Knowledge & Discipline is Power
INDEX TRADING STRATEGY
Two basic Index strategies that require little screen time are a Break Out/Fade of the Pre-Market High/Low and 15 Minute Break and Go. I trade these strategies with the 3 main US indexes: SPY, QQQ, and IWM and the SPY EFT sector indexes
Strategies start with trading with the SPY trend. To determine the trend, use the 15 minute 20 & 200ema as a gauge, or trade in the direction of a continuation of the prior day, or trade in the direction of a strong gap over R1 pivot or under the S1 pivot.
Trade management is to place the Entry, Stop and Exit. No managing of the trade.
SETUP 1 Break out/Fade Pre-Market High/Low:
Identify the set up pre-market. With this setup I trade only the SPY, QQQ, and IWM: Risk reward 1-1.25, void after 15 minutes.
SETUP 2: 15 Minute Break and Go - Risk reward 1-1.25
Identify the setup the first 10 minutes of the trading day.
Additional Index Setups
These index setups are for traders seeking daily intra-day index buy/sell zone trades and enjoy watching the market through out the day. With index setups the night before look for short term Buy and Sell Zone opportunities in the SPY, QQQ and IWM indexes based off the prior day(s) trading. Zones can be used for precise entry pullbacks or for three setups using candle confirmation by forming zones on the 1 hour or 30 minute charts: With these three setups I want both QQQ and SPY trading in unison and not against each other. In the newsletter we offer a precise entry.
INDEXES Buy and Sell Zone Setup: Similar to the Buy and Sell Zone setup described in the Stock Strategy section, each night identify short term buy and sell zones in the SPY, QQQ, and IWM. These zones are based off price points on the larger time frame, 30 and 15 minute charts which identify the higher Buy/Sell zone, and use the 5 and 1 minute charts within the zone to fine tune the entry. In a nutshell, to form a zone identify price areas of rejection on the larger time zone. My main focus of rejection on the larger time frame is a long empty candle wick. With the smaller time zone (inside the larger time zone) I identify the start of the strong move that started the strong move away from the price area. Next step is to identify a green candle (on the smaller time frame) and a red candle prior to the up move and mark the OPEN on the red candle. The open of that candle is marked as the top of the zone/entry. The bottom of the zone is the base of candles that have rejected a price point and the origin of the move before the move up.
Three setups using candle confirmation for SPY & QQQ buy zones off 1 hour and 30 minute charts.
1. Pullback to the Zone: After a strong move away from the zone, price proceeds to pull back into the zone. Entry can be placed in the zone, with the stop outside the zone - or - wait for a 15 minute candlestick to form anywhere inside the zone and enter at the top of the 15 minute candle with stop placed at the low of the candle.
2. Break through the Zone and Go: Once a zone has been tested a few times the odds of a break through increase. I will consider entering a trade when price breaks through the top of the zone with the 20ema trend supporting the break through. The stop will placed on the opposite end of the zone or the low of the current 15 minute candle for a tighter stop.
3. Reverse Side Entry: Price gap's over a zone and trades back into the zone. This zone was once resistance and now is support. The reverse side entry is similar to setup two. I will consider a reverse side entry with a 15 minute candlestick confirmation. Enter the top of the 15 minute candle with the stop placed at the low.
The stop ranges from .25 to .50 for the SPY and QQQ (range of the 15 minute candlestick) with a risk/reward between 1.5 to 3x risk. Reward will depend on how far away the next support area/zone is located and always want to exit before the next level. Once I achieve 1R, will then bring the stop to the entry price. I don't chase trades, if price doesn't enter the zone/fit into my plan, then no trade.
Examples of Buy and Sell Zone Examples can be found here on the blog
Examples of the 15 minute Pullback and Fades can be found on the blog here
Using 20/80ema with Candle Entries as Additional Confirmation: Buy and sell zones on the larger time frames can be used with added confirmation /support from the 15 minute 20 & 80ema moving averages when price pulls back to the moving average and a buy/sell zone or gap fill price point. Here I want the 20 or 80ema in the general price location of the Buy/Sell zone or gap fill price point supporting the entry candle. Examples of the 20/80ema support trade can be found here:
Daily Chart SPY & QQQ Setups with Strong Trend's: These two setups are taken off the Daily chart
1. Red to Green Daily Candle: This setup starts with the Indexes trending up multiple days over their Daily Chart 9/20ema's. A red down day appears on the daily chart, while price is still trading over the Daily Chart 9ema. Will enter into a trade when the high of the red candle is taken out on the next trading day. Stop low of day. Inverse for shorting.
2. Two day Pullback: This setup starts with the indexes trending over their Daily Chart 9/20ema. Price then pulls back (2 or 3 down days on the Daily Chart) and remains trading over the Daily Chart 20ema with both the 9 and 20ema trending up. Will enter into into a trade when the high of the prior 2 day high is taken out. Stop low of day. Inverse for shorting.
Examples can be found on the blog here:
OF NOTE: The SPY and QQQ indexes can be traded with a leveraged ETF (spxl, spxs, sqqq, tqqq) futures contracts or a High Delta in the money option (prefer over .70 delta) that will move closely with the trading price. Practice on a simulator with both. h here.