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Does RSI Predict Market Direction the Following Week?
Dr. Terry Allen, from Terry's Tips, published a very interesting 100-week back test of the RSI to see if it predicts market direction for the following week.
Terry used the following RSI numbers for 2-day, 3-day and 5-day RSI readings:
Very overbought – an RSI reading of greater than or equal to 85.0
Overbought – greater than or equal to 75.0
Neutral – between 30.0 and 75.0
Oversold – less than or equal to 30.0
Very oversold – less than or equal to 20.0
Extremely oversold – less than or equal to 10.0
Here's how the last 100-weeks of readings on SPY were distributed:
Neutral – 47 weeks
Overbought – 16 weeks
Very Overbought – 22 weeks
Oversold – 5 weeks
Very Oversold – 8 weeks
Extremely Oversold – 2 weeks
Here are the numbers that show what happened to SPY in the week after the condition reported in each of Terry's Saturday Reports:
REPLAY: Round Table with Paul Demers
Paul Demers presented Weighted Vega and results from his extensive back testing and testing with live trades. Paul's current live trade is averaging over 5%/month. Paul spent extensive time reading and understanding Taleb's book Dynamic Hedging: Managing Vanilla and Exotic Options
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Ricardo's Weekly Trade is +25.3% in Two Days
Ricardo Sáenz de Heredia launched his first trade in his Premium Alerts service on Thursday. One of the three types of trades Ricardo sends to his subscribers are a weekly trade. This week's trade is already in the black.
Trade Entry
Ricardo sold an Iron Condor on the RUT for $6.45 and at the close on Friday, it is trading for $4.82. Ricardo already has a $163 profit per spread. That would pay for his monthly subscription already!
The Greeks
The option Greeks are:
| Delta | -25.15 |
| Gamma | -3.48 |
| Theta | 158.2 |
| Vega | -144.9 |
Plugging these values in the Brian Johnson's spreadsheet (you can get the spreadsheet by purchasing Brian's book here), we see these numbers:
These are reasonable values for DTRRR and VTRRR. Dan Harvey likes a DTRRR of 2.0 or less so we're close to Dan's more conservative ratios. The high theta helps keep the ratios under control.
Himanshu Calendar Trades Update – March 13, 2015
Himanshu Raval updated his Income Calendars trades and answered questions.
Learn more about Himanshu's Calendars here
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REPLAY: Round Table with Matt Shaffer
Matt Shaffer, from institutional broker IA Englander, presented how he looks at order flow and volatility for his institutional clients. Matt sends out a newsletter twice per day to his institutional clients. Matt's opinions in the newsletter are very timely.
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REPLAY: Round Table with Bill Ghauri
Bill Ghauri presented “What Automated BackTesting Taught Me about Risk/Money Management.” Bill custom coded his own option back testing platform using MS SQL server and Excel. He showed how important controlling risk and sizing your positions. Bill is managing several portfolio margin accounts using this style of trading and has very simple trade management.
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The Round Table with Bill Ghauri on Thursday Feb 26th
Bill Ghauri will present “What Automated Back Testing Taught Me about Risk/Money Management” on the Round Table on Thursday, Feb 26th at 4:30pm ET.
Bill will cover:
- The importance of risk and money management
- To have a good reason to enter a trade – You might find yourself becoming a directional trader!
- How he uses automation to create, test and verify trading strategies and risk/money management plans
- And more…
REPLAY: Round Table with Dan Passarelli
Dan Passarelli, from Market Taker, presented “How Time Spreads Can Profit From High Volatility with Limited Risk.” Dan covered the basics of time spreads and showed how volatility in the front month doesn't necessarily mean it's time to buy LEAPS due to the volatility term structure.
Dan answered many questions about volatility and trading. We thank Dan for appearing on the Round Table.
Enjoy the replay!
Market Analysis for Feb 23, 2015
Himanshu Raval showed how he uses Woodie's CCI. Himanshu answered many questions and did a great walk through of how to use Woodie's CCI and how he uses it to generate buy and sell signals.
The Round Table with Dan Passarelli on Wednesday Feb 25th
Dan Passarelli, from Market Taker, will present “How Time Spreads Can Profit From High Volatility With Limited Risk” on the Round Table on Thursday, Feb 25th at 4:30pm ET.
Dan will cover:
- How to set up time spreads using term structure without falling for common volatility trap
- How to limit risk far beyond maximum loss scenarios using active management techniques
- His time-tested methodology for setting up time spreads
- And more…