Best Strategies or Indicator for Overnight Hold or Short Term Swing Trading

[mn88]

Hello All!

I'm new here and between the OneNote and information on this site, I am amazed at the amount of knowledge and information available! However, after reading and searching for a week I can't find anything that seems like it would help me with what I am trying to do. So to start I will explain a bit about how I trade and what I would like to do.

About 6 months ago I threw 5k into a ToS account, I have read about trading for years and practiced paper-trading for about a month before opening my account. Due to the limited funds in my account, I have leaned towards trading options (not interested in penny stocks). In paper trading, I was pretty profitable using options strategies that I am unable to do with my current account. So I tried to day trade, and I am pretty good at it but I am limited to 3 trades per week. My intention is to grow my account as quickly as possible so that I can day trade and use options strategies both of which I have had the most success with. I currently work full time and I am a single parent and would prefer to have less stress and a more flexible schedule and I enjoy trading so my hope is that in the next 1 to 3 years I will be able to offset my current income with trading and start doing it full time.

With all of that being said I have spent a lot of time testing (with real money) strategies for swing trades I can hold overnight (preferable) or up to two or three days. I am not a big fan of holding for longer at the minute as I prefer more liquidity to get in into a good day trade when I find it since I am limited to three. But I have actually been losing money trying to do overnight holds. The ones I have been right about the price the next day get drove the opposite direction in pre-market and open much higher or lower before making the gain or loss I expected to see, others it just didn't happen, I've also had some bad news destroy a position and one trade that I missed that earnings were coming out the next day and the below expected earnings tanked my position. I have learned things from all of these, but the biggest thing I have learned is that nothing I have been doing is consistent enough for overnight holds.

Typically, for my day trades, I use MACD, RSI, and a couple of moving averages along with hand-drawn trend / support / resistance lines and candlestick / price action, but these things have not translated well to my overnight hold attempts.

So I am wondering if anyone has any preferred indicators, and or strategies that they have had decent success with for overnight or short term swing trades?

 

[gapcap1]

To begin with, it depends on which particular market you're trading. With that in mind, it is neither the tool nor technique so much, but the features of the market that count and define if an idea might work. What inevitably happens when you rely on the aforementioned indicators, is inferences are made which reflect a secondary process, not a primary one. This involves compliance of the indicators with fundamentals and/or a pre-conceived cognitive bias.

Most indicators that are derivatives of price, track price changes; and, if there is persistence (the future is like the past) they inevitably end up contributing to the myth that they are predictive. This is why it's important that a trader have a foundation of contextual knowledge about the market he(she) is trading including an understanding of what really drives price, before they attempt to take their trading to the next level. It requires an approach built on an analytical framework that is relevant to current drivers of price. An approach that provides quick feedback to alert you of failure as soon as possible, and an approach that is both correlated to the asset class you are trading, and the current market regime. //g

 

[mn88]

Thanks gapcap! Good advice and something I have been struggling with, I am not sure where to begin gaining all of that knowledge with the way I currently trade.

My base scans are all optionable stock with avg_volume > 972k, and atr > 1.25

Maybe I should pick 5 to 10 stocks to focus on and try to get a better understanding of them. I focused on a larger group hoping to get more trading opportunities but maybe that's not the best route.

As far as what drives the price, any recommendations on the best way to gain that knowledge? Fundamentals, news, what else?

 

[TK_44]

@mn88 This is more of a side note than an answer to your questions, but you can have a cash account and day trade options and you don’t fall under the PDT rule of 3 trades per week. That only applies to margin accounts. With cash accounts you can trade options as much as you want, especially now that commissions are like $0.65 per option contract. Also, funds settle T+1.

 

[mn88]

@mn88 This is more of a side note than an answer to your questions, but you can have a cash account and day trade options and you don’t fall under the PDT rule of 3 trades per week. That only applies to margin accounts. With cash accounts you can trade options as much as you want, especially now that commissions are like $0.65 per option contract. Also, funds settle T+1.

Thank you for the information, I will have to call TD ameritrade today because my account is cash, and I cannot do option strategies on margin but it looks like I can do stocks on margin. Maybe I set it up wrong when I opened it.

