Short-Term High-Probability, Mean-Reversion Indicator – Silver (SLV) Hits Another Short-Term Extreme

The last time Silver hit a short-term “very overbought” extreme, I called for a short-term reprieve in SLV and the High Probability, Mean-Reversion strategy made 19.8 % on the trade (you can check out the trade at my third-party monitoring service here). If the Silver ETF opens up tomorrow I will be making the same call so paid subscribers stay tuned for the potential for a real-time trade alert.

As for the rest of the market, well, it seems as though everyone is anxiously waiting for Bernanke & friends to release some type of catalyst over the next two days. I expect to see the market move into the summer doldrums for various reasons immediately following (if not before) Bernanke’s first press conference on Wednesday.

Gold (GLD), semiconductors (SMH) and the tech-heavy Nasdaq 100 (QQQ) have also pushed into a short-term overbought extreme so I expect to see a move lower over the next few trading days.

I hope the strategy is given the opportunity to make a few more profitable trades this month. So far, the options strategy is up 14.2% for the month.

And one more thing.

I decided, per all of your requests, to add a few more ETFs. You will notice the dollar (UUP), India (EPI) and a few others.

Enjoy!

If you haven’t already, don’t forget to sign-up for my Free 30-day trial. Also, for those of you who live on Facebook. You can access my daily info there as well. Just click on LIKE.

Short-Term High-Probability, Mean-Reversion Indicator – as of close 4/25/11

Short-Term, High-Probability, Mean-Reversion Indicator – Silver Hits Short-Term Extreme

I am keeping it short tonight. My parents just arrived and my daughter and I are enjoying their company.

Anyway, let’s get to it.

Last week I made 19.8% on my SLV puts and I hope to have the same good fortune if my signals are triggered tomorrow.

SLV has once again hit a short-term extreme. All of my proprietary readings have hit a short-term extreme and the RSI (2) has confirmed as well. Now all I need to see is a higher open and I will most likely place a trade in the High-Probability, Mean-Reversion strategy.

So, paid subscribers stay tuned.

If you haven’t already, don’t forget to sign-up for my Free 30-day trial. Also, for those of you who live on Facebook. You can access my daily info there as well. Just click on LIKE.

Short-Term High-Probability, Mean-Reversion Indicator – as of close 4/20/11

Short-Term, High-Probability, Mean-Reversion Indicator – TBT Moves Into An Extreme State.

It has been a strange few weeks in the market.

We had several trading days of strong resistance in the S&P 500 (SPY) and have basically sold off since the beginning of earnings season. Is it me, or does the market almost seems too predictable at the moment.

Will the market truly be this simple to predict over the coming months?

I am certainly not claiming to have the magic crystal ball, but at the moment the market just feels heavy and tired.

With the old Wall Street adage about to grace us with its seasonal presence, I feel like we have seen the highs for a while. I expect to see a decent decline during the summer doldrums, which I think will offer a very good buying opportunity over the long-term. We could see a few gaps close that were created months ago. I to plan to discuss the gaps in an upcoming weekly newsletter edition stay tuned. There just isn’t enough room here.

However, I am not overly concerned with the long-term , at least in my strategy. I only want to take advantage of short-term high-probability set-ups created by a variety of extremes in the market.

This is one of the reasons that led me to options. Options, when used in the proper way, allow you to profit from bullish, bearish or sideways price action. I truly doesn’t matter.

Over the coming months, in my free weekly newsletter, I plan to speak more about various options strategies and how to apply them to current market conditions.

Believe me I have a few favorites, including credit spreads, iron condors and other premium selling strategies that I often use with my favorite strategy – the HP-MR strategy.

If you haven’t already, don’t forget to sign-up for my Free 30-day trial. Also, for those of you who live on Facebook. You can access my daily info there as well. Just click on LIKE.

Short-Term High-Probability, Mean-Reversion Indicator – as of close 4/19/11

Strategy Continues to Outperform the Market – Up 34.6%

I took a hiatus from my daily post yesterday so that I could evaluate the latest trades in my High-Probability, Mean-Reversion Strategy.

