A swing strategy for market peaks
It can work regardless of where things go from here.
Admittedly, we all hope the market will go up forever, as it has recently. But we all know it will not. Even people who focus on the short term have doubts about the economy and acknowledge that any stumble could cause stocks to pull back more seriously again.
In every respect, this is a time when smaller investors are being enticed back into the market. They think it will go straight up because everything looks great. But smarter investors are hedging those bets. Smarter investors are looking for strategies that can work if the market goes up or if it goes down. Strategies that are not tied to market direction but have solid historical performance as well. That is what I will discuss here.
Especially at market peaks, but not so much at market troughs, investors should engage strategies that can work no matter where the market goes or what happens to the economy. Our Swing Trading Strategy, which returned about 21% in 2011, does exactly that.
The following is an example for interested investors showing how some trades, by their makeup, can work in any market environment, regardless of economic conditions, and without sacrificing time or lifestyle.
Swing Trading Strategy:
- Conduct a mid- and long-term technical analysis of the Nasdaq (only two charts, four data points).
- Combine the data into an array and insert the current level of the market.
- When the first resistance level is tested, buy the ProShares UltraShort QQQ (QID) -- an ETF that corresponds to twice the opposite of the daily performance of the Nasdaq 100 index.
- When the first support level is tested, buy ProShares Ultra QQQ (QLD) -- an ETF that corresponds to twice the daily performance of the Nasdaq 100 index.
- Take profits when 2% is realized.
- Repeat the process.
- Stop if the first support or resistance level breaks.
This strategy can be used for the Dow, S&P 500, and Russell as well, with their corresponding ETFs, but generally speaking, the most efficient market to trade is the Nasdaq. The Nasdaq may not always trade exactly like other markets, but its volatility makes it easier to realize a reward at the 2% level.
We have been using a strategy similar to this one for many years, and it can work extremely well in any market environment. But this approach is especially important when the market is at relative peaks.
If the work seems like too much check this: equitylogic.net/stickandmove.php
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Stocks drift lower and bonds are hit as investors await the Fed. Prepare for higher volatility this week.
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