Thursday’s Results: Neither suggested trade triggered.

Quick Tip: Optimizing Credit Spreads

Same-day expiration SPX credit spreads are extremely popular trades for income generation. Recently the CBOE has added Tuesday and Thursday expiration contracts proving the popularity of the trade. Now you can trade a different strategy for income 5 days a week.

If you’re not familiar with the trade here’s a brief explanation: You select a price level on the chart that you believe price will NOT touch/exceed today. For the Bear Call spread that level would be way above current price. For the Bull Put spread that level would be way below current price.

The trade is entered by selling a call/put for a credit and buying a protective call/put for a debit. You will net the difference. Your maximum risk on the trade is the difference between the strikes less what you were credited on the spread.

That’s a mouthful so let’s look at the numbers. A typical net credit may...

Wednesday’s Results: Neither suggested trade triggered.

Quick Tip: Get Another Strategy

For the past two days neither of the best volumes levels offered here triggered. Patience required for sure. The alternative is to trade more than one strategy. The key is to find a strategy that is complementary, not competitive with the others in your toolbox.

Two popular styles to combine are breakout/reversal and trend following. Price is always in one of the two conditions: range-bound or trending. With practice you’ll hone your skill in choosing which to employ.

Yesterday’s chart of our new trend following strategy enjoyed the move down while our reversal strategy was waiting for the 4063.65 level suggested that never arrived.

Tuesday’s Results: Today’s Best S&P Turning Points (same as yesterday):

Sell 4292.50 stop 4297.50. 

Buy 4063.75 stop 4058.00.

Trade Fearlessly,

Mike Siewruk

P.S. Did you know there are specific tools and formulas you can use to...

Tuesday’s Results: A choppy day didn’t trigger either suggested level.

Quick Tip: Picture This…

Most traders use price charts for some if not all their information gathering. The most common charts are viewed in time intervals (5, 15, 60 minutes, daily, weekly, etc.). Better trading platforms offer different “views” of price and can be extremely helpful when combined with time interval charts.

Try this exercise; in addition to your preferred time interval chart add a range bar and volume (share) bar chart to your workspace.

1. Range charts will paint a new candle for every specified price movement. Trading the ES futures look at the difference using a 2-point range chart.
2. Volume (share) charts will paint a new candle for every specified volume (share) amount traded. Trading the ES futures look at the difference using a 10,000 volume (share) chart.

Do you see trend any differently? Are the up/down moves more granular?

Time interval charts excel at...

Friday’s Results: The suggested short @ 4116.25 was only good for a 7-point “scalp.” The breakout long even less at 4.75 points.

Quick Tip: What You Did Right

If you’re a regular reader of this blog you know that documentation and review of all your trade setups (taken or not) is essential to improving your results.

It’s easy to skimp on this work by focusing on the losers. Your instinct is to understand why you lost. Was it something you did wrong? Could you discover a changed to your trade plan that is beneficial? Or, was it meant to be as a natural part of the win/lose paradigm?

An excellent method for reframing your attitude positive is to focus equally as much attention on what you did right. It’s too easy to ignore this. The trade worked. You were profitable. Why explore that? Because reinforcing through review and thoughtfulness what you did right will cement those good habits.

Whatever you feed your mind is what you’ll get in return....

Thursday’s Results: Neither suggested trade yesterday triggered.

Quick Tip: Filter or Not?

Are there market conditions that your strategy performs better or worse in? Probably so. Price is either trending or not and volatile or not. These are very different conditions and knowing with evidence how your strategy performs in each of them is important.

Why? Because you’ll be able to filter out trade setups in conditions that are not ideal. These filters become rules in your trade plan, which is a living document requiring this very type of updating.

You’ll need to document hundreds, even thousands of trades with several data points to find the evidence. One important data point to capture on every trade (taken or not) is the average true range (ATR) of your higher time interval. This tells you how volatile price is.

For example, our team day trades the S&P futures using volume profile (one of several strategies they can access to choose trades from). The best...

