Spread Trading Blog Posts

Using an oscillator for trend indication — The direction of an oscillator’s movement generally provides an indication of the direction of the underlying market trend. Therefore, a reversal in the direction of an oscillator suggests a reve...

The odds of long-term success favor a larger account. Large accounts can withstand a run of bad trades that would ruin a smaller trader’s account. Imagine a series of coin tosses. In the long-run, half of the time the coin will lands on heads a...

The market may sometimes create a series of highs that can also be connected with a straight line parallel to the trend line. The result is a channel within which prices oscillate between the top and bottom lines. The top line of the channel becomes...

The first criteria for placing stops is deciding how much to risk on the trade. If a trader with a $20,000 account is willing to risk 3% ($600) on the 600 shares of Ameritrade he just bought at 15, he would simply place his stop at 14 ($15 – $1...

The change in open interest is a measure of whether money is flowing into or out of the market. When the price is FALLING and open interest is increasing, this indicates that the price decrease is due to selling being done to create new short positio...

The averages discount everything. This means that every possible thing that can affect prices is reflected in the market averages. Even acts of God are quickly appraised and their effects accounted for in the price. Of course secret insider informati...

By Ted Nino One of the most solid, steady, robust, reliable, and profitable strategies available to us option traders is the iron condor spread. When the stock market is calm and quiet – you don’t have to do much at all to quickly realize...

Using an oscillator as an overbought/oversold indicator — An oscillator can also be used to identify overbought and oversold conditions by watching its absolute value. A very high (positive) oscillator value indicates that the shorter-term movi...

Chart reading is both a skill and an art and is therefore very subjective.

Commonly, a risk to reward ratio of 3 to 1 is suggested, i.e. risk $1 to make $3. The problem with this maxim is that it is hard to determine realistically what the objective is although sometimes it is possible to determine roughly from break-out pa...

Using the Relative Strength Index (RSI) as an overbought/oversold indicator — As an OB/OS indicator, a 9-day RSI value approaching 80 means that the market is overbought, i.e., the price is very high and almost everyone interested in this contr...

If resources are still to be committed to stock or commodity futures trading, it helps to have realistic expectations. Financial markets don’t exist to make the individual trader wealthy. A private trader will be competing against much more exp...

Say a trader’s account has been open for some time now and after a series of trades his equity has fallen by 20% from what he started with. Now, just to get back to the breakeven level he will have to earn a 25% return. Percentage gains and los...

One should compare items in the same market. For example, if gold is being analyzed, check the other metals; if a grain is being analyzed, check the other grains; if a currency is being analyzed, check the other currencies. In the case of stocks, com...

Not only does a smaller futures contract help to control risk by limiting the impact of an adverse move but it allows another risk management idea, that of trading more than one contract. This allows traders to take partial profits rather than gettin...

Momentum can also be used as an overbought/oversold level by going back through the history of an instrument to note what constitutes an extreme level for a particular momentum line. Momentum can also be used in conjunction with the price activity to...

If a novice trader makes it through the first six months to a year, trading, and not losing money, he is well ahead of the majority. After he has been trading for a period of time and has not lost money, what type of return should the trader be happy...

The major difference between futures and stock trading from this section’s perspective lies in the amount of leverage available for use. An example is helpful. A 2% drop on 100 shares of Microsoft priced at $92 that an investor bought on the ma...

The new trader should know how much to risk on each trade and what stocks or futures contracts to avoid but how exactly does the trader limit himself to a 5% loss on each trade? The answer is simple in theory but complicated in practice. As soon as t...

Unless the trader is using a purely mechanical trading system, it is also important to remember the importance of psychological factors. One way a trader can limit losses is to make sure he or she is going by a plan and is not trading impulsively. On...