Wednesday, February 07, 2007


In our never ending search for an automated let me sit back and watch and make money method, Dogwood and I are trying a number of approaches to using the Proshares ultra-short funds along with the Q's to see if we can find a market timing system that makes sense. Dogwood is right now studying the effect of TICK on the process and I'm looking at several other methods.

Including buy both and let one fail and one succeed. The best way to do that is to buy one or the other the night before depending on your feel for the market on the next day. If you believe the market is going up the next morning buy the Q's and set a stop close below them. If you believe the market is going down buy QID and set a stop below it. Usually at 3:45 EST you shouldn't have a lot of trouble getting filled because the day traders have all gone home for the day. (Except for a few hard core who play after hours). Then the next morning at the open you buy the other automatically also with a close stop and hope that the whipsaw of the market place doesn't take them both out. It happens. I've tried it a couple of times with success each time but I don't like the suspense.

Yesterday morning provided a great opportunity to try out a pivot point based approach because the Q's opened up and QID opened down. If you want to be prepared for the next day you have to generate the pivot points before the market opens - we've discussed how pivot points are generated so I won't cover that again.

Once you have generated the pivot points for the two stocks as soon as the market opens and you can get a one day chart you should bring it up and annotate it with the pivot point, MPH, MPL, R1, S1 or as much as will fit. Some systems provide this capability built in - mine doesn't but that's OK - I would continue to annotate them by hand as I have been doing all along. I enjoy doing it and it helps me concentrate on the task at hand.

Here is what the two stocks looked like at the end of the day.

You can see how they are an exact mirror image of one another and that they hit the pivot points at the same times. Note how you could have used the pivot point (1) of both stocks to inform your purchase. Then when the QID pulled back away from R3 and the Q's pulled away from S3 you sell QID and buy the Q's.

Thus in one day you make a buck and a half on QID and another 30 cents on the Q's. Dogwood suggests that we use QLD but I don't think it has enough volume yet to make it reasonable. But if you could have got a fill in QLD around 12:15 or so you would have made about a buck on the transaction.

I'll stick with the Q's for the counter trade in this instance until QLD becomes more popular.

A little memory trick so that you won't be buying the wrong ETF - QLD - "Long Double Q's", QID - "Inverse Double Q's".


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