More strategies

I need to test new strategies. I need to also review pair trades. Overall, after watching the market for the last month, I think it all comes down to watching the active sectors for the day, watching the futures, using S/R lines, trend lines, and evaluating trade entries based on high probabilities. The initial entry may not be perfect, probably will rarely be spot on, but define your risk, and give yourself time for your target to be hit with a trailing stop that won't get hit off of 1 or 2 ticks.
I would like another monitor so I could watch 80 stocks. Right now I watch around 25 charts. I would like to have charts for all the sectors and the major stocks in the sector. I would like a porfolio with a list of all the stocks in that sector so I can pick who is the leader and laggard. I would like a porfolio of all the volatile stocks as well. Also I should make a porfolio each day of my scans of hot stocks that meet my criteria, whether it be new highs/lows, % gainers/losers, or large intraday range and volume.

New correlation stuff

I found another website where you can run correlation between stocks and ETF's at www.spdrindex.com/correlation. I need to focus more on leading sectors as my leading indicators. I think I'm going to start using Ben the S&P broadcaster to help with my trading. I'm going to see which index is leading and lagging. I believe the Nasdaq has been the leading indicator to where things are headed. The Techs haven't been getting beaten as badly as the other sectors probably because they are already beat down pretty hard. I notice that there was good volume on the moves to the upside today when looking at the indices. Also, the VIX is at 23.81. Great volatility for day trading. I just need to practice and get better. I'm looking at the VIX and it is the smoothest looking chart I've ever seen, with nothing but trianliar patterns.

The question is when this trend line will break. Stocks like TIE and HANS are getting beat down hard, rightfully so. Just when you want to buy something that seems like it will keep going up forever it normally is at a peak and you can suffer some serious loses if you don't use stops.

The VIX today ended up 13.6% at 23.81. The long term trend line on the VIX has been broken. We are in BEAR COUNTRY!


VIX to $30?

An intraday variation to Pairs trading, my style of trading

It took me a while to find a strategy that worked intraday that would give me signals for high probability trades to occur. I use to try to trade stocks which had very little correlation with each other, and I use to only watch a couple charts,,,that was a waste of time, however I learned chart patterns and high probability setups.
To know how to trade, you must know how the market is connected. I suggest looking at the market from a top down approach and then narrow it down to a few products to trade.

1.You must realize that the futures like the ES,YM, and NQ are your greatest indicators intraday. (you may also may take note of the EURO and Bonds,,however,,these often react to whatever the futures are doing)

2.The TICK and TRIN are your second greatest indicators

3.The index in which the stock you are trading is third most important (and you will want to find an index which has high volume and has a high correlation with the futures,,things llike XLF,XLE,SMH, are good choices for their volume, obviously SMH is better if your watching NQ, and XLF or XLE would be better for ES/YM)

4.In the index you are watching, there may be sub-sectors,,and in these sub sectors you may find stocks even more correlated. For example you may like the financial sector; XLF. If you choose this sector, analyze to see which stocks are most correlated, and which stock often acts as a leader in the moves and which is slow and catches up.
To see what I mean look at this:



5.Now that you have your basket of stocks that you watch everyday, you will watch to see which stock makes the first move in a particular direction, and then you will decide what stock from your basket is most likely to catch up. You do not short the leading stock, that would be stupid, because it will continue in its direction and it's advancement may grow stronger as the sector grows stronger from all of the other stocks catching up. Obviously, your sector is most likely going to move becuase of what the futures are doing.

6.To be good at stocks, it really helps to know how futures trade and how to trade using the TICKS. When trading with the TICK, you look for a higher high or lower low then the previous TICK, and also you need to take note of apparent trend lines on the TICK chart, which when broken, will cause a reaction in the futures, which causes a reaction in your sector and a reaction in its underlying stocks.

