For example i am trading Reliance futures which is trading near its strong resistance at a particular time and suddenly i see a breakout of resistance on futures few moments later breakout happens in reliance stock, why did breakout happen in futures earlier than breakout in underlying stock? shudnt it be vice versa?
1 Like
Ideally future should follow stocks but in some scenarios future movement precedes stock movements.
Reason can be anything like the same entity which is going to make a big trade in stock initiated trade in future first and later in stock.
Few high frequency firms which use DMA (direct market access) can see whole exchange order book but retailers can see only best 5 quotes,even firms which uses colocation facility can read best 20 quotes.So, they might have acted first in futures.
Some times the display might be delayed if messages are crowded(more trades) for particular underlying.
Few will only follow futures contracts to trade and ignore underlying movements and they will trade in their own time frame. One might use 5 mins time frame to check for support and resistance levels, few might use 60 mins time frame,others hourly,daily,weekly or even monthly so according to them support or resistance might be breached in futures contract alone and might have acted.
It might also be a coincidence in few cases as someone might jumped the gun too soon.
1 Like
Thanks for your reply. Its hlepful.
Can you recommend some book on how Big firms like LIC and other institutional investors operate in market in context of dalal street?