The New S&P and e-Mini? Russell 2000 makes its Mark.
April 5, 2004
Entering the Symbol RL into your TradeStation a few years ago was more likely to get you Ralph Lauren, not the Russell 2000 futures. The Russell just wasn't sexy. Why would anyone choose to trade the Russell futures, with average volume of under 1500 contracts and an average daily range of just 12 points when they could trade Nasdaq futures with over 100 points in range a day or S&P futures with an average of close to 90,000 contracts traded each day. Investors flocked to the action like a moth to the flame.
Well one certainty in life is that things can and do change, and while investors are still flocking to the action as best they can, they have had to look elsewhere to get it. The 100 day average true range of the Nasdaq futures has dropped over 80% to just about 25 points as of the end of Q1 '04, while the once mighty S&P futures have "dried up" significantly as well, now seeing ranges just 50% of those encountered in 2000. Where are investors going? To the Russell. The Russell e-minis traded over 1,000,000 contracts for the first time in their relatively short history last month and things don't look like they'll slow down any time soon. Is the Russell the next S&P? Have things really gotten that bad for the most actively traded index market?
It is admittedly tough to make money in these conditions. Consider the S&P futures with their average true range of just over 11 points per day. Buying the bottom of that range and selling the top would net an investor approximately $2,750, a figure we call the effective range. The effective range is simply the maximum amount of dollars possible to extract, on average, from a particular market. It is calculated by multiplying the average true range by the contract value. Thus, the 25 point range now average in the Nasdaq futures produces an effective range of $2,500.
Considering effective ranges from a trading system standpoint, a system can realistically expect to make only a percentage of the effective range on each trade. It is therefore in trading system investors best interest to seek out those markets with the highest effective ranges, so no matter what percentage of that range their system makes, the dollar gain is larger.
So what index futures market has the highest effective range? You guessed it, the Russell 2000 futures. At $5000 a point for the full size contract and $100 per e-mini, the Russell 2000 futures effective range is nearly twice as high as that of the S&P futures, clocking in at just under $5,000. A trading system utilizing the Russell instead of the S&P could afford to be less precise in its entry and exit, therefore, while still making the same amount of money on a winning trade. The higher effective range means investors don't have to peg the high and low of the day to make a decent return.
So what is happening here. Where did this Russell contract come from? And what is it? The Russell 2000 is an index of 2000 small cap stocks in both the growth and value categories. It has been around for quite some time but has only recently come into the limelight as far as its futures are concerned. The reason for its bursting onto the scene in 2004 is most likely its dynamite 2003 performance. The index was up over 47.25% in 2003, compared with gains of just 28.68% in the S&P 500. With this notoriety as one of the best performing major indices came volume in the form of hedge funds, individual investors, and most recently — trading systems.
Many trading system developers have been looking in on the Russell for quite some time now, but out in front of the pack is Lincoln Fiske, president of Trading Visions Index Systems, Inc. www.tradingvisions.com. Lincoln has tested and posted results of all the Trading Vision systems as run on Russell 2000 data. Other developers getting in on the action include Compass developer Jack Telford, who is in the preliminary stages of creating a Compass sister system which operates on the Russell.
So will the Russell take the place of the S&P as THE index futures market. Don't count on it happening any time soon. The full size Russell contract is nearly nonexistent, with just over 2000 contracts changing hands daily on average. S&P e-mini volume still dwarfs the Russell e-mini volume as well, at 600,000 contracts per day versus approximately 40,000. But the growth in the Russell has been nothing short of spectacular, making the market a viable choice for investors.
IMPORTANT RISK DISCLOSURE
Futures based investments are often complex and can
carry the risk of substantial losses. They are intended for sophisticated investors and are not suitable for
everyone. The ability to withstand losses and to adhere to a particular trading program in spite of trading
losses are material points which can adversely affect investor returns.
Feature | Week In Review | Chart of the Week |
Feature | Week In Review | Chart of the Week |
Except where noted, the below Profits/Losses are based on closed out trades. $50 per R/T commission included ($30 per emini) Percentage gains based on developer recommended initial balances as listed at www.attainaccess.com.
**Swing Trading**
March was the month of the swing trading systems, as they enjoyed the most success this past month. I-Master led the way after posting profits in all four markets ES, NQ, e-RL, and e-MD. Of these four I-master NQ and ES posted the largest gains which was in contrast to previous months when the system had better returns in the e-RL and e-MD markets. For the month I-master NQ made +$3363.00 per contract, I-master ES made +$2456.00 per contract, I-master e-MD made +$2033.00 per contract, and I-master e-RL had returns of +$516.00 per contract.
Not to be outdone several other swing trading systems posted profitable months. Tzar ES continued its success with profits of +$1715.00 per contract while Delmar ES made +$265.00 per contract and Delmar NQ made +$190.00 per contract. Tzar NQ was the only stock index swing trading system to have a losing month finishing down -$1750.00 per contract.
**Day Trading**
March was an up and down month for the day traders. Investors were optimistic as the market saw both improved trading ranges and volatility. Unfortunately even with these supposedly improved trading conditions the day trading systems struggled in March. Two systems that certainly did not struggle were Blue Wave Zones SP and Day Breaker SP. Blue Wave SP and Day Breaker SP duked it out for the top spot throughout the month with Blue Wave prevailing after posting profits of +7200.00 per contract. Day Breaker was not far behind netting gains of +$6275.00 per contract.
Early Bird III SP was the only other profitable SP intraday system making +$575.00 per contract on its first trade since October. Early Bird, which is highly dependent on large trading ranges, certainly benefited from the improved trading ranges. Finally, Impetus e-RL took profits of +$1025.00 per contact in the increasingly popular, and tradable, e-mini Russell market (see below).
The rest of the day trading systems ended March in the red. Systems that took losses include R-Mesa 5 SP which lost -$400.00, RC Success ES which lost -$767.50 per contract, Compass SP -$1155.00 per contract and LTS Barracuda which lost -$6652.00 per contract.
For those customers that trade Compass’ reversal filter Sextant, the losses did not seem quite as bad. The filter kicked in three times for profits of +$2815.00 per contract, to make the Compass/Sextant combo profitable for the month.
**Long Term**
Luckily for most of the long term systems, March 31st landed on Wednesday rather than Friday. As we reported on Friday the very surprising unemployment numbers wiped out the majority of open trade profits that systems such as Andromeda, Aberration, and Synergy had accumulated over the course of the past quarter. Fortunately, these systems were able to post positive returns for March and will now have all of April to make up for Friday’s downward move.
Profitable markets in March month included the grains and metals, which both continue to trend higher on supply and demand concerns. Markets such as Soybeans and Copper have been responsible for most of the returns that long term traders have seen.
Foreign currencies continue to be difficult to predict as rumors of government intervention and rising interest rates have played havoc in the Yen, Eurocurrency, and Swiss markets. Bonds also proved difficult to trade as any trader who was in the bond pits on Friday will attest too. Mesa Bonds demonstrated the difficulty of technically trading the bonds in March losing -$3806.00 per contract. But in the 10 year notes, market it was a whole different story with Mesa Notes posting gains of +$1046.00 per contract.
Please Login to: http://www.attainaccess.com for the latest updated statistics.
IMPORTANT RISK DISCLOSURE
Futures based investments are often complex and can
carry the risk of substantial losses. They are intended for sophisticated investors and are not suitable for
everyone. The ability to withstand losses and to adhere to a particular trading program in spite of trading
losses are material points which can adversely affect investor returns.