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Indices

Indices are a very valuable tool for the daytrader. They give you information about market sentiment and market direction. You can increase your chances of success if you trade with a market trend rather than against it. Many stocks are sensitive to the movements of leading indices and indicators. A daytrader profits from small intraday price fluctuations, and indices can give you a valuable insight into current trends and upcoming trend reversals.

NASDAQ Composite Index
Symbol: $COMPX
The NASDAQ Composite Index reflects the performance of more than 5,500 NASDAQ stocks.

NASDAQ 100 Index
Symbol: $NDX
The NASDAQ 100 includes 100 large domestic but non-financial stocks. Since it is more technology-based, this index may diverge a bit from the Nasdaq Composite index trend.

Dow Jones Industrial
Symbol: $INDU
The Dow Jones Industrial Average Index is the best known index in the world. It consists of 30 actively traded blue chip stocks. Although most daytraders trade NASDAQ stocks and not stocks which are components of the Dow Jones, the Dow is watched as a leading indicator. Since everybody is watching the Dow, its direction can have an impact on the whole market.

S&P; 500
The Standard and Poor's 500 Index includes 500 relatively large companies on the NYSE and NASDAQ market.

S&P; 500 Futures
Symbol: /SPZ1 (expires December 2001)
How to find the right symbol for futures:
Formula: /commodity symbol + expiration month + year code

Symbols:
S&P; 500: SP
S&P; E-Mini: ES

Expiration Month: March = H, June = M, September = U, December = Z

For the daytrader, the S&P; 500 Futures Index is very important because it is the leading indicator of market sentiment. Many stocks are very sensitive to the S&P; futures movement, especially larger-caps stocks. Having real-time data on S&P; futures is a must for the daytrader.

If you trade in the same direction as the futures are moving you can increase your chances of success. Sure, not every stock follows the futures one-to-one all the time, but futures do give you another piece of the puzzle if you are looking for information concerning a buy or sell decision. Often it is a good idea to hold a trade as long as the futures are strong and exit immediately if they start heading down. Watch the futures and learn to read their movements because this will be a great help to you. Little up-ticks or down-ticks are unimportant but the general direction of the futures can be a helpful indicator.

It makes sense to combine S&P; futures with other indices and indicators to get a better overall picture of market direction and sentiment. Use a one-minute line chart or a candle stick chart for futures. Many traders also use a 3 or 5 minute chart.

Fair value
When CNBC talks about futures they often mention Fair Value. Fair Value is the value of the S&P; 500, plus the interest you pay your broker for buying the stocks, minus dividend checks.

NASDAQ Futures
Symbol: /NDZ1 (expires December 2001)
How to find the right symbol for futures:
Formula: /commodity symbol + expiration month + year code

Symbols:
NASDAQ: ND
NASDAQ E-Mini: NQ

Expiration Month: March = H, June = M, September = U, December = Z

Use NASDAQ futures the same way you use S&P; futures but bear in mind that S&P;'s is the leading futures index. Look for divergences in both indices.

TICK
Symbol: $TICK for NYSE stocks $TICQE for NASDAQ stocks (NNM)

TICK is a very short term indicator and thus is very useful for daytraders, especially when used in conjunction with other indices. TICK is the difference between the number of stocks trading at a higher price than the previous trade (uptick) and the number of stocks trading at a lower price than the previous trade (downtick). With TICK, the direction is important, not the number - unless this is extremely high or low. Also, small changes in TICK are not important but the general direction of the change is. So if the TICK moves up, it means more stocks are on an uptick than on a downtick and this indicates a stronger market. If TICK shows extreme values it can be used as an overbought/oversold indicator as well. We recommend you watch TICK in conjunction with futures.

TRIN
Symbol: $TRIN for NYSE stocks $TRIN.NQ for NASDAQ stocks (NNM)

TRIN is a market indicator that shows the relationship between the number of stocks that increase or decrease in price (advancing/declining issues) and the volume associated with stocks that increase or decrease in price (advancing/declining volume). It can show overbought/oversold situations.

 
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