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trade with a market
timer that mirrors the S&P five hundred. The SPX is an ETF (Exchange Traded Fund) that tracks the S&P 500. Consider the chart of the SPX. The market is in a very downtrend. The timer indicates a down market signal on November 11th 2008. At the bottom of the chart, there is a yellow histogram that displays the share points gleaned as the trade progresses. It shows the share gains of the SPX during a timer signal; the white horizontal lines are at the 5percent, tenp.c and 15p.c gain levels. Gains of fivepercent are routine over the years; tenp.c gains occur less frequently and are usually accompanied with a pull-back; gains of fifteenp.c are rare and sometimes momentary. This cash management plan takes advantage of the stock worth excursions. The Strategy DescribedThis "Grab the money and dash" strategy is simple. a) When the SPX value has moved fivep.c, shut twenty fivep.c of your shares. b) When the SPX worth has moved tenp.c, close 0.5 your residual shares. c) When the SPX value has 15p.c, sell fiftyp.c your residual shares."Grab the money and dash" using Ultra and Contra ETFsSSO and SDS are Ultra (2X Leveraged) ETFs that are commonly traded to represent the S&P 500. Both the SSO and SDS are liquid; i.e. they have very high daily volume, and therefore the distinction between their bid and ask prices is within a few pennies. The advantage to the trader is that he can enter and shut trades for terribly tiny slippage costs. The SSO ETF is traded throughout bull markets; SDS, a Contra (inverse) fund, is traded during falling markets. SSO and SDS gain approximately twice S&P 500's gain. For example, if the S&P 500 rises 5%, then SSO moves up tenpercent. If the S&P 500 moves down fivepercent, then SDS moves UP 10percent - yes, up, because it is an inverse fund. By exploiting these 2 ETFs, we tend to will capture profits when the market rises or falls; even in your IRA account. Now that we have a tendency to have a method to capture profits in an exceedingly rising or falling market, let's observe the result that applying the "Grab the money and dash" money management strategy does to our profits in an exceedingly market that retraces. This cash management arrange not solely captures profits as they're generated, however, at the identical time, it reduces your funds in danger. Rather than adding to the trade, increasing risk, we have a tendency to take money removed from the trade.
เธขย This addresses the increasing risk of a pullback because the market rises. The strategy works best in volatile markets like those we are experiencing since the autumn of 2007.An ExampleAs an example we tend to are going to use the trades represented within the red rectangle in the lower left of the chart. The yellow histogram at the underside of the chart shows that the market had gains over 15p.c throughout this trade.
เธขย เธขย As a result of SPX's worth was falling, we tend to traded SDS to require advantage of the bear market. (SDS rises because the market falls as a result of it's an inverse ETF, bear in mind.)Table AGains without money managementTo illustrate the calculations within the table An above, we are going to buy one,600 shares of SDS FOR $94.thirty one on eleven/eleven/2008. This is an investment of $150,896. If we have a tendency to hold SDS till 11/25/2008 and do not use any money management strategy, we tend to can expertise a tiny loss of $twenty eighteight. Gains employing money managementWatch the impact on ETF profits when using this cash management strategy.
1. On eleven/twelve/2008 the SPX has gained over fivepercent. Therefore, we will sell four hundred [twenty fivepercent] of the shares of SDS at 104.94 for a gain of $four,252.00; we have a tendency to still have one,200 shares of SDS.
2.On 11/19/2008 the SPX has gained over ten%. We tend to want to capture more of the move, therefore we tend to will sell 600 [fifty%] of the shares at 112.ninety four for a gain of $eleven,178.0zero; we tend to still have 600 shares.
3. On eleven/twenty/2008 the SPX has gained over fifteenp.c. We will sell three hundred [fifty%] of the shares at 127.97 for a gain of $ten,098.00; we have a tendency to still have 300 shares.
4. On 11/twenty five/2008 we tend to sell to shut the leftover 300 shares. We tend to sell three hundred at ninety four.13 for a $fifty four loss.Summing up the gains in steps 1, two, 3, and four on top of, the profits reach $25,474.00 rather than a loss of $twenty eight8. This represents a gain of sixteen.eighty eight%. This gain was created potential by selling shares at prescribed levels to take advantage of the value moves. It is necessary for investors to require profits after they present themselves. The concept of adding to a trade because the trade progresses adds appreciable risk.
Moreover, in these volatile markets, it's essential to own a cash management strategy that reduces risk rather than increasing risk.
My internet site, SPXTimer.com is dedicated to aiding investors improve their investment performance using the SPXTimer combined with sound cash management. We aim to achieve exceptional gains while keeping safety primary. Many of our strategies are developed principally for IRAs. These methods show you ways to soundly profit in each bull and bear markets. Our market timer is distinctive as a result of it includes market sentiment when calculating the market direction.
