An Easier Way To Trade - Adding To The Arsenal - What Is Coming Next?

 

This is a copy of the Weekend Update that went out to Blue Line subscribers on Saturday. The current trades table is omitted. 

 

You can be handed the simplest most lucrative trading system ever devised and still pass on the trades. It's only human. Pulling the trigger is a stressful act, as is holding a position, as is knowing when to exit. In our case, it probably doesn't help that there are 25-30 trading stocks and signals all in some manner of being managed. I personally like the diversity and have the confidence that each signal for each stock is its own stand-alone system. But I can see how that may not fit into everyones risk or time resources and can interfere with the successful implementation of this trading system, i.e., can keep you from taking the trades. 

A Novel Idea To Help Pull The Trigger

There is a simpler and easier to manage trading intermediate term trends without having to follow 25-30 stock signals. Trade the main direction of the market with one or two of these stock index  ETF's. Ignore all of the individual stocks in favor of trading just the market as a whole with these respective ETF's: IWM, SPY, QQQ, DIA and EEM. Pick one of the first 3 to trade the US market and as a second position, EEM to trade the global markets. Done, you now have only two positions to manage

Here is how this strategy would have fared since mid-May, when we started trading these new signals in real time:

The idea isn't to take every trade, but to take one of the domestic indexes along with EEM, the one global index. The global emerging markets were six months ahead of the US in entering into a bear market and EEM's returns show just how powerful the system can be, even trading just about once a month. Eight of the ten of these, "indices-only," signals reached +100% returns (or better) and that was in an environment where the US market and the global markets were in opposite trends. 

EEM - MSCI Global Emerging Market Index

 

Adding To The Arsenal: Leveraged ETF's 

As an alternative to trading options on the index signals there are numerous leveraged ETF's that can be very effective in juicing returns out of the intermediate term trends. Unlike options where you can earn triple digit returns in a week, these ETF's will provide only 2X- 3X the market return. But it's an easy way to trade the trend, there is no real exit strategy as long as you remain on the right side of the new trend, and exit the position when the index exits the trend. Once our index models start with their own trading signals I'll post the ETF that tracks that index the best and with the most advantageous leverage. Below is a chart of TZA, the bearish and leveraged ETF for IWM

TZA - 3X leveraged Bearish IWM

 

 

What Comes Next

Here is an hourly chart of IWM (Russell 2000 ETF). Look at it as a fractal of what is in store for IWM and the other domestic indexes as this new bear market unfolds. I've placed the Sells above the hourly price bars that generated signals. That is exactly what I expect the daily price charts to start looking like in the days and weeks ahead. No doubt that IWM is far ahead of the field in its imminent reversal from bull to bear.  

Hourly Trading Signals - IWM

Below is the IWM daily chart and it is clear that the trend has now reversed. Our system requires a minimal hesitation in the trend before it can start generating the low risk entry signals on the downside  As I set out in last Wednesday's alert, Short Ideas, that breakdown was enough to speculate on the IWM Nov $60p and/or the VXX Oct $32c. Both of these were "non-system" trades, and both did very well on Thursday. Expect more non-system ideas until system starts kicking in with its own index trading signals. 

 

 

 


1 comment

  • Allan,

    Just wanted to let you know that I am thrilled with this “New Way to Trade”. I think that tracking the indexes is easier because you have less individual stock risk. Also, I have an account that I trade which does not allow options trading so trading the 3X securities is perfect. Thank you.

    Dario

    Dario Zgoznik

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