I am somewhat new to intraday trading SPY and DIA. In regard to support and resistance lines I am wondering which index would be best to follow. For instance should I plot support and resistance for SPY on a SPY chart, a SP500 index chart or a NYSE composite chart. The reason I am asking is that I see that they do not always line up in total agreement with each other. Right now while support on the SPY and SP500 index charts have only been touched today, the NYSE composite index shows close to a break through of support. So I guess what I am asking is do the SPY and SP500 follow the composite index which consists of 2,000 NYSE stocks, or does the composite index follow the SP500 index. Which is a more realistic representation of market movements? (Please consider your answer - don't just tell me the SP500 index is best just because that is what you use. Has anyone investigated this divergence - anyone thought it through?)
I guess no one has... --- OK I did my own research. Unfortunately I only have access to 10 days of intraday data, but because of trigger indicator time lag I only trust the past eight days. I have used DIA as the trading vehicle. I realize my question included SPY as the main example, but I trade SPY exclusively with the TICK and it isn't really applicable to my circumstance. Also DIA has the potential for more divergence of results with its smaller basket of stocks. For entry on DIA I used a pair of modified RSI's. I used 15 minute bars and make the entry calcs based on closes. These usually trigger once or twice per day. For profit-taking I used horizontal support and resistance lines based on the ten days available to me, any subsequent trigger reversal, or end of day. For the support and resistance calcs I guesstimated the indexes onto the DIA because I was too lazy to compare 1 or 2 minute charts (this should be close enough for this little study). All trades except the first one were profitable with other possible exceptions of three with immediate retracements (of .4%, .4% & .3%), that could potentially have stopped out (depending on allowable risk - I do not use stops to close positions but signals from my RSI's which I will not apply here). I compared entries and exits using the NYSE Composite Index (which I will call NCI for short), the SP500 index, the Dow 30 index and DIA. Day 1 first position entry: All four had the same entry point. Day 1 second position entry: All four had the same entry point. Day 2 first position entry: The NCI and SP500 preceded the Dow 30 and DIA by one bar and increased profit by .09%. Day 2 second position entry: All four had the same entry point. Day 3 position entry point: The NCI and SP500 both triggered together. The Dow 30 and DIA did not trigger. Profit loss for the Dow 30 and DIA indicators would be 100% of the trade. Day 4 position entry point: The SP500 preceded the NCI, Dow 30 and DIA by one bar and increased profit by .09%. Day 5 position entry point: The NCI, SP500 and DIA all triggered together, while the Dow 30 triggered 8 bars later after a retracement (.4%). The result was a .16% increase in profit for the Dow 30 and the added bonus of not potentially being stopped out in the retracement (depending on allowable risk). Day 6 position entry point: All four had the same entry point with an immediate .4% retracement. Day 7 position entry point: The SP500, Dow 30 and DIA triggered first before an immediate .3% retracement. The NCI triggered 5 bars later after the retracement, but with a profit loss to the other indexes of .18%. Day 8 position entry point: The NCI and SP500 preceded the Dow 30 and DIA by one bar and increased profit by .08%. (All of the following profit calcs take into account the entries determined for each index above.) Day 1 first position profit-taking: All four had a full exit at second trigger for a small loss. Day 1 second position profit-taking: Closed 1/2 position at support at low of day - all indexes. Closed out position at end of day - all indexes. Day 2 first position profit-taking: Closed 1/2 position at resistance at high of day ->NCI = .56% move ->SP500 = .41% move ->Dow 30 = .42% ->DIA = .42% move. Closed remaining 1/2 position at second trigger ->NCI = 0% additional move ->SP500 = .20% additional move ->Dow 30 = 0% additional move ->DIA = 0% additional move. Day 2 second position profit-taking: All four had a full exit at end of day. Day 3 profit taking: NCI and SP500 full exit at end of day = .38% move ->Dow 30 and DIA = no trade. Day 4 profit-taking: Closed 1/2 position at resistance from previous day ->NCI = .65% ->SP500 = .6% move ->Dow 30 = .71% ->DIA = .71%. Closed remaining 1/2 position at end of day ->NCI = .16% additional move ->SP500 = .26% additional move ->Dow 30 = .12% additional move ->DIA = .12% additional move. Day 5 profit-taking: All four had a full exit at end of day ->NCI = .15% move ->SP500 = .15% move ->Dow 30 = .31% ->DIA = .15% move. Day 6 profit-taking: All four had a full exit at end of day. Day 7 profit-taking: All four had a full exit at end of day ->NCI = .83% move ->SP500 = 1.01% move ->Dow 30 = 1.01% ->DIA = 1.01% move. Day 8 profit-taking: All four had a full exit at end of day ->NCI = .30% move ->SP500 = .30% move ->Dow 30 = .22% ->DIA = .22% move. === The following conclusions are based on DIA being the worst performer and designated as par. The other indexes are the percentage profits above the DIA par: NCI = +0.38% SP500 = +0.51% Dow 30 = +0.16% DIA = 0 So the tentative winner is the SP500 index. This could work out to a pretty significant chunk of change. Trading 1000 shares over this period would make a difference of $480 or $60 per day. Now I realize that this is a very small time frame and specific only to my strategy, but I will definitely be looking to see if these discrepancies are due to patterned differences or irregularities over much longer time frames. It seems that all indexes are not created equal.
