Not All Trades Can be Winning Trades

Yesterday, a signal was triggered in the Sector ETF Extremes Options Trading Strategy. The utility sector ETF (XLU) had pushed into an oversold state and was struggling to move lower as it had hit an area of support. As a result, the probability had shifted to a short-term move to the upside, but as we all know there are no certainties in trading. My intention was to keep the loss to roughly $.30 on the trade.

XLU continued to follow the path of the overall market throughout the trading day. NASDAQ futures and S&P futures were lower 50 and 40, respectively on the day. When my stop-loss was hit I decided to take prudent action and remove the trade for the $.30 loss. You can check out the trade details on the performance page.As I always say, if any options strategy or trading strategy for that matter is to succeed over the long-term, money management and strict stop-loss guidelines must be a priority. You can see how I have lived up to this theory in the performance of the ETF Extremes Options Strategy over the last 2 1/2 years. Of course there have been losing trades in the strategy, but the overall return has been outstanding. By staying disciplined and keeping losses to a minimum, the strategy has made over 160% (with my monthly fees and commissions included) since it was initiated back in April 2006.

I certainly have the same expectations for my Sector ETF Extremes strategy as well. While nothing is guaranteed in trading, one thing is certain I will always stick to a strict money management guideline. Losses will happen. There is no holy grail in trading. As William Schreyer stated,

“Life wasn’t designed to be risk-free. The key is not to eliminate risk, but to estimate it accurately and manage it wisely.”

I trade by this mantra and believe me it works. Losses are how we learn. Winning trades are easy. Losing trades test our conviction to our stated guidelines.

I can’t begin to tell you how many traders and other so-called newsletter services hold on to positions for entirely too long in hopes that the trade will turn around. This is a disaster waiting to happen and has led to several strategies, hedge funds and the like blowing up. It is not an unacceptable way to trade and should not be tolerated by any service or fund that you are a member of.

So far the life of the Sector ETF Extremes Options Trading Strategy has only consisted of two trades. As with all my trades they are long-term endeavors and should be viewed this way. I patiently wait for extremes to hit the market and pounce on opportunities when probability is overwhelmingly in my favor. In most cases it works, but with all probabilities there is always a chance for failure. It is an accepted part of trading and if it is not, then you should probably not be in the profession because again losses will occur, that is the only guarantee in trading.

As for the current state of the market, well, quite a large number of sectors are oversold to very oversold, which could trigger another signal in the Sector ETF Extremes Options Strategy over the next day or so. Furthermore, the major benchmarks, most notable the NASDAQ 100 ETF, QQQQ, has pushed into a short-term very oversold state so I will be watching this closely over the coming days.

Also, the always highly anticipated Unemployment Report is out tomorrow which could cause a gap tomorrow and lead to a trade in the Gap Fade Options Strategy. It has been quite some time, but as always I will continue to wait patiently for a signal. What is the hurry right? The strategy has proven successful over the long-term and so have all the backtests. Hopefully, we see a signal tomorrow. Cross your fingers.

Have a great night and please do not hesitate to email me with any questions that you might have.

Andy

Overbought-Oversold levels for September 4, 2008

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 23.8 (oversold)
* Dow Jones (DIA) - 29.7 (oversold)
* Russell 2000 (IWM) - 33.2 (neutral)
* NASDAQ 100 (QQQQ) - 13.6 (very oversold)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 27.3 (oversold)
* Consumer Discretionary (XLY) - 43.5 (neutral)
* Health Care (XLV) - 24.1 (oversold)
* Financial (XLF) - 48.0 (neutral)
* Energy (XLE) - 21.9 (oversold)
* Industrial (XLI) - 22.3 (oversold)
* Materials (XLB) - 17.5 (very oversold)
* Real Estate (IYR) - 46.2 (neutral)
* Retail (RTH) - 50.0 (neutral)
* Utilities (XLU) - 18.5 (very oversold)

If you would like to follow my strategies with real-time alerts or have them auto-traded by a participating broker please click the following link! Try our strategies for a 30 day risk-free trial!

Short-term Extremes are Back. Will the Options Strategies Benefit?

