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Mikey's Short Term Trading Rules

1) Make up a list of stocks, commodities or ETF's to trade. This list should be names that have good earnings and high relative strength.
2) Monitor this list and throw out the weaker names
3) Buy only stocks or ETF's that are intermediate and daily up (green) and the market is Daily and intermediate term up (green)
4) Buy pullbacks on these stocks to the 20 and 50 day averages
Usually you get 4 to 6 20 day pullback buys and 2 or 3 50 day pullback buys in an intermediate term trend
5) More agressive traders can buy the 7 day average in the first 3 to 8 weeks of the uptrend.
6) Buy pullbacks not runups. A buy should not be easy or exciting but difficult and somewhat scary. DO NOT CHASE
7) Place stop at 5% below the buy price. Do not remove
8) Sell 3 to 5 days after the stock price takes out its most recent 2 week high with at least 15% gains
9) Uptrends that are 12 weeks or more may be ripe for a correction. The first 2 pullbacks to the 50 day are usually safe.
Intermediate term uptrends and downtrends generally last from 8 to 16 weeks with 12 weeks being the norm.
10) Shorting is a viable strategy in downtrends for experienced traders only. In general, reverse the above rules
11) Tweet Mikey @themarketshadow with questions or ideas

Sunday, October 5, 2008

The VIX Index..A measure of fear in the market

The VIX index was developed in 1993 by the CBOE and is consider to be the premier barometer of investor sentiment and market volitility. Using the values of puts and call options it measures tje implied volitility of the S&P 500 over the next 30 days . The real message in this index is that as implied volitility goes up the fear level is increasing and as the index falls the fear level is subsiding.
In a bull market the index will read at about 10 when there is little fear and it will read as high as 20 when fear enters the market. If you believe we are in a bull market then when the index reaches 20 as a trader you build positons and then sell when the index drops to 10.
In a bear market the index will have a low of 20 when fear subsides and the index will rise to around 40 when there is alot of fear in the market. So a trader would be a buyer when it reaches 40 and a seller when it reaches 20.
This indicator hit 48 on 9/29/08. This is an excellent place to build positions for the next rally. In the future, I will keep you appraised of this index so you can have an objective measurement of fear and it will help you understand why I put my trades on. It is just one tool, but one that I pay attention to.
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