect, do it and I hope you get very high success rate on it. But it might be difficult, so you better focus on some other instrument.
There is also the E-mini Russell, which is interesting, also, for trend-following. But it is on the ICE today, and that requires an additional fee for the market data, above $100 a month with no possibility to waive the fee if you are not professional. So actually, it might be less interesting, and I just mentioned it, but I might say that you can focus on this family here, which is enough.
E-mini Dow is a strict cousin to the E-mini S&P, so you can even not consider it if you consider the E-mini S&P is more than enough.
We have many other indexes in the world: Australian index, Korean index, Nikkei—many other things possible to trade. But it’s useless in my opinion to trade hundreds of– tens of indexes because that’s not a real diversification. It’s better if you go into horizontal diversification and you explore other markets such as energies, bonds, different commodities, currencies—and not necessarily all on index futures.
So, I think that you can have more than enough with DAX and E-mini S&P. And you better diversify with other sectors that we can talk about in other videos. We’ve already done it. We’ll get much more in the next videos. Stay tuned.
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