Focus on the E-Mini S&P futures. More money is involved with it which means its price levels carry more gravity. Try not to get hung up on seeking confirmation elsewhere of reversals and breakouts.
Hi nazzdack. Thanks for the advise, but I think you missed the purpose of my posts. I am already of the camp that believes less is more and do not utilize many indicators to trade with. I already have a good trading strategy for SPY using the NYSE TICK which produces 6 to 10 trades per day. I don't get or need confirmation from additional indicators or indexes. These posts are about a strategy that produces 1 or 2 trades per day for DIA. I use a pair of modified RSI's and again, need no additional confirmation for my trades. My question was which index to apply the RSI's to in order to produce the best results. I'm guessing that most traders would probably apply their indicators to YM to trade YM or DIA to trade DIA. I have discovered in my little study that it may be more efficient to apply my indicators to the SP500 index to trigger my DIA trades. YM traders may or may not get the same results - they would have to investigate this for themselves. Likewise ES and SPY (and probably other related ETF's and index futures) traders may find that the NYSE composite index might produce better results than the SP500 index or ES or SPY - again, the results of my little study certainly warrant further investigation to my mind. It seems that by using the SP500 index to trigger my DIA trades I have the possibility to increase my profits up to 1/2% - certainly worth the time I invested in this. Where do you apply your indicators - ES or SP500? Have you investigated whether one may produce better results than the other? Or maybe the NYSE composite index may work better. If you have not done the comparison you may now wish to - you may find a nice little surprise awaits you...
Something additional should be noted: Both the NCI and Dow 30 avoided one retracement each. However even with the additional profit from the Dow 30 trade, it still lagged considerably behind the NCI and SP500. And while the NCI trade lost some profit to the other indexes it had the reduced risk of being stopped out when compared to the SP500 and should be considered as an annotation to the conclusion. Any one else comparing which indexes work best for their strategies? Care to share your results?
Today I got an early trigger from the Dow 30 and DIA. There was an immediate retracement however which could have stopped out. The NCI and SP500 both triggered at the identical price after the retracement - a distinct advantage. The NCI has now avoided 2 out of the 4 possible immediate retracements recorded so far.
All four indexes triggered in unison today. The SP500 lost some of its edge with an early resistance level compared to the others - especially the NCI which posted a .36% addition compared to the SP500 for the first profit-taking.
Again all four indexes triggered together. And again the NCI posted an advantage in its first support level for a .40% additional move for profit-taking over the other three indexes. At this point (11 days) I would judge the NCI as more profitable and less risky than the SP500 index, its main competition. The Dow 30 and DIA are not in the game right now. The first profit-taking level advantage of the NCI over just the past two days would be $460 with two 1000 share trades. I had a question as to whether the NCI support/resistance advantage was just a directional bias where for instance it would show an advantage for say resistance on an up day, but give up that advantage for support on a down day because the index was biased in one direction over the SP500 index. These last two days seem to put the lie to that theory with profit gains of .36% on an up day and .40% on a down day from both improved profit-taking support and resistance levels.
The SP500 just blasted through a strong support line built on the lows and highs of 6 of the last 9 days. But when NCI hit its equivalent support level a full .45% lower than SP500, the TICK spiked to a healthy -1320 and its all-morning, constant downward bias began to slowly turn.
The NCI just bottomed on support again with another TICK spike down to -1150. I am not a pattern trader, but would this be an intraday double-bottom with volume? Does this indicate a reversal to the long side based on the NCI?