I probably watch 15-20 charts during the day. I personally use 1min charts(sometimes 12 sec charts) for trading and when I see a trade setup I just turn my eyes to the bid/ask spread and look for the best entry, I trade the YM and a basket of stocks at the same time, first taking an entry on the YM and then getting into stocks. If I was correct on the YM trade, then my trade on the stocks will pay off too. Most of my trades are in the black within 20 seconds, however, sometimes the ticks may give a fake out and I may have to add to the position before the ticks break the trend line and start moving my trade into the correct direction. I look for an exit on the YM at tick extremes most of the time, unless I'm going to hold the position longer. The exit on the stocks will be after the exit on the YM because the stocks are slower to catch up. Also, it is in your best interest to trade in the direction of the moving average. If you miss a reversal, it is very likely that the trend will continue and you can enter on the next bullish/bearish candlestick harami. However, the point to this style of trading is to notice the reversal in a leading stock, and get into the slow stock before it is bid up or down. While the leading stock may start rolling over along with the ticks and YM, my lagging stock may be at its high, which is perfect for a short entry.

So, when your trading, I would suggest you use a futures contract, the tick, trin, a sector, and a basket of highly correlated stocks. With my strategy, you trade only one direction, which is the direction of the futures, and there is no short the leader and buy the laggard like how Pair trading is based. The ORIGINAL pair strategy works best between different sectors, not between two stocks in the same sector. Also the pair strategy works best on a much larger time frame then intraday if you were to actually try to trade a real "market neutral trade", for example:

This is a classic example of what a pair trade should look like between anti-correlated sectors, you would want to be using options that have many months of time decay so less capital is tied up.

Pairs- Market Topology

Pairs trading works like this. You have 2 highly correlated pairs in which you want to follow. It doesn't matter which stocks moves first in a particular direction, the key is to get into the laggard stock which will eventually catch up to the leader. Also, you have anti-correlated pairs, in which case you want to short when your stock goes up and vice versa. Here is a great example of 2 pairs(CHK and ECA) and it has 2 corresponding anti-correlated pairs(AMR and CAL).


Here's a Pair:


Depending on what type of trader you are, this strategy can be used for swing and day trading. Also, a good website to use to find pairs and anti-correlated pairs is www.market-topology.com.

ARB'ing OIH.

It's working, but I still need to practice my exits and work on hot key stops. Also, I need to have IB on speed dial incase the cable goes out, which has happened in the past. Maybe I'll use market orders with far out stops incase the internet connection goes down, that way I will be protected somewhat, even though I would prefer to close the posistions as soon as the internet connection goes down.
I'm watch the highest weighted stocks in OIH and the volume leaders for arbing opportunities.

A TRADING STRATEGY

I have found a way to consistently trade the last few days with a solid profit. I'm hoping I get some real choppy markets so that I can test my new strategy. I talked about ETF arbitrage in one of my old blogs I no longer write in. I said that it was not worth the effort and that I didn't have the advanced software needed to make money at it. Well, these last few days I have been doing ETF arbitrage on my favorite sector; OIL. I've made movies, and you can see for your own eyes how well this strategy works, but in order for you to trade this way you have to use hotkeys and be prepared to react to an oppurtunity in no less then 2 seconds. My average trade is held probably 1-2 minutes.

Consider this. If you are following the leader stock and using it to trade the laggard stock to gain your profit, why not hedge your position with buying multiple laggard stocks instead of just one, that way your are diversified or "hedged" in the postition.

INSIDERS BUYING RNAI, LOOK STOCK MANINPULATION!!!

MARKET ANALYSIS

When I look at the VIX, it makes me want to buy.


The Biotech is bouncing pretty good. It may be a good short setup, however this is contigent on DNA and AMGN.



Check out the NYSE A/D line. It looks like a 2B setup to me.

My plan-It's a work in process, this stuff takes time to learn

First, I will take a look at the futures premarket on tuesday. Then Depending on the opening price I will go long or short of one of the stocks I'm looking at. Also, I'll scan for news before the trade. The target will be small, but a small profit target has a higher probability of being hit, so doing many of these small trades should add up over time. Of course all it takes is one bad trade to wipe me out.

I think INTC and MSFT are going down even further. INTC to 15 and MSFT to 22. I was thinking of the Jan 07 puts on both. The ITM puts are best on both, 2 strikes ITM.

