Futures level 2 data and forex

I’m a newbie here but not new to trading and I have a crazy question for you all.

I’m interested in using futures DOM data as a proxy to track forex order flow. For example, could I use 6E DOM data for analysis of the EUR/USD pair.

Would the DOM data from the futures market correlate well enough to the forex pair to excecute scalping?

Looking forward to some great feedback!
James

Althoigh not relevant to Level 2 order flow, see my

answers on THIS thread:

http://forums.babypips.com/beginner-questions/86956-monthly-currency-trading-volumes.html

James, you may find this thread helpful:

https://www.forexfactory.com/showthread.php?t=466035

Yes, you could.

Yes, the DOM for the corresponding future is additional information.

Whatever you’re trying to do, it’s not going to be worse with that information than without it.

There are certainly traders using futures volumes and DOMs to trade spot forex.

That’s normally because they don’t have enough capital to trade the futures.

If you do have enough capital, it would be better to trade those using their own information rather than apply their information to spot forex, but that’s just for the convenience, not because the correlation of their respective price movements in real time is inaccurate.

As anyone who actually looks at it can see, the correlation’s effectively 100% (contrary to the rubbish opinions given in that FF thread listed above).

Quickly,

Awesome! Thanks for the great feedback.

I use price action (DOM), Volume and correlation as indicators. Without a proper DOM and volume I’m not sure how I would trade spot forex. I prefer to trade spot over futures because of the additional leverage available.

However, after conducting more research on the topic it appears I should be focused on the indexes. US dollar (DXY) or DOW dollar index, or the new Bloomberg index. I believe that these indexes could be used as leading indicator. I maybe wrong but the futures data would be a lagging indicator of price action for forex.

Look forward to your feedback,
James

Thanks for the great feedback.

After digging deeper into the topic I came to the same conclusion. Futures would be a lagging indicator to the spot. However, I’m now thinking that I should be looking at the dollar index to give me DOM and volume.

What are your thoughts on using the dollar index price action and DOM to track EUR/USD price action. Greater than 80% correlation.

Looking forward to your feedback,
James

Thanks for the great feedback.

After digging deeper into the topic I came to the same conclusion. Futures would be a lagging indicator to the spot. However, I’m now thinking that I should be looking at the dollar index to give me DOM and volume.

What are your thoughts on using the dollar index price action and DOM to track EUR/USD price action. Greater than 80% correlation.

Looking forward to your feedback,
James

Thanks for posting. Ive been considering using futures dom for spot fx as well. Link was very helpful

Warning: Futures contracts should be treated as a lagging indicator.

Not so at all.

I can’t work out from your posts above what it is that you’ve misunderstood, but your conclusion’s wrong.

Anyone who looks at the nearest month’s corresponding forex future price and the spot forex price together, for example E6 future and spot EUR/USD can see for himself that the price movements are actually identical.

This is because of all the arbitrage HFT algorithms actively trading both markets.

Any theoretical discrepancies in price are actually arbed away by automated institutional trading before any retail trader would have an opportunity to notice them.

The price of the corresponding future is neither a leading nor a lagging indicator for spot forex prices.

It’s the same as the spot forex price.

I think you must have read something (maybe the rubbish at FF?) that has blinded you to this.

You can very easily verify it for yourself, if you want to, as anyone can.

As ever, a lot of misleading info online - just one example of many, the blind leading the blind

I agree, RiskOnFx… And with this in mind, I am going to follow every one of my posts henceforth

with a signature, so that people can decide if to ignore my ‘bad’/‘amateur’ advice (nothing personal)

(and try to look for professional/credible advice) or follow up on my suggestions.

