July 28, 2017

High-Beta Sectors Lead the Way – Overbought/Oversold as an Indicator

The tech-heavy NASDAQ 100 (QQQQ) and small-cap Russell 2000 led the led the oversold bounce today. It was the stereotypically volatile day that often occurs during the week of options expiration.

Today, along with many others, people ask or comment about how overbought/oversold indicators are no big deal and that overbought/oversold states can remain irrational for “longer than you can remain solvent”.

Well, I guess in a way that is true, but unfortunately it is a rather simplistic way to approach trading and unfortunately, a frame of mind that often displays the lack of experience needed to survive for a long period of time in this game  and livelihood we know as trading.

I use a few reasonably simple overbought/oversold indicators on various time frames to gauge overbought/oversold extremes in the market coupled with a few more advanced trading techniques. My performance speaks for itself.

Remember, I am not stating that my strategies are the “holy grail” of trading, there isn’t one, but I do know that when traded appropriately I have found a strategy with a high win ratio that works over the long-term and the long-term is what count. Remember, you can always make a quick buck trading, but having sustainable gains is something completely different. Remember, this is a marathon and not a sprint.

I am only exposed to the market 10% of all trading days using this method and the probability is always on my side. Of course, again, that does not guarantee winning trades, but it does increase my chances of success and therefore my win ratio. As traders probability is the name of the game. Also, I must always mention that with the success of any strategy, risk-management techniques (position-sizing, stop-loss) are imperative.

I use the overbought/oversold measure in different time frames and patiently waiting on the sidelines until a short-term oversold/overbought extreme hits the market. Once that occurs I will enter a trade in the respective oversold/overbought ETF (using options of course) and proceed to use position-sizing and other risk-management techniques (stop-loss, etc.) to keep strategies win ratios working in my favor.

Indeed a simple, yet very effective strategy that is actually ranked as one of the top options strategies by pro-trading-profits, a reliable third party resource that monitors hundreds of other strategies. So, you can join the big boys and marketing geniuses and their faltering strategies or you can join a trader in his quest to bring more money in his pocket and yours.

Give us a try, if you do not like the service for any reason we will refund your money immediately if you decide to cancel within 30 days. What do you have to lose?

Andrew Crowder, Chief Options Strategist, Crowder Investment Research, LLC, (www.crowderoptions.com)

Overbought/Oversold Levels for June 19th, 2008

ETF Extremes Options Strategy

  • S&P 500 (SPY) – 34.0 (neutral)
  • Dow Jones (DIA) – 32.1 (oversold)
  • Russell 2000 (IWM) – 56.0 (neutral)
  • NASDAQ 100 (QQQQ) – 55.6 (neutral)

Sector ETF Extremes Options Strategy

  • Biotech (IBB) – 58.0 (neutral)
  • Consumer Discretionary (XLY) – 42.6 (neutral)
  • Health Care (XLV) – 33.4 (neutral)
  • Financial (XLF) – 39.1 (neutral)
  • Energy (XLE) – 44.8 (neutral)
  • Industrial (XLI) – 43.2 (neutral)
  • Materials (XLB) – 53.8 (neutral
  • Real Estate (IYR) – 47.4 (neutral)
  • Retail (RTH) – 48.5 (neutral)
  • Utilities (XLU) – 59.1 (neutral)

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