Indices and Crosses... 1+1=3? | Forex Factory

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Indices and Crosses... 1+1=3?

  • #1
  • First Post: Jul 9, 2015 10:11am Jul 9, 2015 10:11am
Hello All,

This question might have already been answered, but I could not find it so I'm calling to you all for a lightbulb moment.
This may be completely stupid, this probably can be calculated and demonstrated with a lot of spare time, but it might be quicker to ask to knowledgeable FFers

Here we go :
I read in many posts/discussions about support/resistance levels for some things that I instinctively think should not have.
Let me illustrate with 2 examples :

- Indices (DAX, S&P, FTSE/UK, etc etc)
As I understand these are a benchmark of a country stock market, or an aggregate of several stocks performance. So... while all those stocks have their own S/R and technicals that will influence the value of their respective indice, how can the corresponding indices have their own life/technical analysis ?
"Mmmmh ok so it looks like the DAX is reaching a key support level @ xxXXxx"
How could this happen if the underlying stocks that are part of the Dax do not reach a support level themselves ? And even then , many of them/the biggest ones would have to do so at the same time ?!?

- Currency crosses (Let's say ... EUR/JPY)
Same thing here, it puzzles me to read about technical analysis on such pairs when (and again, don't hesitate to use a flamethrower on me if what follows is total heresy) this is a product of EUR/USD and USD/JPY. So ... when we are nearing support/resistance on EUR/USD or USD/JPY, then EUR/JPY would be nearing a support/resistance level too ? Or is it a bit more complicated than that ?

Thanks for anyone who will take the time to answer, the bottom line for me is to know whether it makes sense to go for a deep technical analysis on crosses and indexes or ... is it a total waste of time.

J
The solutions are in your mind, not in the market...
  • #2
  • Jul 9, 2015 11:00am Jul 9, 2015 11:00am
Quoting OreaM
Hello All, This question might have already been answered, but I could not find it so I'm calling to you all for a lightbulb moment. This may be completely stupid, this probably can be calculated and demonstrated with a lot of spare time, but it might be quicker to ask to knowledgeable FFers Here we go : I read in many posts/discussions about support/resistance levels for some things that I instinctively think should not have. Let me illustrate with 2 examples : - Indices (DAX, S&P, FTSE/UK, etc etc) As I understand these are a benchmark of a...
That's a very good question.what lead you to ask this question. ?

If you look at a basket of pairs you will notice that the market begins to stall as one,watch the quotes,you will notice that the majority dont break above a certain price,the quotes all slow down and the change in the bid and offers are limited.2 or 3 will break this stalling point and the dashboard will light up like a Christmas tree.if you are able to work this out you will be in the money.

the indicies are traded as a single instrument ,ie ft100 is bought as a belief in a overall positive bias .single stocks dont effect this .look at the ft100 as an example wen earnings are reported ,hsbc could have excellent results and its stock price soaring and yet the ft100 could be falling ,then look at the banking stocks as a group and see the effects if there all positive ,its quite interesting to watch how these things effect indicies.
  • #3
  • Jul 9, 2015 11:17am Jul 9, 2015 11:17am
Quoting OreaM
Hello All,
Hi Orea,
is easy answer regarding those indices. Just move one level up in FA. Classics FA (by the books) is divided in three sectors:
Global macro analysis: GDP, unemployment, CPI, etc.
Market analysis: Telecommunications market, Food market, Energy sector,...
Company analysis: Single stocks, CEO, CFO, RoE, RoA etc (not like I was doing these as aint trading single stocks)

Point is, each of these sectors has certain behaviour and companies within correlate. So one could suppose if SaP or DJIA or whatever is kinda mirror to global macro (haha), it has certain behaviour which can be measured and single components of index will not affect whole market in moving some direction. Therefore, market creates its points of S/R...If you include massive investment public watching these indexes and basing their decisions on it resulting in buying certain stocks or parts of index, is well justified it creates areas where "everything/most is cheap/expensive". Yes, you cant pinpoint it and S/R are zones, not lines, but thats normal in macro movements.

Regarding those crosses, I kinda agree, and that is the reason why I trade only USDX crosses and am either USD short or long depending on that global macro. On the other hand, some crosses have well justified movements, as are made by close sectors which trade with each other - take EurGbp for reference or EurChf, signals cash flow within Europe.

Hope it helps,
T
"I know one thing, that I know nothing." Sokrates
  • #4
  • Jul 9, 2015 11:22am Jul 9, 2015 11:22am
Quoting diceman555
{quote} That's a very good question.what lead you to ask this question. ? If you look at a basket of pairs you will notice that the market begins to stall as one,watch the quotes,you will notice that the majority dont break above a certain price,the quotes all slow down and the change in the bid and offers are limited.2 or 3 will break this stalling point and the dashboard will light up like a Christmas tree.if you are able to work this out you will be in the money. the indicies are traded as a single instrument ,ie ft100 is bought as a belief in...
Thanks for your answer diceman!

What led me to ask the question was that it just felt weird that those products would have a life of their own and their own technical analysis , specifically for s/r purposes.

In your FT100 example, I believed (apparently wrongly) that let's say :

Indice MOFO contains 4 equal stocks (i mean those 4 stocks have the same weight in the indice calculation)
- Microsoft for 25%
- Oreo for 25%
- Facebook for 25%
- Opel for 25%
Today, the price of Microsoft/Oreo/Facebook remained completely stable, but Opel lost 10%
My belief was that the indice MOFO would be down 25%*10% or 2.5%

Same goes for FT100, in my view of it HSBC fluctuations would impact the whole indice, but would be counterbalanced with other stocks in that indice moving at the same time.

