Emini Index Futures

When it comes to the emini index trading such as S&P 500 emini index futures (ES), Russell 2000 emini index futures (TFS), e-mini Nasdaq 100 index futures (NQ), mini-sized DJI index futures (YM) or any other futures that track the performance of the indexes, the logical question for many traders and investors is what analysis should be used in the process of making a trading decision.

From one side we have eminis that are traded and from other side we have indexes which are tracked by emini. By asking active traders this question you may find various answers that would favor either of the positions above and every answer could be considered correct from a certain point of view. It is still difficult to get correct answer on this question because it depends on what indicators a trader uses in his/her technical analysis and what time-frame he or she trades.

To better understand the problem with this question I will try to summarize cons and pros that for each type of the analysis either it is emini analysis or index analysis.

1. Emini index price depends on the price of its benchmark index. As an example ES price is calculated from the S&P 500 index price and it is calculated as $ 50 times price of the S&P 500 index. Respectfully, if the S&P 500 index price depends on the supply and demand of the stocks from the S&P 500 index backed then the ES emini price does not depend on supply and demand in trading of the ES emini. It does not matter how many traders want to buy or sell ES futures – the ES price trends where the S&P 500 index price go. From this point of view it would be logical to apply technical analysis to indexes with the purpose of trading emini index futures.

2. Since emini price depends on the index price and their price trends move in similar pattern, if a trader uses price based technical indicators, it does not really matter what they applied to – the generated signals will be similar.

3. Volume based and advance/decline based indicators that are applied to the indexes may generate signals that would differ from the signals if similar indicators would be applied to eminis. Furthermore, it would be more correct to use index technical analysis in this case.

4. On very low, intraday timeframe when a trader follows every tick, a trend of emini may slightly differ from the index trend. Even if the emini price will match its index ratio price at the end of the day, for traders who trade very short trades could make sense to analyze emini.

5. Eminis are traded 24/7 and indexes are traded only from 9:30 until 16:00 EST. A trader simply cannot analyze indexes beyond the regular trading hours.

As you see, there are several factors that would favor analysis of the indexes and there are some factors that would favor analysis on emini futures. It is up to a trader to consider what to use in his or her technical analysis.