SP500 Swing Trading Strategy SPY SPX

thanks for stopping by the vertical spread options trading YouTube channel my name is Eric and by the end of this video you're gonna walk away with a swing trading strategy for the S&P 500 using only one very common indicator on two timeframes you're gonna see the results of the back test as well as a detailed explanation of how to implement this strategy on your own regardless of what platform you use I'm gonna break down the whole thing for you in just a minute but before we get started you should know that everything presented in this video and on this channel is for informational purposes only and that I am NOT a financial advisor of any kind so I've got the swing trading the S&P strategy with a single indicator using two timeframes with results coming right up alright so let's get started before we get into the strategy and how to trade it I want to start with the results we're gonna kind of work backwards I'm gonna I want to really talk through everything you're seeing and the results from this and then we're gonna break it down into the actual strategy and the indicator and how to set it up and all that stuff and I'm doing all of this in the thinkorswim platform so if you're a toss user or thinkorswim user I think this is gonna be a really good overview of some of the capabilities that that you know most people don't use because you either have to you know you got to be a programmer or whatever I actually had someone help me program this strategy because what I wanted to see and I got someone to program it for me and by the way the strategy you see I'm gonna make available to patrons over on patreon so if you want to download the strategy so you can import it into your thinkorswim platform consider joining patreon you'd be able to download that it's pretty easy it's really just some code there so but even if you're not a thinkorswim user by the end of this video I guarantee you you're gonna be able to set this up in whatever platform that you use because we're really just using one simple indicator that's sort of driving all the decisions for the strategy and that's the Bollinger Band so if you have a platform or if your platform has Bollinger Bands you're gonna be able to put that in there and again once we get down to the indicator level of the video you'll know what the settings are and all that stuff and we'll talk about kind of the conceptual side but I really want to just start with the results of the strategy and we're gonna do that looking at the SP y-you guys know I'm hyper focused on SP why and part of the reason for that is because it has the most liquid option you can scale it up to SP X you can trade small when you want to practice you know maybe practice a strategy and maybe not want to you know go full-blown so I really like SP why it keeps me hyper focused on the market there's tons of timeframes and things you can do so so let's look at the chart and just kind of go through what you're seeing here so there's no confusion so we're we're gonna SP while as I mentioned and we're looking at the 4-hour chart and the 4-hour chart is our smaller timeframe remember this is a multi timeframe mobo whereas at mobo multi timeframe this is a multi timeframe strategy the 4-hour chart is the smaller timeframe that's the timeframe that you're gonna be watching for a actual signal should I go long should I get short the weekly chart which we'll look at a little bit the weekly chart is sort of telling you okay which direction are you gonna take the trade so when the weekly chart is on a long signal you're gonna be looking for four-hour long signals and when the weekly chart is on a short signal you're going to be looking at for our short signals and so this is what you're seeing here you're seeing the four-hour short signals or long and short signals but this is based on what the weekly chart is doing which are not seeing right now so that's the first thing so you're seeing long and short signals and those signals are taken or not taken based on what the weekly chart is doing so I'm gonna open up the studies here I'm gonna go to edit studies I have two indicators if you will I have the the mobo indicator which we're going to talk about in more detail later and I think I did this in a previous video the mobile indicator is on here just so we can see that the colors and whatnot but the strategy is also on there and when you're in thinkorswim if you go to the strategies tab there's a lot of strategies already built in here this strategy is custom made because I wanted to kind of see you know I had an idea and I wanted to work through it so I had someone help me configure this and then I imported it again if you want to import the mobo multi timeframe strategy then you know consider joining patreon and you can download it and you can import it and it'll show up here in your strategies and you can apply it to the chart so the first thing you'll notice is if you're not work used to working with the strategies that's fine but there are no stops and there are no targets this strategy what we're seeing is simply by when the mobile band goes long if the weeklies long and then when it goes short you're gonna close the trade so that the the the short signal if you will is closing the trade after a long signal and vice versa and if we come into the actual strategy we can see that here's the Bollinger Bands settings which we've talked about in a previous video but basically the larger