I closed out my Silver (SLV), Russell 2000 (IWM) and S&p 500 (SPY) positions during the last two trading sessions for an nice overall return.

Both the SLV (+19.8%) and IWM (+21.3%) trade were profitable. However, the SPY trade did not experience the same good fortune. The strategy experienced its first loss since it was initiated back in November as SPY lost 20.2%.

The High-Probability, Mean-Reversion strategy is now up 34.6% since it was initiated six months ago with a win ratio of 92.3%. So far the strategy is up 14.2% for the month April.

Check out the results yourself. The performance speaks for itself.

Obviously I am pleased with the win ratio (92.3%) since I initiated the High-Probability, Mean-Reversion strategy, but I am a realist. I realize there is no holy grail in trading. One thing that I do know for certain is that I have a unique, concrete and most important, profitable options trading strategy that makes the world of sense to me and I trade it to make money over the long-term. Furthermore, I realize that the less I trade, the better my strategy will perform over the long run: and the long run is what matters. Hopefully, I can continue my winning ways and extend the gains going forward. Remember, this is a marathon and not a sprint.

The key to my strategy is patience. Waiting for the appropriate scenario to recommend a trade with a high probability of success is what makes my strategy a success.

Opportunities are made up easier than losses. If you let a few pass you by don’t dwell on what could have been. There will always be more opportunities around the corner. Again, this a marathon not a sprint.

I will continue to patiently wait for opportunities to arise and only trade scenarios where the probability is overwhelmingly on my side.

Couple this approach with sound risk management and you can see why I have been able to beat the major benchmarks by a substantial margin.

If this sounds like a strategy for you give my newsletter and the High-Probability, Mean-Reversion Strategy a chance.

Current State of the Market

There are several oversold ETFs listed below and a few of them are currently on my short-term watchlist. However, none of ETFs have yet to push into an extreme oversold state, but another day of declines will surely create a few extreme states. If so, I could be making yet another trade in the strategy.

As always, if a trade does come to fruition, I will let my paid newsletter subscribers know in real-time. Stay tuned!

Have a great night!

If you haven’t already, don’t forget to sign-up for my Free 30-day trial. Also, for those of you who live on Facebook. You can access my daily info there as well. Just click on LIKE.

Short-Term High-Probability, Mean-Reversion Indicator – as of close 4/13/11

Short-Term High-Probability, Mean-Reversion Strategy – Silver, Russell Trades Successful and A Brief Discussion on Position-Sizing (SLV, IWM)

The High-Probability, Mean-Reversion Strategy reaped further success today.

Towards the close of the trading session I was able to close out IWM from last week and an SLV trade that I placed this morning – both for a nice profit.

The IWM trade made 21.2% and the SLV made 19.8%. So far the strategy is up 8.9% for the month of April. Check out the results here.

I still have my other trade on from several weeks ago and I expect to close out the trade once the gap from 3/30 is closed.

Yesterday I mentioned that if Silver (SLV) opened up todaythat I would send my subscribers a real-time trade alert. Indeed that set-up came to fruition after SLV pushed $0.30 to $0.40 higher at the open. Towards the end of the day SLV had pushed almost 3% lower so I decided to take the 19% off the table.

I wanted to include a brief discussion on position-sizing – the most important aspect of any successful trading strategy. Enjoy!

Position Sizing

How much should you allocate to each trade?

This frequently asked question lacks definitive answers. Why? The answer is quite simple; as investors, we all have a different set of goals. There are just too many variables out there (age, income, retirement goals, spending habits, etc.) to give a universal answer to the question.

Options brokers allow you, the investor, the flexibility to allocate your account by specified dollar amount, specified quantity, percentage of available buying power, etc. It is your responsibility to figure out what works with your risk tolerance and investment goals.

This brings us to the important and rarely covered topic of Position Sizing.

