July 28, 2017

The Market Moves Further Into and Oversold State

The market has pushed into one of the most short-term oversold states that I have seen in quite some time. Almost every ETF I follow is now in a “very oversold” state with RSI (2) readings below 5 and over half below 1 – a rarity indeed.

So, now is the time that I want to be aggressive on the long side, but only for a few trading days. Conditions like the aforementioned almost always work themselves back to mean-reversion and I want to be a participant when the short-term occurs. I already have several trades on in both of my options strategies and plan on adding several more over the next few trading days, that is unless we see an enormous bounce before the opening bell Friday, which I think is highly doubtful.

It is during times like these that wealth is truly built.

I think Tom Sosnoff says it best – “The trend is your friend but the fade is the ultimate wealth builder”

And the fade is exactly what I will continue to do in both of my strategies. Yes, both strategies will suffer losses on occasion, it is to be expected. There is no holy grail, no guarantees in trading. You just have to stay disciplined and keep doing the things that have led to your success and with a return of over 40% in the High-Probability, Mean-Reversion strategy since its inception one year ago and over a 13.0% return per trade in the Theta Driver options strategy Too often newbie traders start a new strategy only to give up on it after a few months, particularly if losses occur. They don’t realize that a strategy with longevity and a proven track record works over the long-term and that rough patches will occur. They occur with every strategy. I feel very comfortable continuing to fade the short-term extremes. Sometimes you have to feel some pain as a trader, but this is when you need to be incredibly focused and remain diligent in your approach. If not, you will inevitably fail.

No one ever said trading was easy. It is one of the most difficult endeavors you will ever take which is why most traders fail.

Every trader has there own approach. Mine – I use short-term extremes in the market to sell credit spreads (which gives me some margin for error if the move continues to push in the same direction) and I also buy calls/puts to fade short-term extremes. I have been doing this for well over a decade now and will continue to do so until I am no longer capable of pushing a button to place an order. I hope you will join me on my life long journey of building wealth in the only way I know how –  a “logical, intellectual and strategic way”.

I will be back later this weekend with more options related info. Stay tuned!

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