timeframe we're looking at is the week so the the weekly the the weekly chart has to be long for you to take a long four hour chart signal and it has to be short to take the short signal and here's some of the settings in here and I'm not gonna get too much in the weeds on the strategies because there's a lot of things going on in here but I just wanted to show you that what's sort of included in the strategy and how that works I'm gonna close that the other thing is in the global strategy setting settings basically when when the buy signal valid buy signal happens we're buying a hundred contracts or a hundred shares of SP Y so that's what you're seeing these results are buying shares there isn't a way that I know of to say buy calls or sell spreads or whatever this is simply buying going long buy buying stock and then going short by selling stock and when we cover we just close the trade and so these are just the results of buying SP Y and selling SP Y over the timeframe so I wanted to just kind of point out even though you know I'm gonna be looking to apply this strategy to option spreads or buying calls or puts what we're seeing in this moment on in this video is just the results of buying a hundred shares when we go long and covering and then selling short a hundred shares when you when we go short so we know that we can apply that the options by buying calls and puts but I don't I don't have a way to put that in the results so I just wanted to be clear about what we're seeing here that this is not yet quite applied to a full-blown option strategies like some of my previous videos so somebody close out of that and again we have the floating PL over the time frame so as you're as you're in a trade it's gonna go up and down you can see over the past year and a half and we'll talk about the timeframe here in a minute let me click go and cancel all that you know if this started trading on actually let me just show you so when I right click I'm gonna show the report these are all the trades and again I'm going to put the spreadsheet or I can download this to an a CSV file if you want to see all the entries and exits and the timeframes you can see that with the 4-hour chart let's go back to the top there's basically two candles per day one at 9:00 a.m. and one at 1:00 p.m. so there's really only two times of the day that you you probably need to pay attention if the the trigger is long or whatever you're gonna take the signal at and I know the market doesn't open till 9:30 but the pre market action is sort of included in there so you know you kind of keep that in mind this is the best we can do with some of the software right but basically with the 4-hour chart there's two candles a day so the very first trade that we see in the strategy was taken on August 30th 2017 so why autist 30th 2017 and the reason why is because when thinkorswim right now for the 4-hour chart I can only go back 360 days this is 300 1660 trading days though not calendar days so we're basically getting just under a year and a half so one of the things I'm thinking about is okay what if I redid this video and strategy as the market goes up or down you can see the markets you know if I get out of here if the markets just you been chopping relatively sideways a little bullish you know bias here but essentially the market hasn't done all that much in the past year and a half it's up technically but in the past year it's relatively flat if not going lower depending on what happens with the next Fed announcement but anyway so I may look to continue to walk this forward and say ok maybe every couple months maybe every quarter or something I'll repost this and we can kind of just see how that goes now again it's gonna start in different places we won't have a cumulative plpl but it'd be interesting to see just to walk this strategy forward knowing that we can get about a year and a half of time in the strategy and as the market you know if we get a true bear market and be interesting to see how it does right so anyway stay tuned subscribe to the channel and definitely I'll be posting on patreon some of these things too so alright so let's go back to the the report and I wanted to just kind of point out a couple things so we talked about how the first trade was about a year and a half ago August 30th the last trade actually just triggered on December 14th that was Friday so what I did to you know look at this strategy was I bought some SDS I've been in and out of SSO and SDS a little bit this is outside of options SDS is a 2 x inverse so even if you're not an options trader and you want to maybe take advantage of this strategy you can just simply buy the SP Y or even SSO we'll look at those maybe later in another video SSO is a 2 x bull ETF and SDS is a 2 x bear ETF and since we're these are relatively short-term trades then those ETFs are relative Aled you don't want to hold those for a long time that's a whole nother thing but anyway I wanted to just kind of point this out with this strategy with the 4-hour chart there were 26 trades in the past year and a half and you know as of Friday or so we made you know let's call it $4,000 this does not include Commission so I'm going to round this down to just say okay in the past year-and-a-half buying a hundred shares selling 100 shares made about four thousand dollars so if we go back to when the first trade was an is he initiated which was right around this areas I think we said October I'm sorry August 30th