Was looking at ways to hedge my mean-reverting strategy that focuses on financial stocks.... Specifically I am looking at June - July of 2008, when the financials went on a virtual nosedive and volatility, while increasing, didn't really go through the roof or anything. What is a good trend following strategy - if you only want to get involved when the trend has been established and is moving very stong - AND you want to profit substantially from it quickly. My first thought was just buying calls or puts on the 3x ETFs or XLF or something like that, but didn't know where to start as far as indicators. Thanks anyone.
pls do NOT buy and hold any leveraged ETFs for longer than a day due to the prob w/ compounding (use a goog search for the prob). leveraged etfs only work when there is a strong trend w/ no retraces at all. you can use a 20 dma to stay w/ the trend however when the feds in their infinite wisdom halted short selling of financials that caused a huge reversal and that was your cue to close the trade.
If the compounding keeps you from buying 3x etfs, I tell you that's what makes them wonderful instruments to trade, especially if you're very familiar with futures. The suggestion to stay away from 3x ETF's just shows that the public still isn't informed as to how best to implement these into their portfolio. I would say the general purpose of them was the compounding, so if you say, don't use them, they compound, proshares says, use them, they compound....hmmm.... Best to let more knowledgable traders trade them, true, but when it comes to TQQQ and SQQQ I've never made as much money on trades with scale when I trade those. Now, my system's based on leveraged instruments, but most strategies will not be able to adapt for the mean reversion without normalized volatility thresholds and it does sound like that's what the op has been exploring. Stay away from those instruments until you got something you can be that confident in, and, yes, you can hold them from 1-3 months with incredible returns, which was their purpose, so to say don't use them simply because of their most attractive feature doesn't make any sense because that is their place in my client's portfolios.
100% agree. I know how the compounding over time can kill, help you, but if you trade these things as a hedge, or quickly and strategically - they can achieve their purpose.
I found out the other day about an intriguing technique to adapt moving averages via filtering out small daily changes.
Its the golden saying in the trading world that "Trend is our Friend". Thus, if one is able to catch the trend at the early stages then there are all chances that they can ride some really huge number of pips and enjoy their trading with good profits made.
I've toyed with the same idea for a while. One approach I've tried on my real-life trading performance, is to apply a filter which depends on the value of VIX instead - by applying it, I could have eliminated at least half of all down-days. Reason for not implementing it is simply that it would remove almost 1/3 of all trading days, which I felt was just too boring!