The tech-heavy NASDAQ 100 (QQQQ) and small-cap Russell 2000 led the
led the oversold bounce today. It was the stereotypically volatile day
that often occurs during the week of options expiration.
Today, along with many others, people ask or comment about how
overbought/oversold indicators are no big deal and that
overbought/oversold states can remain irrational for “longer than you
can remain solvent”.
Well, I guess in a way that is true, but unfortunately it is a
rather simplistic way to approach trading and unfortunately, a frame of
mind that often displays the lack of experience needed to survive for a
long period of time in this game and livelihood we know as trading.
I use a few reasonably simple overbought/oversold indicators on
various time frames to gauge overbought/oversold extremes in the market
coupled with a few more advanced trading techniques. My performance speaks for itself.
Remember, I am not stating that my strategies are the “holy grail”
of trading, there isn’t one, but I do know that when traded
appropriately I have found a strategy with a high win ratio that works
over the long-term and the long-term is what count. Remember, you can
always make a quick buck trading, but having sustainable gains is
something completely different. Remember, this is a marathon and not a
sprint.
I am only exposed to the market 10% of all trading days using this
method and the probability is always on my side. Of course, again, that
does not guarantee winning trades, but it does increase my chances of
success and therefore my win ratio. As traders probability is the name
of the game. Also, I must always mention that with the success of any
strategy, risk-management techniques (position-sizing, stop-loss) are
imperative.
I use the overbought/oversold measure in different time frames and
patiently waiting on the sidelines until a short-term
oversold/overbought extreme hits the market. Once that occurs I will
enter a trade in the respective oversold/overbought ETF (using options
of course) and proceed to use position-sizing and other risk-management
techniques (stop-loss, etc.) to keep strategies win ratios working in
my favor.
Indeed a simple, yet very effective strategy that is actually ranked
as one of the top options strategies by pro-trading-profits, a reliable
third party resource that monitors hundreds of other strategies. So,
you can join the big boys and marketing geniuses and their faltering
strategies or you can join a trader in his quest to bring more money in
his pocket and yours.
Give us a try, if you do not like the service for any
reason we will refund your money immediately if you decide to cancel
within 30 days. What do you have to lose?
Andrew Crowder, Chief Options Strategist, Crowder Investment Research, LLC, (www.crowderoptions.com)
Overbought/Oversold Levels for June 19th, 2008
ETF Extremes Options Strategy
- S&P 500 (SPY) - 34.0 (neutral)
- Dow Jones (DIA) - 32.1 (oversold)
- Russell 2000 (IWM) - 56.0 (neutral)
- NASDAQ 100 (QQQQ) - 55.6 (neutral)
Sector ETF Extremes Options Strategy
- Biotech (IBB) - 58.0 (neutral)
- Consumer Discretionary (XLY) - 42.6 (neutral)
- Health Care (XLV) - 33.4 (neutral)
- Financial (XLF) - 39.1 (neutral)
- Energy (XLE) - 44.8 (neutral)
- Industrial (XLI) - 43.2 (neutral)
- Materials (XLB) - 53.8 (neutral
- Real Estate (IYR) - 47.4 (neutral)
- Retail (RTH) - 48.5 (neutral)
- Utilities (XLU) - 59.1 (neutral)
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