Overall, I don't think the market is going anywhere this summer for the tech sector, except down. Oil may rally higher. Natural gas I hear should go down. I think the metals may retrace, although it tends to move in the same direction as oil. The US dollar is very weak right now and is near its lows, if it rallies, the metals may be a good short. Also, we may have our usual hurricane season down in the gulf, which always helps the oil sector.

Interest rates should continue to rise, and the market should setup nicely for a bearish market this summer and maybe continue to the fall if the Fed thinks its neccesary to keep raising the rates. Considering inflation and the current status of American debt at all time highs, and the housing market declining, and oil going up, it is a good chance the market may turn bearish. WHAT's there to be BULLISH about, unless interest rates are lowered.

I can day trade OIH pretty well by watching breakouts on crude oil. OIH trades smoother then most of the individual oil stocks like BHI, HAL, and SLB, but these 3 main stocks are good to watch because they make up the weight of OIH.

So I want to trade OIH, scalp GOOG the first 2 hours, trade options with lots of time value left (3months to leap options), sell futures options that are close to expiring(vertical credit spreads) and trade volatile small caps based off of the trend and opening gaps.

Overall, I'm bearish on the market, but I will trade stocks long intraday and using options.

Boiler room movie

Next weeks plan

I'm putting together a list of stocks that are very volatile and have large intraday ranges. I'm going to swing trade these stocks based on the current trend and other strategies using morning gaps and volume analysis, while also taking into account any news that may affect the stock. I like the biotech sector because it happens to be a class of stocks that react to news in an extreme fashion and can provide for the oppurtunity to make some quick cash, but also on the other hand, you can lose it just as fast.

I want to stay on the side of the trend. I'm less inclined to go short on the stock unless I see an oppurtunity based on a spike in volume or the sector it is in is tanking, or if it has met resistance and is near the top of its trading channel.

SPECIALIZATION,,,are you a specialist?

I need to specialize. Knowing broad trends and strategies in general is nice, but you need to specailize on the stock your going to trade. Knowing everything about the company you are trading and knowing exact support and resistance levels can give you the confidence to make the right trading decisions. I use to specialize in biotech stocks. That's how I first got into trading. I would study the OHLC for the day and look at the volume. I would determine if the spike up in the biotech was valid, and if not, I would apply my shorting strategy, which would most of the time be a swing trade. I would make 5% per trade. Swing trades give you more time for your target to be hit. Options with time are even better, especially when you use credit spreads.

If your going to day trade, focus on the first 2 hours. If you aren't consistently profitable during the first 2 hours, then obviously you shouldn't day trade at all.

I've noticed that when a tick trend line has formed and it is broken, this sets up for a good trade in the direction of the ticks. Also, you have to remember what way the market is going. If we just had a 400 point selloff and we had a good rebound day , that rebound may continue as long as the trend line hasn't been broken. Also, take note of where the ticks have been most the day and where the trin is headed.

What it all comes down to is support and resistance, or supply and demand. People say, I want to buy stock XYZ for $10. If stock XYZ goes to $12, people are less inclined to buy, buy supply increases. As stock XYZ goes to $8, more people want to buy but supply decreases. Most of the time you need a catalyst to move a stock past a resistance or support zone. This catalyst is most likely news related, but can also be based on technical analysis of where support and resistance sit and where the moving averages and major trend lines are directed.

Things to look at:

I'm thinking of a few things:
1.Analyze scalps made in only the first 2 hours of market open.
2.Analyze forex pairs.
3.Analyze earnings reports vs. stock reaction
4.Analyze high dividend stocks, with avg. worst max draw down in a years time.
5.Create option setups (selling calls/puts on futures, directional, vertical and calender spreads)
6.Create biotech watchlist, and swing trade news.
7.Analyze relationship between EURO and US stock market.
8.Create trading system with TS.
9.Put together list of the top 10 things you suck at when trading, and if you are good at anything, list those.

Things we need to bang into our heads:
1.When the market is up, don't short, go long.
2.Trade breakouts of support and resistance, and look for pullback for entry, also, see if having the market in the same direction of the breakout helps.
3.Trade in the direction of the slow moving average, and look for harami and trend continuation patterns.