Well, the time has come again. A signal was triggered in Sector ETF Extremes Options Trading Strategy around mid-day. To be fair to my loyal paying subscribers I will discuss the details on the blog only after the trade is closed. Hopefully, I will have some good news to discuss tomorrow.

As for the current short-term state of the market, well, we are finally seeing some short-term extremes enter the market. The NASDAQ 100 (QQQQ) in our ETF Extremes Options Strategy has moved into a short-term oversold state, while several of the ETF options in our Sector ETF Extremes Options Strategy have pushed into both oversold and overbought territory.

I would like to provide some interesting glimpse or tidbit into the current state of the market, but I really have nothing at the moment other than my simple proprietary overbought-oversold indicators screaming short-term extremes in several of the ETFs I follow for the strategies. In most cases, this is the only info I need to trade successfully. I live by the mantra, Keep It Simple Stupid, and so far the strategies I follow have proved the KISS theory effective.  Why do I want to make the  my trading more complicated than it needs to be?   I can’t begin to tell you how many traders I know that have come and gone because they overwhelm themselves with trying to understand numerous technical strategies and trading methods.  Fortunately, I have found a few simple options strategies that have proved effective over the long-term. Don’t believe me, check out the performance located on the home page of the website, particularly the ETF Extremes strategy. I hate to keep repeating this but, the performance speaks for itself!

Overbought-Oversold levels for September 3, 2008

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 44.4 (neutral)
* Dow Jones (DIA) - 52.8 (neutral)
* Russell 2000 (IWM) - 60.5 (neutral)
* NASDAQ 100 (QQQQ) - 22.1 (oversold)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 46.1 (neutral)
* Consumer Discretionary (XLY) - 68.2 (neutral)
* Health Care (XLV) - 44.4 (neutral)
* Financial (XLF) - 75.5 (overbought)
* Energy (XLE) - 26.9 (oversold)
* Industrial (XLI) - 44.6 (neutral)
* Materials (XLB) - 31.0 (neutral)
* Real Estate (IYR) - 71.3 (overbought)
* Retail (RTH) - 72.4 (overbought)
* Utilities (XLU) - 23.4 (oversold)

If you would like to follow my strategies with real-time alerts or have them auto-traded by a participating broker please click the following link! Try our strategies for a 30 day risk-free trial!

September is Historically Weak - Overbought-Oversold Extremes

Seasonal Info

The seasonal bearish bias held true once again this year and now the question is will September live up to its historically bearish ways.

September has been notably weak over the past 60 years. The average return is the worst of all the calendar months, -0.67%. It is one of only two months with an overall negative return.

Current Short-Term Reading

A few of the sectors we follow have officially moved into a short-term extreme state. Furthermore, we are seeing some short-term weakness in the NASDAQ 100 (QQQQ) as it is closing in on a short-term extreme state as well. A moderate decline tomorrow will certainly trigger a few signals in our options strategies, namely the Sector ETF Extremes Options Strategy and the ETF Extremes Options Strategy. Hopefully tomorrow brings us and our options strategies good fortune.

Until then have a great night!

Andy

ETF Extremes Options Trading Strategy

* S&P 500 (SPY) - 44.9 (neutral)
* Dow Jones (DIA) - 49.1 (neutral)
* Russell 2000 (IWM) - 56.5 (neutral)
* NASDAQ 100 (QQQQ) - 26.6 (oversold)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 30.5 (neutral)
* Consumer Discretionary (XLY) - 65.6 (neutral)
* Health Care (XLV) - 34.5 (neutral)
* Financial (XLF) - 71.3 (overbought)
* Energy (XLE) - 28.0 (oversold)
* Industrial (XLI) - 64.6 (neutral)
* Materials (XLB) - 35.4 (neutral)
* Real Estate (IYR) - 65.0 (neutral)
* Retail (RTH) - 68.9 (neutral)
* Utilities (XLU) - 34.1 (neutral)

If you would like to follow my strategies with real-time alerts or have them auto-traded by a participating broker please click the following link! Try our strategies for a 30 day risk-free trial!

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