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Sorry for not being clear, I ment the day trading part where you have to choose the "strongest" US equity spread, what if - fe in pre market session - the relative strength of those indices are more or less equal and markets are still unclear ..
I also would like to know , if it is ok to share, what is that you do in the daily trades. Maybe a couple of examples would help.
Options have been good to me and I am thinking about some options day strategies on futures so would really appreciate an example of your daily trades.
This is a valid question that probably deserves some research. Something is always stronger because it's just math and maybe the difference goes down to the 4th decimal point, but they are never exactly equal. I do wonder though if there is any useful filtering that could be done by insisting on a certain difference for the trade to be taken. I'll have to think of a way to test this, but if I am able to do so, I will try to remember to post the results.
The other thing that helps in this area is that I do not put the trades on at the same time. In general I do it in three stages - one pre-market, one shortly after the opening frenzy and then another when the day's direction may be more evident. So in that sense, the trades are self-correcting if something is going wrong.
My approach is rather simple - I try to buy strength and sell weakness. I use spreads. I spread out the entries (no pun intended) to cover various stages of the market day. Yesterday I bought the Dow pre-market and sold the Russell, which ended up a disaster. By the time I was ready to add the 2nd leg, the numbers had completely reversed, which is somewhat rare. I was losing the long sideand losing the short side. Fortunately that doesn't happen often. Just as winning both sides doesn't happen often either. I am only hoping one side outperforms the other, and that I am on the right side. Entering at different times means that I usually end up getting it right. If I've dug a big hole, I may not always get out of it, but many times I get beat up early, and by day's end I've recovered. Of course, some days the market just flops around like a fish out of water and I just have to capitulate for the day. No sense fighting it when everything you're doing isn't working. Come back and try again tomorrow. Easier said than done of course, especially for a competitive guy like myself, but I continually ask myself "Are you trading like a professional? Or are you putting yourself in a position to take a loss than can't be made up with one good day? Worst of all, are you gambling?" I try to be brutally honest with myself, and then do the right thing. I am a firm believer that exits are a thousand times more important than entries. I spend next to zero research time on entries. I spend the vast majority of my waking hours thinking about exits.
Maybe a threshold for entry is overthinking it and waiting for too much confirmation. I experienced in trading it is best not to do brainy stuff. Just interact with the market and deal with what the market is giving you as a return.
That having said when I read about your method here, I was immediately thinking about the Dual momentum by Gary Antonacci. Totally other markets/instruments/time frame though. Dual momentum is about picking the strongest ETF out of a ETF-basket and with the stongest internal momentum/trend, rebalancing every month.
So in comparison to that method you do roughly the same thing, picking the strongest spread (cross sectional momentum), rebalancing on different moments intraday. But you are not considering momentum of the spread itself. This is where my idea of a threshold comes in. It gives a simple reading of the strenght of the spread itself.
In ETF world this method seems to yield some nice profits. So maybe using an idea that works in an other place can also work in intraday trading.
Some good stuff here. Thanks. I didn't get a chance to look up Gary Antonacci, but I will.
Some very preliminary testing seems to indicate there is some validity in accepting or rejecting trades based on the strength of the trade. Gross profit goes down, but the $ per trade goes up, and the drawdown is reduced somewhat. I would need to do a lot more testing before I'd make any changes though. And I wonder about the psychology of a day like today when the "weakest" of the spreads was by far the most profitable, and the final leg, which was extraordinarily strong, was basically a break-even trade. And what about those days where not a single trade meets the threshold? Could I sit on my hands all day when I should be "working"? One of the things I always consider, and I think most people should, is whether or not I can actually trade it given my personal makeup. For example, I could never be a scalper. I can certainly take quick profits, but the competitive beast in me resists the need to take quick losses. Instead I try to "fix" them. So you may have a great scalping system that would work for a lot of people, and be successful, but I would fail with it because it's not suited to my personality.
Anyhow, I feel like I'm rambling, so I'll stop. Thanks for the info. Definitely of value, and I am going to do more research based on what you've mentioned.
Option Side: A nice smooth day. Just how I like it. Market was down, but just a bit. IV was up, but just a bit. Some very nice time value came out today. I was up about 415. I did add a EWQ 2800/3100 straddle for 11.50. And for some reason I bought a couple of OTM Calls. Not sure what I was thinking with that, but they were $30. each (.60) so no big deal. Maybe I can do something with them down the road. We shall see.
Day Trade Side: Trade worked beautifully from the moment the cash market opened. By 11:30 I was up 2200. That ended up being the high water mark. Trade started going against me. I gave some thought to exiting half, and probably should have, but I held on as it dwindled all the way down to 1100. 1000 was my drop dead point, but it didn't get that low. In fact it got back up to 2000 before falling off again. When it broke 1500 I started exiting. By the time I got all the way out, I was up 1311. So left some on the table, but I feel like I managed it pretty well. It's a constant balancing act between preserving profits, and letting a trade breathe.
Option Side: A day for crazy, nonsensical pricing. Seems the uncertainty in the FOMC meeting inflated options prices quite a bit even though the market itself was relatively quiet. Today saw nearly a 10% pop in IV and I ended up selling 1 Put for 11.00 points just because the prices were so high. I had no plans to do anything, but that was too good to pass up. I was down about 550, but as long as the rates decision is somewhat in line with expectations, I should get that all back tomorrow and then some. And really, isn't that what makes this fun? I'm going to see a nice pop in my NLV, or the market is going to take a big dump tomorrow. And nobody can say for sure which it'll be. But in 24 hours we will know. What a fantastic way this is to make a living. I love it!
Day Trade: A struggle today, perhaps unnecessarily so. My first leg was long the Russell and Short the NASDAQ. Perfect. Except it wasn't. Both sides went against me and my 2nd leg negated my first leg and I was now long the NASDAQ. Well, that went haywire too, and when it came time to put on the 3rd leg, the market had flipped and my 2nd leg got negated as well. So now I had done two spreads, and both Longs had lost money and both Shorts had lost money. That's hard to do. So I was down about 800 and the 3rd time was the charm, buying the Russell and selling the NASDAQ, and this time keeping them. I did two units, and the trade fought its way back. When it got to +300, I closed half, and it trickled up at the end of the day to finish +501. Now had I merely done only the 1st leg, and nothing else, I'd have been up over 1400, but that's not the way it went down. Gotta love the fakeouts, but again, isn't that what makes trading fun?
