Q.O.D- June 21, 2013
Q. I have heard many different ways regarding when to make the change to futures contracts during ‘rollover’. The more variations I hear about comparing volume, the more confused I get. Is there a specific day that Wall Street starts using the new contracts? Also, does it really matter in the end which day or time I choose?
A. An interesting and even more timely of a question since we just had the rollover of most e-mini futures contracts this past week. If you haven’t already done so, please start using the September contracts for all transactions. You will notice your June expired contracts will print bars at a snails pace starting today so be sure you adjust your ticker symbols and execution platform to the ‘U’ contract for most of the equity index futures contracts.
There is many an opinion on when to start trading the new contract. The official transition takes place on the 2nd Thursday in March, June, September and December. So if you are seeking the ‘Wall Street’ answer to your question; it would be starting on Thursday. I agree with your confusion in that you will often hear suggestions on using the contract that trades the most volume. Historically, this occurs midday or afternoon on the Thursday. With this transition, you are trading the expiring contract on Thursday morning and then monitoring the volume on both until the front contract exceeds the volume of the former. Confusing? Not really, but it often will take the focus away from identifying plan setups. Trading rooms often have their quarterly conundrum of discussing setups with the ‘if you are trading the x contract, then it would be at X price..and if you are trading the Y contract..”.
Historically, rollover Thursday is often a dull trading day with lots of rotation. A market profiler’s value area dream if you will. Of course, last weeks rollover Thursday was the poster child for a trend day up, thus putting the rotation players scratching their heads. Go figure.
Like almost everything in trading, it is taking a consistent approach in whatever you decide on when to start your rollover to the new contract. In my own observations over the years, I have found it challenging for traders that use specific price levels in their trading decisions to make a smooth transition; such as in the case for market profile or other price sensitive trade strategies. The reason being is that the price levels are adjusted during rollover. Those who trade with oscillators or moving averages also find it confusing because the new contracts have just started trading and the indicators do not have enough price data to ‘catch up’ with the indicators.
Contrary to many, you may wish to avoid the volume-watching concept which often will take the focus away from setup identification. Use a consistent transition plan, such as starting on the Friday, which almost always has most traders using the new contract by then. Personally, I often make it a point to avoid the entire concept altogether and take the Thursday off from trading. Consider it a little mid-week reward from a profession that can be quite grueling at times. Adding another challenge to the mix can only reduce edge and often have you regret trading it in the first place.
