I am trading ES, YM, TF and sometimes FDAX. Often I question myself, which of these is the appropriate instrument to trade. Each of them has a different character. In my opinion FDAX is very volatile, a bit like crude oil, maybe due to lower liquidity. TF is trending nicely and I am gradually developping more confidence. as it does not trap me as often as ES. The character of YM seems to be somewhere between TF, ES and FDAX. NQ has never attracted my attention. And FESX is a failure, as the commissions do not buy me enough volatiliy.
This introduction was a bit subjective, and I do not want to stay there, but do my first analysis. I want to compare transaction cost and slippage for the index futures. So this is my question:
How much volatility can I buy with the commission for 1 roundturn and 1 tick slippage (representing the bid/ask)?
To do this, I measured the average range of the 15 min bars over the last two weeks. I excluded the night session, as volatility is too low for trading. And I chose the average range and not the average true range on purpose, because I did not want to include the opening gap, which I cannot trade, as I do not hold overnight positions.
For the US Index Futures the RTH session lenght is 6h45, which is 27 15 min bars. I coded an average range indicator and used a period of 270, which represents the last 2 weeks. For the EUREX traded index futures the session length is 8:30, which would be 34 15 min bars, so I used a period of 340 for my range indicator to establish the average range of a 15 min chart over the last 2 weeks.
Results (15 min range, point value / slippage / commission)
I now calculate the trading cost as a percentage of the average range result for an average 15 min and an average 5 min trade. For the five minute trade I assume that I obtain the approriate volatility measure by dividing the range through sqrt(3).
This looks quite interesting. The precentage shows, which fraction of a profitable or non-profitable trade that lasts 5 or 15 minute is eaten away by the broker and the bid/ask. Quite a lot. You should not trade FESX or ES on a short term time frame.
To evaluate the impact of this result, let us apply it to a simple strategy with an assumed
- percent profitable 60%
- win-to-loss ratio 1:1
What is the expectancy in terms of the money value of the 15 min range? :pcguru:
Interesting result, is n't it? For the same strategy FDAX or TF produce an expectancy about 4 times higher than for FESX, and over 50% higher than for ES. As a retail trader, who suffers from the assumed transaction costs and does not need the liquidity of ES for trading size, will you ever touch FESX or ES again?