Wednesday’s Results: The short @ 3970 stopped out, the breakout from there as well. 

Quick Tip: Working a Drawdown

All trading strategies have drawdowns (a protracted losing streak). The challenge is trading through it. You can’t stop thinking that it may “never come back” or churn for an extended period. Then you get FOMO and think if you stop now it will roar back and you’ll miss the gain. Obviously, these thoughts are destructive. Don’t go there. 

What you should do is have drawdown management rules to follow. These are rules that tell you when to stop trading the strategy and when, if ever, to start up again. This will take the emotion out of the process. Apply these rules to the performance of individual strategies, not your whole trading account. 

Here’s an example of a rule set: 

1. Track the equity curve of the strategy (this can also be generated from a back-test). 

2. ...

Tuesday’s Results: The suggested buy @ 3902 only bounced 4.75 points, but the breakout was good for a 25.00-point run. 

Quick Tip: Best Breakouts

Price is either trending or not. If you’re trading a reversal strategy during a strong trend you’ll likely lose. If that same reversal strategy has rules to “flip” to breakout and join the trend, you have a good chance of covering the reversal loss and if the trend is strong, net out a winner. This is exactly what happened yesterday with the suggested buy. 

Keep in mind as you follow the performance of the Blog levels every day they are both reversal and breakout setups. 

Caution is required, though. Not every breakout opportunity has edge. You need to know the historical performance during various market conditions to "filter" in or out these powerful continuation setups. 

Today’s Best S&P Turning Points:

Sell 3970.00 stop 3974.25. 

Buy 3870.50 stop...

Monday’s Results: Neither trade idea triggered. 

Quick Tip: How to Predict

Prediction is imperfect. But there is a logical method to framing what action to take based on the likely outcomes. Let’s use a simple two-outcome example, a trade. Your trade plan should have a stop loss and a winning exit rule(s). Simplistically, you’ll either win or lose. 

Before you start your trading session play the “What if…” game. 

What if the trade fails? 

What if the trade wins? 

What are you going to do next? Wait for the next signal? Reverse direction? Take the same signal on a second attempt if available? Quit? 

It doesn’t matter if you win or lose. You should plan for the outcomes and know what to do. If your trade plan already has rules for what you do after each trade, you’re good. If not, you should do the research to determine the best action possible. 

How? Ask “What...

Friday’s Results: Buying 3898.50 stopped out.

Quick Tip: Reversals & Breakouts

The high-volume price levels formed by the accumulation and distribution of big lot traders are simply at “fair value.” Think about it this way: there was a buyer and seller for every contract traded. This means they AGREED the price was fair.

Once price strays OUT of the fair value level it becomes attractive to a trader who is either bullish or bearish. This allows you to trade both reversals and breakouts around the volume levels.

For example, looking at the price chart from Friday the highest volume price level from Thursday was 3895.50/3898.50. That buy failed immediately and the breakout was a monster continuation of the down trend.  

What about legacy high-volume levels? They work the same enough of the time for an edge. Note the temporary reversal at 3838.50.

Keep in mind as you follow the performance of the Blog levels every day they are both reversal and breakout...

Thursday’s Results: The short at 3920.75 ran for 39.50 with only 1.25 points adverse.

Quick Tip: Math Meets Psychology

Much has been said about the similarities between trading and gambling. Much is true. All is not. A fabulous book you should read about this topic is A Man for All Markets by Edward O. Thorp, an accomplished mathematician, author of Beat the Dealer, and acclaimed hedge fund manager.

When Thorp tested his blackjack card counting system in the real world, financed by two wealthy (and greedy) millionaire businessmen, he uncovered a significant “edge” that you can and should apply to your trading.

His backers wanted him to bet big right from the start. Thorp opposed this idea. He was logical and methodical. Betting big before having confidence didn’t make sense to him. He started small and slowly worked his way up to the big bets. His backers were annoyed but Thorp insisted.

The system was a success in the real world. Afterward, Thorp wrote this:...