Frequently Asked Questions
When I teach seminars, speak at conferences, and read
e-mails
sent to me, many of the same questions crop up, repeatedly.
The following represent s a selection of those questions, along with their answers:
Question:
Where do I find stock index futures quotes?
Answer:
Many stock index futures, such as the S & P 500 futures index (underlying index = S & P 500) and the NASDAQ 100 futures index (underlying index NASDAQ 100 ), are represented by two contracts: the standard, or original, contract—traders call them the “big” contracts—and the E-mini contracts. The big contracts are traded in the pits of the futures exchanges where they originated. For example, the standard S&P 500 contract is traded in the S & P pit at the Chicago Mercantile Exchange (CME). The E-mini S&P 500 index futures contract (“E” stands for “electronic) are traded electronically on the CME’s electronic exchange, the GLOBEX platform.
The mini futures contracts have gained widespread popularity among traders, both institutional and individual, and move closely in tandem with the big contracts.
Whether you trade E-minis or not, if you are an active equities trader, it’s still wise to watch the S&P 500 E-mini futures, as they act as a leading index for stocks. Many traders also watch the NASDAQ 100 E-mini futures, and the mini-sized Dow contract (traded on the Chicago Board of Trade – CBOT).
Direct-access brokerages usually provide mini stock index futures quotes to their customers for a nominal monthly charge.
Traditional online brokers, however, typically do not furnish stock index futures quotes. For those of you who have accounts with an online broker and wish to access mini index futures quotes, you can subscribe to the S&P 500 and NASDAQ 100 E-mini quotes by going to: www.cme.com . Click on "My CME", and then "Learn about CME's Subscription Data Services." Then click on "E-quotes" and "Package/Pricing Options." At the CME website, you’ll also find other stock index futures that may interest you, such as the E-mini Midcap futures index, and the E-mini Russell 200 stock index futures.
If you’d like to subscribe to the mini-sized Dow quote, go to: www.cbot.com .
Question:
Where do I find quotes for the TICK and TRIN?
Answer:
The TICK and TRIN are short-term indicators that active traders find useful as decision support tools.
Each exchange has its own TICK and TRIN. Most traders watch the NYSE (New York Stock Exchange) TICK and TRIN and the NASDAQ Stock Exchange TICK and TRIN.
Direct-access brokers usually provide TICK and TRIN quotes to their account holders at no charge.
Traditional online brokers typically do not provide these quotes.
To learn how to read the TICK and TRIN on the NYSE and NASDAQ Stock Exchange, refer to Chapter Four in my new book, Short-Term Trading in the New Stock Market.
Question:
I plan to be an active trader, and trade intraday. Do I need to open an account with a direct-access broker? Or, can I just trade through my online broker?
Answer:
I recommend a direct-access broker for those who wish to trade actively on an intraday basis. Basic reasons: Direct-access brokers give you access to stock index futures quotes, which act as moment-by-moment leading indicators for the equities markets. These brokers also may provide a host of options not usually offered by traditional online brokers, such as sector indexes and their components, TICK and TRIN quotes, VIX and VXN quotes (CBOE volatility indicators), sophisticated charting methods, news, Level II screens, scanning tools, and more.
Remember, active trading is a serious business. And, like any business, if you want to compete and win, you must obtain the proper tools and the knowledge to use them.
Question:
For the past five years, I’ve been an investor. Now, I’d like to begin trading a portion of my account. What are the challenges I’ll encounter?
Answer:
I’ve said it over and over again, and it’s a lesson I learned the hard way many years ago: investing and trading are two different animals. You must treat them as such. Just because you’ve accumulated boatloads of money by investing wisely doesn’t mean you’ll automatically repeat that success as a trader.
Here are two important time-frame challenges . . .
First, when you alter the time frame that you intend to hold a position from years to days (or hours), you must alter the risk-reward planning accordingly. While you strive to earn multiple points on your long-term investments, you may be delighted with a point or two for a swing trade (2-5 days), and a fraction of a point, when jumping in and out of trades on an intraday basis.
Of course, your pre-trade planning should factor in a risk amount that’s less than the possible initial reward, or profit target. For more information on risk-reward analysis, check out Chapter Three of my book, Short-Term Trading in the New Stock Market.
The second challenge to shortening your time frame comes to you courtesy of your own emotions!
An investor-turned-trader not accustomed to the capricious antics of Mother Market during short-term time frames may be blindsided by her rapid mood swings. One minute she holds stocks aloft with a generous smile . . . in the next, she hurls them downward, sneering at their demise.
That means that a sweetly profitable trade can turn sour in a matter of moments, slicing through the purchase price and delivering a sharp loss. Inexperienced traders who ignored the axiom “plan your trade, and trade your plan,” often find themselves controlled by their own negative emotions (read panic) in chaotic market environments.
As an investor-turned-trader, study risk-reward analysis and adjust it to the time frames you’re targeting. Also, remember that in the short-term emotions rule the market and cause volatility. Don’t let your reactions to price volatility deliver big losses to your bottom line. Develop a plan for each trade before you enter, then trade your plan.
For more information on market psychology, turn to Chapter Fourteen in my book, Short-Term Trading in the New Stock Market.
Question:
What charting software and/or trading platform should I use?
Answer:
The software and trading platform best for you is certainly a personal choice. It depends on your current skill level in chart analysis, trade execution, and trading style. I use RealTick® (www.realtick.com) created and developed by Townsend Analytics, Ltd. for my charting software, market analysis and trading platform.
To your good wealth!
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