 

[gapcap1]

@mn88 This is something I wrote for Victor Niederhoffer's spec-list over the weekend. Notice there is no mention of indicators, nor trendlines, nor traditional chart formations.

In summary, the outlook is bullish because of the strong momentum in the market and the lack of sell signals. A market like this can produce complacency, but that is the one thing we can control -- we can and must avoid becoming complacent. But, for now, enjoy the run to the upside.

This is dated 12/27/2019, and written by very well respected professional trader and best-selling author. The irony is self-evident as the author's reflections are at odds with his actions. His conscious thoughts and written words belie his unconscious behavior because it is stuck on "bull autopilot". These comments come in the wake of a day that saw a 6% bump in volatility and late "smart money" selling into the close. In a high positive gamma environment, we should be witnessing smaller ranges, low volatility, and mean reverting price action.

It brings to mind a quote by a prominent member of the the spec-list. "The market and its history are identical for all observers. Yet the market and its future are understood uniquely by each one. So the debate shall always continue, because no two minds are alike".

I believe I witnessed the same market action today; but I am far less sanguine about its future. Not unlike the talented Mr.Vince, who is redefining the term "variant perception", I believe ES will move pretty quickly to the 3200 level. Even by the most mundane thinking, this level was previously resistance and now becomes support. In addition, there is a fair amount of put open interest at that strike. I won't venture a guess beyond that level, because "a guess" is exactly what it would be. However, the 3120 level is the area where gamma flips and could spark selling as negative gamma kicks in. Major support is 3020-3000.

The buyback index $SPBUYUP is exhibiting a very similar picture to that of SVXY, and while the VIX hasn't reached a level where one should be overly concerned (+15) it's getting close. However, VIX term structure has been over-extended for days, and has breached a level which coincides with market sell-offs.

The rally in gold may be nothing more than a squeeze that will be suppressed by banks, once again; but it also may be pricing unknown negative news into the market. The same can be said for the U.S. Dollar, which has weakened dramatically, especially against gold. Hedge funds may be selling their dollars to unwind carry trades due to a lack of liquidity. If bonds were to fail from current levels, it could be for the very same reason.

Jan. 3 is the payrolls number, and Jan. 6 is expiration for 25B in cash loans offered to banks to help insure interest rate stability. Between now and EOY, regulators will be watching bank balance sheets. Both of these events present possible landmines that could further derail the bull market.

That being said, one never knows if they are truly defining the context of the market; nevertheless creating the ability to establish timing. And if by luck they find success; there is still the uncertainty that they have been fooled by random luck into thinking their ideas were really predictive. A great deal of the information we look at reflects a secondary process and should be ignored. Ralph has developed the process into an art form. He knows exactly what to look for, and exactly how to look at it.

For me, I'm always working on my decision quality. Uncertainty is always going to be there; and the best I can hope to achieve is as probabilistic knowledge of the market environment as possible.

 

[markos]

@gapcap1 we are fortunate to have a trader of your stature and experience here at useThinkScript. If it hasn't been said yet, Welcome, from @BenTen and @markos !

There are a number of ORB traders here, although this thread is about overnight holding, could you speak specifically to your experience of basing stock or stock option day trades off of pre-market hours? I do not wish to give my disposition because although I could day trade, I am a daily/weekly chart watcher now.

 

[gapcap1]

Thanks for the gracious welcome, Markos! Personally, I don't trade stocks. When I first left the floor I traded SPY, Q's, AAPL and GOOG. I had 30-1 leverage, and I was spending about $4000 per day in commissions. So, I went back to trading futures and never looked back. Stocks are difficult to short and I can't get that kind of leverage anymore. Futures solves both problems.

As far as trading the open based off the ETH trade, it would depend on the particular instrument's overnight seasonality and whether the market was mean reverting or trending at the time. Looking at Market Profile and incorporating the 80% rule along with your ORB indicator would be good practice.

In very general terms long gamma hedging leads to intra-day reversion and close-to-close trending, and negative or short gamma hedging is mean reverting near the open. In any case, I am never in a hurry to trade the opening, unless it is warranted i.e., an "open drive" type of opening.

