Comparing the price action of two different futures contracts may uncover complementary or inverse trends and leading indicator relationships to be used in a potential day trading setup.
Identify Complementary Trends
A complementary leading market is a futures contract that establishes a trend before a typically correlated market moves in the same direction (bearish or bullish). But, if two financial instruments are compared on the same chart and both exhibit the same bullish or bearish trend, further confirmation of the current trend can be established.
Created using the multi-series charting capabilities in NinjaTrader, the chart below is an example of complementary bullish trends witin the E-mini Nasdaq and S&P 500 Index futures contracts:
Identify Inverse Market Trends
When comparing inverse markets, you may be able to identify leading and lagging trends. Lagging inverse markets can be used to spot potential trades based on the initial movement of the leading market.
Below is a chart of the E-mini Nasdaq and ZN Treasury Note Futures Contracts featuring an example of inverse leading and following markets:
Compare Correlated Market Trends
When comparing correlated markets, you may be able to identify leading and lagging trends. The leading market trend begins before the following, but in the same bearish or bullish direction.
Below is a chart of the E-mini Nasdaq and Dow Jones Industrial Average futures contract pair featuring examples of correlated leading and following market trends:
Watch this quick video to about multi-series charting on NinjaTrader’s online trading platform:
As always, remember past performance is not indicative of future results and you should always trade within your risk tolerance levels.