August 17, 2017

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.

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