Good Evening all !
I wanted to share a tool I have been using with success and hopefully provide a bit of wisdom I’ve learned over the past two years trading. First, in real life I’m not an investment banker, not a withered trader with decades of training, I’m a Field Artillery Officer. My job is to provide safe and accurate artillery support to Soldiers and Marines. Now, the only reason I bring up my background is to give a small bit of insight into my thought process and how I trade. I’ve fired thousands upon thousands of artillery rounds, and can tell you within a certain probability where each and every projectile will land, baring some sort of catastrophic failure. Based on my background I realized I would never fire an artillery round based on data which was purely “Subjective”. I want “Evidence Based Technical Analysis” not “Subjective” analysis. This bled into the trading style I’ve been using. I don’t want to spend my time figuring out what pattern I’m looking at in the charts, I want the chart to give me a signal and I respond. If the signal is correct, more times than not, and I allocate my resources, my money, correctly I’ll come out ahead. Give me an edge and I’ll make nice money. It is all about stacking probabilities in your favor and repeating the process again, and again to come out ahead. It is rather boring, but I’m here to make money, to add to my bank account, nothing more.
Okay, next I want to talk just a minute about volatility. You hear discussions about the “VIX” which is just a formula calculated on options for the S&P 500. I was always confused what the VIX was and how to trade it. The answer is simple. You are not trading the VIX. Ignore the VIX, pretend it doesn’t exist. I removed it from all my bookmarked charts. The only value in the VIX I have thus far found is that when the VIX is under $12, I stat thinking of shorting the S&P 500 and close my longs, and when it is over $22, I start to watch my shorts closely and get ready to go long. What you are really trading with volatility is the E-mini S&P 500 Futures. XIV and SVXY are the “Bull” stocks for the futures market. If the futures market is going up, they go up. VXX is the “Bear” or short for the futures market (and TVIX / UVXY x 2 leveraged versions) so if the S&P futures are going down, these go up. I hope I explained it well enough.
Now, why I like this form of trading ? I want a method that is signal based, short time-frame, higher probability. One of the things I’d recommend is finding a trading style which works for your personality. This method is about scalping a % or two at a time. Over a month it adds up. If you are looking for a “grand slam” each outing this isn’t for you.
Okay, if you are still with me, below is a 1 month, 2 HR chart of XIV, the “Bull” for the S&P Futures. The “Green” arrows show “Buy” points, the “Red, “Sell”. Presently the “Bull” stocks are much easier to trade in this market, and I weigh my buys in recognition of this. When / If the bear appears, I would do the opposite. Honestly, you would be fine just avoiding the “Bear” versions and just use the “Bulls”, much more forgiving in this market, but it is all based on your risk tolerance. You can knock out big gains with the “bears” but if you are wrong they are far less forgiving.
What I’m doing —-> Watch the MACD. Oh, another note, I changed the MACD from the standard. Normally it is (12,26,9), mine is (5,35,5). Play with this. I like this one, gives a bit of an “edge” I think. When the MACD is below the median line, or 0.0, start looking for a “Buy”. Your buy signal is when the bars stop moving down and begin to move up. Momentum is swinging and you get a signal. When the bars stop moving up and head down, you “sell”. Best case is when the MACD is below 2.0 to buy. I might get more in-depth later. I have a 1 HR, a 2 HR, daily, and a 5 minute chart going. The 5 minute is used after I have confirmed a “buy” with the hour charts.
Also, Candles. It is a whole another post. I really have come to respect long tails on candles. Watch for these on a down move. The bulls are buying into the selling and taking over. I don’t trade 100% off of them, but they are a tool to watch. Doji’s / shooting stars too, watch for them on tops. I’m slowly adding them to my tool basket.
Take a look at the chart, let me know what questions you have. I used this for DUST last week and it turned out nicely, made about 7%. The issue though, is I expect more failures trading NUGT / DUST, their volatility is much greater and an overnight gap up or down in gold can wreck you. I’m presently backtesting NUGT / DUST to see how they work with this. Will post my results. SO far two trades, one NUGT one DUST both good, but that is far too small a sample size. Will keep looking at charts and see how viable in the future, but should work.
Okay, good trading all !