The wild swings of late have really made me go back to the books about entering a trade. Sure we are in a clear downtrend/correction, but with the volatility we have seen intraday, getting in at the wrong time can be costly and take a healthy chunk of the profit out of an otherwise great trade.

When we have these sharp drops, my go to trade are leveraged, inverse ETFs. (check out the article about them here). Using the S&P as an example, I would use the ProShares UltraPro Short S&P500 (SPXU). If we know the S&P is trending down, but has wild swings along the way, the time of day you place the trade can be critical. I am a big fan of using moving averages as tools to find trades. Admittedly, these are not sniper rifles as far as indicators go, but more like shotguns.

We have talked before about how a move across the 10 day moving average is a heads up that there is a potential for a further move in that direction. If we then see the move continue through the 50 day, the potential increases. When we break the 200 day moving average, the momentum is very much on our side and it is good time to jump in.

With moving averages, I often refer to a 10 day or 50 day moving average. Technically speaking it more correct to refer to it as a 10 period moving average on a daily chart. Each candle on the chart represents a full day of trading. The great thing about moving averages is that you can change the time period and use them in the same manor. if you change the time period to a 5 min chart, you can see the intraday momentum and get a sense of what to expect within the day.

Lets start with looking at the S&P, which SPXU tracks.

This is a 5 minute chart where each of the candles represents a 5 min period within the day. If we were considering entering a trade to take advantage of the dropping S&P, this would be a good tool to have up as we look to enter. Since we are taking a position expecting the S&P to drop, the inverse leveraged ETF, SPXU is a very efficient tool to use to make the trade. Since it is an inverse ETF it will move in the opposite direction the S&P moves. And since it is leveraged (in this case 3x leveraged) it moves triple each move the S&P makes. Let’s look at that same move on SPXU:

Again, this is the 5 min chart from yesterday and we can see that SPXU starts out the day a bit unsure of what it is going to do, but then we see it break through the 10, 50 and 200 period (in this case 5 min periods) moving average. This is a great signal to then enter the position in SPXU.

Whenever I am stressing about what time to pull the trigger on a trade I take a look at the 5 min chart and see what it can tell me.

These type of patterns can be very lucrative and there are many of them that work extremely well. In fact Wendy Kirkland’s Shark Fin pattern is an example that has produced some amazing results. You can check it out here.

Keep learning and trade wisely,

John Boyer


Market Wealth Daily