Friday, January 22, 2010

SCHF/EEM Revisited

I've previously posted on possible free commission trading opportunities provided by the SCHF. Here's a swing trading approach using 130 minute bars. With 390 minutes in the equities' trading day, this little bar system breaks the day down into 3 increments and provides a quick snapshot of how price is trending from open to close. I'm still applying my standard stable of indicators and I've highlighted the ATR indicator in the lower chart pane as a reference for a point I'll make later on in the post.

The lessons to be learned here: if you're going to trade the low volume SCHF and take advantage of the free commission deal, then best to pay close attention to the much bigger EEM (regardless of the time frame). While SCHF may lead or lag the EEM for short spurts, mean reversion to the EEM trendline will inevitably occur and using a simple SCHF chart with an EEM overlay can keep you from being on the wrong side of the trade. I also rigorously adhere to my previously discussed 8sma high/8sma low channel to define my risk tolerance.

The other metric I track is the dynamic ATR8. If you knew that one of the largest US prop shops, trading a couple hundred million shares a day, routinely used a conditional 1/3 ATR10 as one of their stops for NYSE daytrades, would that effect how you set your stops? I try and front run that tsunami by using a 25% ATR8 stop as a component in my stop basket. The parabolics, the 3,7,12 smas slope, and the 8/8 channel round out the rest of the basket and when any 3 of them fire, being out is never in question.

2 comments:

mike said...

Can you please give us following your Project Z, an update on the SMH long VXX short trade from this week? I am curious if it was able to limit the damage before weeks end?
Thank you!

bzbtrader said...

Mike,
Project Z and the PDQ SMH/VXX are 2completely different market approaches. The short answer is: the PDQ closed out the Long VXX trade way too early (Wednesday) and is currently in OUT status. Project Z on the other hand did a superb job of seeing the carnage coming. Tuesday I'll try and post a TS snaphsot of the current Proejct Z signals for a few markets. My time commmitments are very heavy this week, but I'll try and "get er done" ASAP.