Generally speaking, the shorter the time-frame, the more random the market, the greater the capacity issues, and the greater the model risk. Short term, the market is all driven by news and algos. Short term trading comes down to money management. It is essential that a high win rate is attained in conjunction with high expectancy, because the risk of ruin is a function of the loss rate. If your method does not have a high enough win rate then the risk of ruin will be greater due to the inevitability of an idiosyncratic loss or consecutive losers. With transaction costs, slippage, and the competition from the machines, it's really a fools errand.

 

[mn88]

@gapcap1

Thank you for the additional information, charts and for giving me a glimpse of some of the market aspects you consider. I was familiar with some of these as possible drivers of the market but not really sure how you would determine a correlation between them and then use them to come up with an outlook. Great stuff, and humbling as I realize I have such a long journey of learning ahead of me


@TK_44 you were definitely correct about cash account, but that also comes with some limitations of its own so I am weighing the pros and cons now and trying to decide if I would like to switch my account or not. either way, I appreciate the information as I was not aware there were any other options for me atm.

 

[markos]

@mn88 Consider learning about & looking into "Buying" Put or Call Option spreads on a list of Active Option Stocks & ETF's. Trade small and trade often should be your mantra. About 30 Days to Expiration (DTE) , $2.00 wide & sell with a 55% gain. Once "BOT", it can be set up to Sell GTC at 55% above the purchase price. You'll probably be able to get a 1 contract spread on a $20 - $30 stock without trouble. Just a thought.
The Above is an example and should NOT be considered trading advice. Check the Tutorials Area for some excellent "how to's" by @theelderwand

 

[mn88]

Thank you, I will check it out

 

[Darknight11]

Does anyone have any swing trade indicators and/or scanners that a newby can use?

 

[purehess1]

that's a loaded question for sure...im still very new and find a new strategy every week. The key is to find one that fits you. Look these ones up on this site: supertrend, plus the scanner or ttm squeeze set up for 1 to four hours

 

[murkr]

I really love TA and indicators but can only dedicate 1 hour a day to trading and going over charts. For that reason, I like to trade on the daily 1D chart.

If you also trade the 1D, what indicators would you recommend?

Right now I'm using Supertrend, DMI, and BlackFlag indicator on the 1D.

I hear a lot of good things about trading options at the 45DTE mark but right now I'm just trading /MES on 1D chart.

 

[BenTen]

@murkr Mark (@markos) recently shared his Algo study w/ Laguerre Polynomials

Green=going up! Buy >.2 w Upwards arrowSMA/Sell <.8

Link to study http://tos.mx/Mf9yucF

 

[Let the Bulls Run]

There's a lot of bright minds in this forum along with the willingness to help others. I have a question for you experienced swing traders. I'm wanting to know what you're using for a swing trading strategy, primarily trading off the daily chart. I'm not referring to a stock scanner or a watch list. Let's say you already have a handful of blue chip tech stocks, example - AAPL, BABA, GOOG, NVDA, TSLA, MSFT, and we could even throw in SPY & QQQ. The main objective of this strategy would to obviously be holding these stocks when the market is good, and be out of them when the market is in a downtrend. To get this conversation started, I've posted a daily chart below of the NASDAQ 100 showing a strategy. The strategy is fairly simple; when the RSI is >50 you want to be in, when the RSI is <50 you want to be out. Does anyone have a more optimized strategy? If, so, please post a chart image and or a shareable chart link or source code. Thanks in advance.

 

[traderintheroom]

Thanks for sharing this one. @BenTen Do you have a Scan Link that you can share for stocks meeting this criteria (greater than .2 on the RSI Laguerre Study) ? I tried adding in that as a custom study filter but I am getting zero results. I suspect it is due to I have crosses above 0.2 and the input gamma 0.8. See image below.

 

[BenTen]

@traderintheroom Instead of crosses above try greater than.

 

[traderintheroom]

@traderintheroom Instead of crosses above try greater than.

Thanks Ben. Didn't have much luck with that either perhaps just there were none today above that level

 

[Let the Bulls Run]

@markos, I've been playing around with this setup and I really like it. Is this one of your primary strategies when swing trading?