I can completely see myself going to a broker and saying "Hey buddy, give me 10 of those shiny Apple shares on the shelf there". On the other hand I would expect him to stare at me with dead cow eyes when I add "And I will also take 15 of those fine FT100 coupons over there"
The solutions are in your mind, not in the market...
  • #5
  • Jul 9, 2015 11:40am Jul 9, 2015 11:40am
Quoting Tom_D_Trader
{quote} Hi Orea, is easy answer regarding those indices. Just move one level up in FA. Classics FA (by the books) is divided in three sectors: Global macro analysis: GDP, unemployment, CPI, etc. Market analysis: Telecommunications market, Food market, Energy sector,... Company analysis: Single stocks, CEO, CFO, RoE, RoA etc (not like I was doing these as aint trading single stocks) Point is, each of these sectors has certain behaviour and companies within correlate. So one could suppose if SaP or DJIA or whatever is kinda mirror to global macro...

Thanks for the explanation Tom

Mind if I ask, are the macro elements factored in indexes directly, or are they impacting stocks which in turn impact the index as a whole ?
NFP or interest rates in the US for example, would these be taken into account to calculate the Dow, or would just affect his price because of the effect it will have on the stock market?

Completely agree with the European crosses and why they happen, would be interesting to know if any S/R would exist on a EUR/GBP - EUR/CHF - GBP/CHF chart without a counterpart S/R in Eur/Usd - Gbp/Usd - Usd/Chf at the same moment in time.
The solutions are in your mind, not in the market...
  • #6
  • Jul 9, 2015 12:13pm Jul 9, 2015 12:13pm
Quoting OreaM
{quote} Thanks for the explanation Tom Mind if I ask, are the macro elements factored in indexes directly, or are they impacting stocks which in turn impact the index as a whole ? NFP or interest rates in the US for example, would these be taken into account to calculate the Dow, or would just affect his price because of the effect it will have on the stock market?
Now that is very difficult question, so please dont take this as some kind of trading advice, but more of an academic analysis.

The very easiest way how should it work is this:
Economy works wonders, companies doing fine, lowering unemployment, increasing GDP, resulting in raising company value, justifying investing into companies, moving index.

Unfortunately in real world not only this sequence does not work this way, but actually is very often reversed, because of this:
Prerequisities: Lagging data (Unemployment, GDP, CPI, all measured by government bureaus), Twisted data (also coz stats are very political - for example now US officials could use higher both CPI and GDP in order to a) justify hike b) prevent panic), Investors outsmarting Mr. Market (Long before bureaucrats send us data, major financial institutons have analysis long time ready and already invested), Moral hazard (certain markets are so weak compared to Wall Street - Financial vultures can actually crumble whole market simply to start panic and then buy when there is blood in the streets - Greece)

All these prerequisities are resulting in few things - mostly lotsa people admit we have such huge information/equity disadvantage to financial institutions we are always lagging with fundamental analysis, cant fight em, therefore just give up and follow TA on charts. Thats why so many watch those indexes and possibly is the most frequent scenario (is resulting from that TA). Major investment instuitutions know better economy than we do - again very lol, as those are fkin vulture thieves, nothing free. So this is the flow sequence:
Index moves up - a) investors expect economy is going to do fine b) companies listed in index raise their equity - both of these result in economy actually beeing boosted (is a self fulfilling prophecy) - lurking more little guys to invest, adding liquidity, fuel market to reach top - boosting economy again - and then lagging officials should confirm index movement by better data. If they wont, was prolly just a vulture trap - very often - and bad data send market back to base. For this reason I dont trust index as a base for my trades and always do my own FA. Am slow, but better than to be in hands of vultures.

So these were macro sequences. Imo the easiest way how to trade data is a) have your own FA long time ready b) certain intraday/week/month movements (for actual trading) are affected by prerequisities, dividing in 3 scenarios again:
1) Data confirm your long term FA, justifying all movements = gdp, unemployment, index, bonds...
2) Data invalidating FA
3) Data supporting certain market interests - again very often - is very heavy cash involved (prereq: moral hazard, twisted data): Easiest example here is market beeing addicted on QE. Bad macrodata result in stocks buy, coz they support postponing of hike. Good macro data mean hike is around corner and everyone sells stocks.

I know is pretty confusing what I just wrote, + Eng is not my native language, but was a very hard question, hope it helped a bit.

T
"I know one thing, that I know nothing." Sokrates
  • #7
  • Jul 9, 2015 6:35pm Jul 9, 2015 6:35pm
Quoting diceman555
{quote} That's a very good question.what lead you to ask this question. ? If you look at a basket of pairs you will notice that the market begins to stall as one,watch the quotes,you will notice that the majority dont break above a certain price,the quotes all slow down and the change in the bid and offers are limited.2 or 3 will break this stalling point and the dashboard will light up like a Christmas tree.if you are able to work this out you will be in the money. the indicies are traded as a single instrument ,ie ft100 is bought as a belief in...
GOOD comment.. good explanation.. THKS.. good easy to follow explanation.. i like it simple..
  • #8
  • Last Post: Jul 10, 2015 12:25am Jul 10, 2015 12:25am
Quoting Tom_D_Trader
{quote} Now that is very difficult question, so please dont take this as some kind of trading advice, but more of an academic analysis. The very easiest way how should it work is this: Economy works wonders, companies doing fine, lowering unemployment, increasing GDP, resulting in raising company value, justifying investing into companies, moving index. Unfortunately in real world not only this sequence does not work this way, but actually is very often reversed, because of this: Prerequisities: Lagging data (Unemployment, GDP, CPI, all measured...

Thanks a lot Tom !
I will not use it as a secret indicator but (specifically for DAX/FT100/Dow etc), I like to understand the nature of a product before touching it, your explanation is crystal clear and complete, what more can I ask for
The solutions are in your mind, not in the market...
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