it was SP was trained for about 245 so 245 is about $25,000 to buy a hundred shares so you think about that for a second if you if you started with $25,000 in your trading this you'd be up about four thousand which is about fifteen sixteen percent so when you think about where the market has been you know I'd have to do the math on that but know you're you could be outperforming the market especially if we turn into it turns into a bear market and you can continue that 16 percent just think how powerful that could be that's what we're gonna keep walking this forward the other interesting thing is if you wanted to leverage your money and again that's it's a little bit riskier but if you did sso SS so and let me I have to go back in here and refresh the strategy so the PNL shows up SSO started around the same time frame and SSO is a lot cheaper it's ninety let's call it ninety ninety dollars per share when this started and you had made thirty five hundred or so so that's closer to thirty percent and in that you know that's in line with what the SSO is supposed to perform it's about two times the SP performance so if the SP goes up one percent SSO is gonna go up two percent now there it's rebalanced and a bunch of stuff so there's actually some some built-in fees and things so you don't actually get two percent but it kind of lines up if you got sixteen percent on SP why you're making thirty percent here it's about twice the twice the gains and this would be shorting SSO as well which you don't have to do you could actually just do SDS but anyway I'm kind of digressing here with how to apply this but let me I always have to do this part okay so again this strategy this strategy took 26 trades made about $4,000 the max trade here was $1300 which was where was that right in this area which is about April of last year and let me find the biggest loss here I think the biggest loss was four hundred and sixty nine dollars I'm gonna I'm gonna again I'm gonna put this spreadsheet in over on patreon so if you want to download this and analyze I haven't looked at like the average duration and the the Sharpe ratio and any of that stuff is I'm kind of just showing you some raw raw data here inside of the thinkorswim platen here and just kind of you know get an idea of of just you know how to enter an exit and basically here's an entry where the market broke above the mobo bands and again we're gonna completely break down these bands here a little bit and that was the long signal and you basically just stayed long until it went short so in order for the strategy to take this long signal that means the weekly chart mobile band also had to be long and then you got you got you close the trade and then it went up again and you close the trade so this was you know a smaller when and you're gonna get some losses and the general idea is is when you do get the losses that they're contained because you're only taking losses in the direction of the larger trend and when that trend shifts you're no longer trading that direction so it's still possible to get kind of chopped out and that's something we have to consider when we're buy if you know if you decide you want to look at buying call options or whatever you got to consider that you're gonna get chopped out and you know for this particular trade if you had bought a call option here and then four or five days later you've sold it here you could have lost 50% of your call option so you know that's something that's not factored in with these results or actual option buying results one of the things you guys know I like to sell credit spreads one of the things I'm gonna be looking at is you know if selling credit spreads on the long signals out of the money and potentially you know letting theta and time decay and all that stuff kind of work in your favor despite what the short signals do so but you know in general buying the stock when you buy stock you're able to just hang on to it without time decay so that's why you know one of the things that you have to think about in time when buying options and you probably read that in every every book you own about options but eventually you get another one and you know you kind of get up there so this strategy oh that was a pretty good one right got in here - 67 got out - 82 and you know you just kind of watch it and wait for the the the exit signal you see the P&L kind of going up and down as the as you're in the trade as well that's why that's doing that so that's in general what the signal is that's the entry that's the exit when you're on the weekly long long signal you're gonna buy on a break out of the mobile BAM and you're gonna close it on a break down of the mobile band and on a weekly short signal and we'll look at the weekly stuff here in a minute it's the opposite when you're on a weekly short signal you're gonna open a trade on a four-hour short signal and close it on a four-hour long signal so again there's no stops there's no targets factoring into the strategy and let me just say this I'm not saying you can't put in a stop and I'm not saying you can't trail stop it or find targets if you're using some other things I just wanted to show you exactly what this strategy is doing and the results of that and this again a lot of the things I post on here are our foundational things that you that I encourage you to take and tweak and try on different indicators and stocks and things but again what we're seeing here is is opening on a band