In the end, there should be no fear of sharing what we have learnt (good or bad) because it may

save the next person some time or at least show them that others have been down a certain path…

I really dislike ‘gung-ho’ people who claim to be ‘in the know’ and shut down anyone who wants

to share their journey, calling them amateurs etc. So I am putting my hands forward with a

signature at the bottom of every post, because the ‘FX HONORARY MEMBER’ title attracts people

who like to throw insults at me thinking that I somehow think that I know best. I do not know

best, and I have failed many times as a part-time, home-based retail trader… There is nothing

more that I can say than that in my defence… Yes, a lot of us are like the blind leading the blind,

and that is absolutely true, RiskOn, absolutely… but people like Lexy, Turbo, Emerald, SimonTemplar,

PipNRoll, Eddieb have struggled for a while but finally got good at trading… so there are

positive stories… The misconception is that everyone who says is successful is lying on Babypips:

that is just bad vibes… Let us hope that we can all exert judgment when interacting with fellow

forum users, and decide for ourselves if they are scam artists or genuine people sharing their own

stories, sources, techniques, what works and what does not (for them).

Sorry, I was not preaching at you or anyone…just some Sunday musings… I will go back into my box

now :slight_smile:

Happy Trading


SIGNATURE:

this is who I am:

PipMeHappy: The Full-Time Music Teacher

I am NOT a professional trader, so any comments or ‘advice’ from me are either things that

I taught myself or sources that I am as sure about as anyone can be. I cannot help but share

with the community: please do not be mad at me if I get things wrong: I will be the first to

admit not knowing something as well as the next man/woman on Babypips…

Thanks for following up with your reply.

That is exactly what I thought prior to reading this published paper:
https://www.forexfactory.com/attachment.php/1344816?attachmentid=1344816&d=1389371281
Read the abrstract of the paper.

Futures is a lagging indicator because price discovery happens in the spot forex market initially. Beceause of price discovery occurring within the spot forex armed your futures DOM would be a reaction to that market creating a lagging indicator.

I started a new thread about using a dollar index in the same context which maybe a better leading indicator for using a DOM and a volume profile.

Hope this clarifies my position,
James

Not sure I follow your comment about the blind here.

Please enlighten me!
James

It does.

Sorry, but your position’s horribly out of date and in a way that’s enormously important.

The markets have changed.

Specifically, they’ve changed because of all the automated, institutional, HFT arbitrage trading going on.

I explained in my post above what the significance of that is, in this context.

That paper was written well before this was so.

Effectively, for the purposes of what you’re discussing, it’s discussing a fundamentally different market from the one you’re trading in.

But certainly your “position” may have been a valid one when that paper was originally written. That’s a very long time ago, now, and in ways that matter.

I’m not sure whats happened? This wasn’t aimed at you, PipMehappy, in fact is was a sweeping generalisation of the threads that get opened here. I’m not the first to point this out, and I wont be the last. Our late friend Lexy, also pointed this out on numerous occasions - it doesn’t take much lurking about to see this first hand!

The problem that is apparent is that this is a forum for new traders; which is also the route cause of the lack of correct/positive information on offer. Hence, the blind [I]leading the blind[/I] in some cases.

So apologies PipMeHappy if this came across as being directed at you, it certainly was not.

On a positive note, it also doesn’t take long to see who does know what they are talking about in BP, I just hope they stick around!!

Thanks for your feedback.

However, I think the dollar index would be a better viable option for using a DOM and volume profile.
Please let me know your thoughts in my other thread about the spot forex and dollar index.

Thanks again,
James

Not sure I follow your comment about the blind here.

Please enlighten me!
James

You’ve posted the same question twice, James?

No apology needed, RiskOn, I knew it was not directed at me…and yes, Lexy tried so hard to expose the fraudsters on these forums… No, no offence taken, I was just making a general comment… It is hard to express opinions about the market on a forum when so many people live just to antagonise others… I am trying to be more honest than honest, saying: “I am not an authority, do not try to shoot me down”… :slight_smile:

=------------------
SIGNATURE:

this is who I am:

PipMeHappy: The Full-Time Music Teacher

I am NOT a professional trader, so any comments or ‘advice’ from me are either things that

I taught myself or sources that I am as sure about as anyone can be. I cannot help but share

with the community: please do not be mad at me if I get things wrong: I will be the first to

admit not knowing something as well as the next man/woman on Babypips…