Cycle Trading

[Duma]

The essence of any swing trading system boils down to three parameters.

1. How far from the top does the system take you to cash
2. How far off the bottom does the system get you long again.
3. And the key is, is the sum of 1 and 2 less than the overall size of the pull back.

For instance, say the pull back is 4%, the exit was 2% from the top, and the entry was 2% from the bottom. That would be a perfect zero loss on the turn. But it doesn’t always work out that nice.

I have already commented a couple days ago about the FAS turn. It turns out the pull back was less than the sum of 1 and 2, so I lost money on the turn. However as I said, I am not so concerned because I will make it up with leverage.

So what is happening with SPY and QQQ. I will only talk to SPY but the QQQ numbers are there also.

My exit signal for SPXL was only 1.05% (all yields are 1x as always) from the top. If the bottom was put in yday, then the total pullback will have been 5.00%. If my buy stop gets hit today, the entry will be 3.4% off the bottom. Therefore I will gain .54% on the turn.

I really don’t expect the buy stop to get hit today because it is so high. So at this point the buy stop for tomorrow will move down to the high of today. Don’t know where today will end, but let’s assume somewhere around 48. If that happens the gain on the turn will rise to 1.64%. This is better.

The same gain on the turn for QQQ would be 2.80%.

Again let me make the point that trying to make a gain on the turn is not the key. The key is to be out of the market if it continues to drop. I say it this way, “Be bold (leveraged) when the market is trending and cautious (cash) when it is not.”