break out and closing on a band break down again depending on what the weekly chart is doing alright now that we have a general idea of the strategy of you know what that looks like how its performed the last year and a half now I want to kind of get into the the indicator and we're gonna start with a super I'm gonna go I'm gonna switch back to a daily chart just to kind of clean this up and then I'm going to just put on the Bollinger Band because that's really the entire that entire strategy is based on this one indicator and the settings are a little different but I wanted to just do a real quick Bollinger Band overview and theirs to me there's two ways to trade Bollinger Bands in some of my previous videos and I still do this when there's extreme Bollinger Band movement meaning extreme closes outside the band I actually like to get a little bit contrarian because volatility can be high very high and you can sell against that depending on the momentum but this is a different Bollinger Band than the strategy we're talking about today the default settings of the Bollinger Band is a period of 20 that's a 20 period look back with two standard deviation bands two standard deviations above the moving average which is the 20 simple moving average the 20-period look back and two standard deviations below so what is difficult sometimes is when there is a volatility breakout to the downside what I sort of my experience what I've seen is that to me is not the time to get short there's usually some sort of snapback which is why I go I like to be a little contrarian but but in this strategy using the the what I'll call it a modified bones your band and thinkorswim there's an indicator it's called the mobo indicator and we'll look at that but let's just modify the Bollinger Band for those that don't have tossed let's go ahead and modify the Bollinger Band to match the mobo indicator so we're gonna come in here and we're gonna edit the studies here and I'm gonna change the look back to ten so it's a shorter period and none lock is not working there we go oh my gosh that was difficult and the bands are not two standard deviations we're gonna do a minus 0.8 which is eight tenths of a one standard deviation and 0.8 and the reason why I'm using these settings these are the default settings for the mobo bands I did not make these up and I didn't tweak them I'm just going with some out-of-the-box stuff and back testing it so those are our bands now a shorter look back in a narrower narrower band so let's do that so that's exactly what we're seeing now so in this case now the the band you're gonna get a lot more choppy action you're gonna get breakouts here a break down here a break out here so it's very choppy which is why you can't just look at one time frame and say okay well I'm gonna buy above the upper band and short on the lower band and then how you would buy and then you would short and yeah you're gonna get a big swoosh and do that and do okay but you're gonna buy here and get stopped out and so to me it's more consistent to use this sort of method as a momentum breakout only if the larger time frame is kind of working so so if you're in thinkorswim we're gonna add the mobile bands but if you know if you're if you're using etrade or interactive brokers or tasty works i'm pretty sure you can just throw a Bollinger Band on there and you can you know change the settings like we talked about so we're using a 10 negative point-eight and point-eight it's the band's and then you'll just want to look at and see what the the weekly chart is doing so what I'm gonna do right now is I'm gonna go ahead and add the thinkorswim study which kind of makes it a little bit easier it's called the fw underscore mobo basic I'm gonna put that on there I'm gonna go and leave the bands on here and you'll see kind of how they line up so now you can see that the mobile band exactly lines up with that modified bounzer band but it actually does the super fancy thing of changing the colors right the other thing the mobile band does not consider and I'm you know I'm kind of rethink this a little bit but the mobile band does not have the moving average in here so if I come in here and I remove the Bollinger Band the mobile band is just the band's and not the moving average so I still like to kind of use them the moving average on a daily chart is sort of a reference point but for the sake of this strategy again we're just going to be buying and selling based on breakouts or breakdowns you know with the weekly chart so that's essentially the indicator we're using it's a modified Boeing Erb and and it's it's a shorter period look back and it's a little bit more narrow which can generate a lot of false signals which is why we want to make sure that we're trading in the direction of the bigger trend so let's go ahead and and just kind of you know overview look at the bigger trend and we're gonna be considering the weekly chart and I'm gonna put up twenty years of weekly chart mobile band on SP Y and you can see that here's was the financial crisis and you know let's let's just say you're not a trader at all I think this is you know a a very good thing to just watch it you know watch every week just to say you know what things are getting ugly here maybe I need to protect myself or maybe you know maybe I should just kind of pay attention to the market and obviously you still get false breakdowns and one thing I really want to point out here is you should definitely