To many investors, especially options investors, have a casual attitude toward the management (risk, money) of their investment portfolios. In the constant race for profits, risk management and money management seem to be secondary. The almighty return, the “we want a lot of return, we do not want any risk, and we need the money by Monday” mentality, seems to override the importance of position sizing.

This is particularly true in the options arena. How many websites have you come across that tout outlandish gains with minimal risk with great consistency. All that needs to be said is “think about it”. This does not mean that the typical options investor can’t beat the market by a decent percentage annually. It just means that “shooting for the moon” is not sustainable.

The Gallup organization and UBS recently conducted a survey that found 39% of respondents believed stocks would deliver at least a 15% annual return over the next ten years. This goes to show how wishful thinking consumes a large portion of the investing publics’ attitude toward returns. Historically, the notion of such returns is unreasonable.

“Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I’m getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis.” —- Bruce Kovner

Position sizing is possibly the most important aspect of any options portfolio and trading system. As an investor you must always be aware of risk management (how much you are comfortable losing per trade) and money management (the size of the position per trade).

So, as far as “how much should you allocate to each strategy”, trade, etc., the answers are ambiguous. I can only speak to the strategies I use.

Dr. Van.K. Tharp, in his highly recommended book Trade Your Way to Financial Freedom, discusses in great detail the importance of position sizing. In his book, Dr. Tharp back-tests and compares the effects of different position sizing methods on investment accounts. His tests were based on a trading account of $1,000,000 using a trading system that 595 trades over 5 ½ years.

Here are some of more notable position-sizing methods he compared and the results:

Baseline Model

Short-Term, High-Probability, Mean-Reversion Strategy – A New Addition (SLV)

Per the title of my post, I have decided to add the Silver ETF (SLV) to my High-Probability, Mean-Reversion Strategy. The ETF has wonderful volume/liquidity which makes the bid/ask spread extremely tight. It is certainly an appropriate addition to the strategy. Thanks Betty!

With that being said, Silver (SLV) has pushed into an extreme “very overbought” state. Couple that with an RSI (2) of 99.9 and I think a short-term lies ahead. If indeed SLV opens higher Monday I will most likely place a trade in the strategy. Subscribers stay tuned for your real-time alerts and tweets.

If you haven’t already, don’t forget to sign-up for my Free 30-day trial. Also, for those of you who live on Facebook. You can access my daily info there as well. Just click on LIKE.

Short-Term High-Probability, Mean-Reversion Indicator – as of close 4/08/11

Short-Term High-Probability, Mean-Reversion Strategy – SPY Continues to Trade in a Tight Range Bound Fashion

Another day in the range.

The S&P 500 (NYSE: SPY) continues to trade in a tight sideways, range bound fashion – seven days to be exact.

Since the gap higher  on 3/30 , SPY has vacillated between $132.36 to $1340.00.

Typically, when the broad market ETF trades in this tight of a range, we will see SPY spike out of the range in a violent way. I expect to see much of the same this time around.

Basically, the tighter and longer the congestion, the larger the move.

If the bears do take the reigns they will first have to overcome the $131.90 of the first gap. If SPY continues to move through that level I would expect to see SPY move back to close the second upside gap that was established back on 12/1 at $118.03.

Remember the summer doldrums are right around the corner. Remember, Sell in May and go away?

I will be back tomorrow with a thorough discussion on the summer “phenomena”

Stay tuned!

If you haven’t already, don’t forget to sign-up for my Free 30-day trial. Also, for those of you who live on Facebook. You can access my daily info there as well. Just click on LIKE.

Short-Term High-Probability, Mean-Reversion Indicator – as of close 4/07/11

Short-Term, High-Probability, Mean-Reversion Strategy

After marching higher for most of the day, the major market indices came back near the closing bell to close the day basically flat.

We have seen several days of range bound trading and I expect to see a violent move outside of the range when it inevitable occurs.

Given the extreme short-term overbought state in most of the ETFs I flilow for my ETF/Options strategy I expect to see a short-term reprieve over the coming days.

