Wednesday, November 18th
4:30 pm EST / 1:30 pm PST
In part 2 of Keith Harwood's series on trading options with a directional bias, he will do a deep dive on trading a technical edge with a focus on Option Vega (the Option's risk exposure to a change in the market's expected future movement of the stock).
Using technical setups can often lead to strong trading concepts that can and should focus on specific Options Greeks - in particular, the risks associated with an Option include passage of time, changes in price, and changes in implied volatility.
Keith will explain the technical setups he's looking for to employ a Vega-focused options trading strategy, the way that he applies a Vega-focused options trading strategy to those setups, and the many reasons why people shouldn't forget about the impact of the other Greeks when applying this type of strategy.
Save your spot today, as all attendees will receive a FREE COPY of Keith's Whitepaper on Options Trading!
Tomorrow, you could begin doubling your account every single month starting with one letter.
The letter will come from a 20-year trading professional named Ian Cooper. He says, “In 2017, following my trades you would be doubling even tripling your account some months. Let me show you how.”
He will show you exactly what to do... and he’ll give you the blueprint for just $1.
Range Expansion Index and DeMarker Indicator
by Thomas DeMark
I show you here two indicators that I created and have used for some time: (1) the Range Expansion Index (REI) and (2) the DeMarker indicator. I offer both as alternatives to the many widely followed publicly traded indicators. The REI and the DeMarker have been designed to identify price exhaustion areas that generally correspond with price peaks and troughs.
Range Expansion Index (REI)
I have always been suspicious of the indicators commonly used by traders. I believed that universal usage and acceptance effectively canceled the benefits that could be derived from any of them. Consequently, either I improved on these indicators or created my own. One such indicator is the REI. I wanted an indicator that was sensitive to periods of ascending and descending prices but was silent during sideways price movement as well as during steep advances and declines. To accomplish this goal, I established the following guidelines. I compared the high and the low on a particular day with the high and low two days before it. If the high price is higher than the high two days earlier, then a positive difference is recorded; if it is less than the high two days earlier, then a negative difference is recorded. If the low price is higher than the low two days earlier, then a positive difference is recorded; if it is less than the low two days earlier, then a negative value is recorded. Once these two values are calculated, they are summed together and a value is determined for that particular day.
The table below shows four possible relationships between today’s price range activity versus the price range activity two days earlier. In relation to both the high and the low two days earlier:
Both today’s high and low are greater;
Both are less than or equal to;
The high is greater and the low is less than or equal to;
The high is less than or equal to and the low is greater than or equal to.
By not comparing the current day with the previous day, short-term static is eliminated and there is greater assurance of a trending pattern.
Price high today is greater than price high two days ago
AND
Price low today is less than or equal to price low two days ago
OR
Price high today is less than or equal to price high two days ago
AND
Price low today is less than or equal to price low two days ago
OR
Price high today is greater than price high two days ago
AND
Price low today is greater than price low two days ago
OR
Price high today is less than or equal to price high two days ago
AND
Price low today is greater than price low two days ago
An additional condition requires that either the high two days earlier be greater than the close seven or eight days ago, or the current high be greater than the low five or six days ago. This prevents buying into a steep decline by requiring price to exhibit some proof of slowing its decline. At the same time, either the low two days earlier must be less than the close seven or eight days ago, or the current low must be less than the low five or six days ago. Similarly, this ensures that the rate of advance is not excessive and helps prevent buying into blow-offs. In both of these instances, a zero value is assigned if price action fails to confirm some slowdown in the rate of advance or decline. Over an eight day period, all the positive and negative values are summed. Then they are divided by the absolute value of the price movement, both positive and negative. An indicator (ratio) that fluctuates between 100 and -100 has been created.
My experience shows that, once the REI reading exceeds 60 and then declines below 60, price weakness would become apparent. Conversely, once the REI declines below -60 and then advances above -60, price strength should become apparent.
DeMarker Indicator
The DeMarker indicator is constructed by making the following comparisons. The current days’ high is compared with the high of the previous day. If the current high is higher, then the difference is determined and recorded. If, however, the current days’ high is less than or equal to the previous day’s high, then a zero is assigned and recorded. Then the daily differences are summed for a period of 13 days. This value becomes the numerator for the DeMarker Index and is divided by that same value plus the difference between the previous days’ low and today’s low, summed for a total of 13 days. If the current days’ low is greater than the low one day ago, then a zero is assigned and recorded. A simple indicator with sensitive and predicative properties has been created.
Just like the REI, the purpose of the DeMarker Indicator is to identify both high-risk and low-risk buy areas. Whereas the REI is designed to make price comparisons every other day to ensure proper trend identification, the DeMarker evaluates price movement from one day to the next. In addition, the REI is calculated over an 8-day period and the DeMarker is constructed using a 13-day average. The time parameters for both indicators can be adjusted from the standard 8 and 13 days at any time.
I recommend that you experiment with both long and short-term versions of the indicators. By using long-term parameters, you can a fix on the long-term trend or market environment. By using a short-term indicator to enter a trade at a low-risk entry point, you can fine-tune your entry and be confident that the trade is in the context of the market’s trend.
Along with modicum of creativity, it takes a genuine desire to rise above the trading crowd. When I first attempted to accomplish such goals there were no personal computers or software for me to rely on. This is definitely not the case today. In short, if you are determined to become successful as a trader, no such excuse exists for you not to perform such functions.
PLEASE READ: Auto-trading, or any broker or advisor-directed type of trading, is not supported or endorsed by TradeWins. For additional information on auto-trading, you may visit the SEC’s website: All About Auto-Trading, TradeWins does not recommend or refer subscribers to broker-dealers. You should perform your own due diligence with respect to satisfactory broker-dealers and whether to open a brokerage account. You should always consult with your own professional advisers regarding equities and options on equities trading.
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