Many of you have requested that I publish my list of the 40 ETFs that I follow on a daily basis for the Options Advantage portfolio. Well, per all of your requests I have decided to make my list available for daily viewing for all Options Advantage subscribers. My intent is to place an updated chart on a daily basis on the member's page of the Options Advantage website.
But before I release my daily indicator to subscribers, I want to suggest that you join me this Thursday, April 5 at 1:00 p.m. EST, for a free live chat event I am calling “The Secret 40 ETFs that Generate All of My Profits.”
I will reveal how I focus my efforts on particular ETFs rather than stocks to give total coverage of the market. I will go through several examples of how I use these ETFs in my Option Advantage portfolio. I will also answer any questions you may have during the live event, and share details about two actionable options trades typically reserved for subscribers to the Options Advantage trading service.
The event is FREE, but space is limited to 1,000 attendees. So click here to sign up now and receive a complimentary subscription to The Strike Price, my weekly options research newsletter complete with weekly analysis of market conditions and actionable options ideas.
Join us at 1:00 eastern this Thursday – and come equipped with all your most pressing options questions!
A Little Background About the Indicator
One of the biggest mistakes I see new traders making is that they keep digging into the toolbox for a new widget every time they see something they like.
I can't tell you how many traders I know who want to follow bull flags, bear flags, candlestick patterns, channel retracements, Fibonacci retracements – the list goes on and on. They will try and teach you about their long list of indicators to make themselves look impressive, but in reality most are horrible traders over the long term because they overwhelm themselves with a stream of the latest and greatest indicators only to move on to another indicator that happens to fit their current market perspective.
I keep it super-simple when I trade. I pick one tool and I use it for its specifically intended purpose. For me as an options trader, I'm looking to make steady, reliable gains without too much of a holding period.
So in order to make options trades I use a tool that helps me do a few things:
1) This tool alerts me that a profitable trade may be on the horizon – which gives me time to prepare.
2) It tells me when I should think about getting out.
3) It lets me adjust my time horizon to craft a trade that fits my needs.
As I said before, I keep it very simple. I use a few basic versions of ONE simple tool model to take advantage of sentiment and technical extremes on highly liquid ETFs.
So, with that being said, I would like to share with you the most powerful technical indicator that I use in my proprietary model.
Basically, my indicator allows me to gauge the probability of a short- to intermediate-term reversal. It does not tell me the exact entry or exit point, but it helps me to be aware that a reversal is on the horizon.
Knowing that a short-term top/bottom is near I am able to increase the probability of a potential trade. Conversely, knowing that a reversal is on the horizon I am able to lock in profits on a trade.
Since I am a contrarian at heart I prefer to fade an index whether it’s overbought or oversold when the underlying index reaches a "very overbought/very oversold" state. Fading just means to place a short-term trade in the opposite direction of the current short-term trend.
Of course, other factors must come into play before I decide to place a trade, but I do know that, in most cases, when an index reaches an extreme state a short-term reversal is imminent.
The following is the baseline for my indicator:
Very overbought – a reading of greater than or equal to 80.0
Overbought – greater than or equal to 70.0
Neutral – between 30.0 and 70.0
Oversold – less than or equal to 30.0
Very oversold – less than or equal to 20.0
Since I'm looking for extreme conditions, I focus on very overbought and very oversold conditions. When an asset hits more neutral levels, that's an indication to close the trade out.
The list I will be revealing Thursday at the webinar is fairly comprehensive, but if you have other ETFs that you would like me to include send me an email. Just remember, the options on the ETF MUST have an efficient options market noted by a tight bid-ask spread. The other thing to notice is that with 40 ETFs to choose from, there's a good selection of potential vehicles to focus my simple strategy onto. I don't have to force a trade or wait very long for one of these vehicles to slip into a range I'm comfortable trading.
If you have any questions about the intricacies of the strategy or using probabilities of success as a way to trade/invest please feel free to email me at [email protected], and follow me on Twitter at @OptAdvantage.
Editor and Chief Options Strategist
Options Advantage and The Strike Price