Because of the extreme overbought nature of the ETFs I still have both of my positions on. I will take them both off once we get back to neutral territory.

Until then, I will sit back and patiently wait for the trade. This type of price action has happened before and it will happen again. However, if we look at the history of the strategy each time this has occurred we have seen profitable days ahead. I expect that history will repeat itself once again. Of course, as we all know there are no guarantees in trading so always consider risk management mostly through position-sizing with each and every trade. This is a must for every trader and one that will make you a successful trader over the long-term. Remember, this is a marathon and not a sprint.

If you haven’t already, don’t forget to sign-up for my Free 30-day trial. Also, for those of you who live on Facebook. You can access my daily info there as well. Just click on LIKE.

Short-Term High-Probability, Mean-Reversion Indicator – as of close 4/04/11

Short-Term, High-Probability, Mean-Reversion Strategy

Up, up and away!

Low inflation, low interest rates, accommodative Fed policy, strong earnings and healthy corporate balance sheets have helped to keep the market racing higher. Or maybe it is just the Fed pumping money into the economy through QE2? Either way, the market has been on a historical tear over the past two years.

Absolutely, nothing can hold this market down.

The nuclear incident in northeast Japan remains unresolved. Coalition jets are bombing North Africa, namely Libya. More protests in Yemen, Syria and even Jordan. A grim UK budget prognosis. More Eurozone debt bailouts on the way in Ireland, Portugal, Spain, Italy and Greece. New home sales plunged to a historical low.

Again, it doesn’t matter – the markket continues to surge.

Helicopter Ben has managed to keep the market on a straightt line upward since market bottomed in March 2009, but my guess is that the party will be end soon.

The  bearish signs are piling up.

Over the past week, the VIX has gone from more than 30% above its average to more than 15% below. In the past this type of volatility in volatility has been overwhelmingly bearish. If you just look at 15% both ways there are eight instances when this type of movement has occurred and only once was it bullish for the market one month later

Moreover, the latest bull market has made it to the somewhat elusive two year mark. Only fourteen out of thirty-three bull markets have made it past two years. That isn’t an overwhelming statistic, until you start to compare the average returns of the prior two year bull runs to the current bull market. The average return for previous bull markets was 43.6 percent which is roughly half of the current 86.7 percent return of the current bull market. There have been only two bull markets that have exceeded the return of the current bull market.

In other words, only two out of thirty-three bulls markets have performed better during their two year anniversary than the current bull market. So most would probably conclude from this information that the current bull market is somewhat stretched, but when delving further into the statistics it was quickly noticed that all fourteen made it to a three year anniversary.”

There is no denying that there are still major issues in the economy. Only time will tell if the market can work through all of this mess before the bears wake up, but winter is over spring is here and we should never forget the old saying, “Sell in May and Go Away.”

Have a great night!

If you haven’t already, don’t forget to sign-up for my Free 30-day trial. Also, for those of you who live on Facebook. You can access my daily info there as well. Just click on LIKE.

Short-Term High-Probability, Mean-Reversion Indicator – as of close 4/04/11

Short-Term, High-Probability Mean-Reversion – Several ETFs Hit Short-Term Extremes

Several of the ETFs I follow in the High-Probability, Mean Reversion strategy have hit a short-term “very overbought” extreme. Typically, when this type of event occurs a short-term reprieve (1-3 days) is right around the corner.

Unemployment numbers are out before the bell tomorrow so I expect to see a pop at the open. If the market opens higher tomorrow I expect to make a trade in the strategy, so subscribers stay tuned.

I currently have a trade on, so of course a move lower at the open would not upset me either. I expect tomorrow will be a very interesting day.

Have a great night!

If you haven’t already, don’t forget to sign-up for my Free 30-day trial. Also, for those of you who live on Facebook. You can access my daily info there as well. Just click on LIKE.

Short-Term High-Probability, Mean-Reversion Indicator – as of close 3/31/11