swing trading the Dow with YM

[vetten]

hello fellow traders,

I want to examine the way to swing trade the Dow through YM`s or maybe DIA options.

its not day trading ofcourse, neither would I want to spend the whole day behind the computer.

so I have to study the DJIA chart and get my trading signals from there.

I thought to use a single 5 SMA and let the EOD price penetrate the 5SMA from below to
signal a buy order and from above to signal a sell order.
I would also look at the futures to guide me for the opening price.

so I get a buy signal, look at the futures if that price is higher than yesterdays` close to confirm
the trend and buy an YM at the opening of the stock market if the opening price is indeed higher than yesterdays close.

I do the opposite for a sell signal.

Then I hold the YM until I get a sell signal 1 or 2 or.......or 10 days later.

I will not look at what the YM is doing during the day, but wait for my signals.
I might put in a stop loss, but rather far from my entree price so as not to get stopped out during
the intra day swings.

Instead of a single 5SMA, I might look at two SMAs`, a 2day SMA and 5day SMA and get my
signals from the cross overs.

I would appreciate it if anybody care to comment on my idea.

have a primo day

 

[stevespray]

Vetten….

In my opinion what you have laid out is a bad idea. Trading the breaks of moving averages can be great when you know that market is going to trend reasonable strongly. Unfortunately we do not have the foresight to know this fact.

You will generally find the market in one of two states; either in a ‘trend’ or a ‘range’. Both these types of state require a different style of trading. As a general rule, if you trade expecting a trend and you get a range then it will cost you. Likewise, if you trade because you think we’re in a range and it trends it will cost you again. As I said previously, moving average crossovers, played in the manner you have suggested, work well in a trend. In a range however you will find yourself getting what is technically known as ‘whipped’. In other words, you’ll find that you system throws out a high number of trade triggers which causes you to trip between long and short before a trend (and hence profitable position) is established.

In essence markets normally take their time rising or falling. Seldom do they just take off and head in one direction. You’ll hear all sorts of statistics about the percentage of time that the market spends either in a trend or a range. Of course the statistic is down to timeframes. Generally I would say that, on a daily basis, the market spends 70% - 80% of its time in a range. Thus I hope you can see why crossovers of simple moving averages don’t work so well on general market indicators such as the Dow.

You mentioned Options – These are a different ball game to simply trading Futures. I presumed from your comments that you would be looking to buy options rather than write (sell) them?

In my opinion, the best money is to be made from the writing of options rather than buying them as a speculation. The money in options is generally made from the depreciation of the time value. I’m not sure how familiar you are with options?

I like to write Calls above the market and Puts below the market. The hope is that we will expire within a certain specified range between the strike prices of the Put and the Call. The downside is that we could go into a trend and break out of our anticipated range. This obviously leaves us exposed once our Put or our Call goes ‘into the money’.

I generally have a series of measures in place to limit my liability on the Puts. I can explain more for interested parties.

Steve.

 

[vetten]

thanks Steve for your reply

so that means that people swing trading the Dow through YM are losers?

but would it not be possible to keep your losses small when the Dow is ranging
and let it run when the Dow is trending?
I realise that I cant have my stop loss far from my entree price then when the Dow is ranging.

any people out there that swing trade the Dow successfully?

no I dont mean to write options, but good on you to be successful.

have a primo day Steve

 

[neil]

So how are you going to work out if the market is ranging or trending before you us your m/a strategy?

 

[zhk]

Hi Steve:

I read your message on selling options above and below the actual price. I have got interested in them to and have been looking at doing Credit spreads, both call & puts.

I have looked at the OEX only.

1. Are there there indexs you follow are better in playing these spreads?

2. How do you come up with the Call sell price, say if the OEX is trading at 570, and you want to a August Call or Put credit spread, how will you determine what price to sell them at?
If you could explain how you do it in detail numbers , I would greatly appreciate.

3. How do you determine how far out to choose the month?

4. What other securities are you looking at to sell options.

5. Any other input?

Regards
Zee