FAQ: CASH OR FUTURE DATA There is always question in the forums, weather you use cash data or future data for analysis. I always use cash chart for analysis and my explanation for the same is as follows:
Whether a futures market is traded just 7 hours per day or around the clock, nearly all suffer from the same GREEKS problems like, the premium decay , interest cost, volatility etc. That decay is the result of storage costs or interest rates or the effect of time on value. Consequently, most futures markets experience continuous value deterioration. Such value decay creates distortion in price structure over the time, which again causes patterns to break rules and creates a different picture, by which an accurate wave or pattern analysis difficult in any situations.
When you focus solely on cash charts, you avoid premium decay, which means you have a chart that never need to be redrawn where as a futures charts must constantly be redrawn as and when each contract expires. When using cash charts, you will find your indicators positioned, retracement levels or wave counts are more likely to be accurate from the start and less likely to change with time, avoiding the need to restructure past patterns. I think this a phenomenon, like many wave analysts doing regularly because they insist on using easily useable, deteriorating futures datas. One must think about it deeply for the sake of precision analysis and change the way they think. If any one of you are having a valid reason to have a different view, I am interested to learn that aspect, knowing that the price rage calculation should be made separately for the future contracts. Defiantly, like option calculator, one must find a way to get the price derived from the cash value, adding premium or some other means. Not that to get the future price level, we change the chart, the entire psychology reflected on chart, is changed and following it wrongly.
Today @venkitcr was asking the same question last weeks @Parasuram and many others raised the same issue. This may be helpful to avoid some doubts.
Padiyaraa®
Comments
santoshram
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what is the difference between banknifty and bankniftyu in tradingview symbol column, is there a difference, i am new to the stock market
padiyara
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@Parasuram Dear sir, the question reflect the knowledge and experience you hold, hence I thought, two line chat cannot deliver the concept.
There are different views and contrarian views exits. Understanding the basic concept, complying other aspects will be help full some time. If you think that the future price is leading to spot price increase, it is totally wrong. YES there can be demand. THAT demand is generated due to the strength and ability of spot 50 constituent stock or in general market. Not because the future/option premium is reached. Have you read that few days back is said in news that, the reliance in leading the nifty to higher level…... Also I remember, when I said 9K is approaching…. some of you asked me, what I think which stock can lead nifty to that level, that day I was no sure about reliance, but I said I am hoping for just 200 points only now and HDFC alone is sufficient for that.
The 'futures price' is the price of the same commodity or INDEX at a FUTURE DATE. The price which you would pay today for the right to receive the commodity at some point of time in future, say after 1, 2 or 3 months.
Hence, if the spot price for one lot Nifty is worth Rs 45,000, the 1-month future price could be higher, say Rs 45300, while the 2-month future price could be much high Rs. 45500. The difference between the spot price and the futures price is due to 'cost of carry'. Cost of carry is the cost attached with holding the physical commodity for a specified period of time such as cost of inventory, insurance, interest, etc.
Usually futures price is higher than the spot price, this is known as premium. And, a situation in which the futures price is lower than the spot price is said to be in Discount I think. Example of discount can be seen in the case of seasonal commodities where after a good monsoon, you can expect the futures price of crop to be lower than that of spot price.
On the other hand VIX… a contrarian index also called a fear index, (that doesn’t helps investors look for tops, bottoms and lulls in the trend but allows them to get an idea of large market players' sentiments) is calculated from the best bid ask prices of near term Nifty 50 Options contracts a volatility figure % is calculated, which indicates the expected market volatility over the next 30 calendar days.
When the market is steadily moving upside or range bound then implied volatility is observed to be low, and when market declines sharply due to heavy selling or bad sentiments then implied volatility rises to high.
VIX is a measure of market's expectation of volatility over the near term, see 30 days.
That means, Volatility Index annualized volatility e.g. 20% is a measure of the amount by which an underlying Index is expected to fluctuate based on the order book of the underlying index options.
I understand For Long term sure and short term even, it is spot which carry definite clues, all others are derivations like indicators, for me OI is volume only.
अंत में यह ” चिकन या अंडा पहले ” कहानी की तरह रहेगा
Parasuram
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@padiyaraa, Thank you for the explanation and appreciate the efforts in doing so.. Cheers!
Parasuram
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Agree that Cash price is the underlying value and the real value. But unlike the scrips, on the index we do not trade the spot price and only the futures price. So the market participants the fear or greed can only move the futures price.May be the spot price can be a guiding one especially for a longer term price analysis. If one looks at it .. The FIIs most look at India and the Sensex prices ( even the lay person does) as Sensex prices have longer history than the Nifty prices.
AMBRISH
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Thanks for clarification, even i prefer to look at spot(cash) chart, it gives clear picture.
venkaticr
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Thanks for sharing the above information. In fact very often we get confused between BN and BNF. As we trade mostly in Futures and Options, we always see the BNF. Hence the above doubt and thanks for clarifying the same. Yes we do agree the premium portion fluctuate especially in Choppy markets and we tend to loose very often due to reduction in premium.