not use this on the weekly chart for entries and exits and let me just show you why because you can totally get chopped out here you got a breakdown right so if you had sold all your stocks you know in your 401k or whatever which would be a ridiculous thing then the market reversed you're actually going to be incurring fees and commissions so you know what I would consider is when you look at this just say hey maybe I need to pay attention to this if this thing doesn't reverse me maybe maybe something ugly happen or maybe you buy some protection here maybe you you know sell some calls or whatever it is you know there's just some ideas I just want to you know tell you to not use this as a trading entries and exits for swing trading because you're gonna get chopped out a lot so you hear you can go long then you go short and then you know you know obviously when it came to the you know kind of financial crisis back in o8 and stuff o7 the this was a good warning sign saying hey we're really getting a lot of this chop and eventually kind of moves lower so you know I this isn't meant to for you to use it but it does give you an idea that hey you know what there's a dip happening should I be buying the dip should I be protecting myself it's just kind of something to be aware of it is not a trading decision or in any kind of long-term investment decision because that you can see there's a lot of you know quote-unquote false signals if you will if they're more just warnings like hey there's some momentum to the downside is this gonna hold I don't know when the feds printing money it didn't hold when the Fed stops for any money you know maybe it's starting to hold so on the weekly chart and let's just kind of zoom into the current time frame the general idea is when and we'll just kind of come in here when the market rallies up and closes above the band you are on a let's call it a long signal or long watch doesn't mean you you trade or do anything here it just means that now what this strategy back test that we looked at just says is okay so now anytime the four-hour chart now triggers long I the strategy is going to buy those hundred shares so the other thing you'll see is a lot of kind of pull backs and this is where I kind of you know I'm interested in the move middle band because in the context of this large trend you're always going to get some pull back some buy the dip moments and when you do get that when the four-hour chart fires long again that's when you can go long according to the strategy obviously so and I want to look at this sort of massive breakdown and what what the strategy sort of did during this and I want you to you know and III think it's cool that you you know when you look at it those sort of these turning points where well what would have happened here well essentially you're on a long signal so you're not taking any short signals based on this strategy so you're not gonna make money if you will on this downside because it didn't trigger long until that second I'm sorry trigger short till the second week so I'm gonna put a couple arrows here so as we go down to the shorter timeframe this this candle and we'll edit that to be a down arrow that was the actual that that's where the actual trigger was okay this is the candle that was sort of the reversal candle so now I'm going to switch to the back to the 4-hour chart where where we would be looking for signals you zoom a little bit where those arrows at there here's the arrows so I want you to think about this up until this point whoops up until this point we had a big long stretch you you were you were long the SP why the strategy was long the SP why here although it looks like I got chopped around a little bit it went along here and basically closed out on the reversal candle that large this is the week this is a four-hour remember there's two bars in a day so 10 you know about 10 of these bars is one week so this bar is the reversal so the strategy got you out on the reversal now did you give up some gains yes you are not gonna get out at the top and you are not going to get in at the bottom here you are going to be taken out when the pin breaks when the breaks below that band which in this case yeah the peak was here at 286 and you got out at to 81 so you lost 50 SP points that's kind of a lot right but still with the context of getting in at 267 and writing that up to 280 to 86 what's that 260 points so yeah you made 200 points you know approximately and you you got out 50 points later so then that's next thing to look at is the next candle was here this was the candle that actually triggered short so technically in the reversal candle you would still be looking to go long but because it's so ugly you never got the long signal so you did not get you did not go long on the reversal candle you actually didn't go long at all because at this point now you are shorting here so but you never got a short signal so really what happened this strategy basically kept you out of the giant reversal now if you're a short seller you know you just gotta understand that you missed it right and when there's some other things we can look at for catching that and that's that's where the extreme Bollinger Band thing comes in and that's gonna be a different video but essentially over the next several weeks 1 2 3 4 5 6 7 8 9 10 11 weeks or so the weekly chart is in a negative sort of mode so at this point you're you're not looking to go long until that that goes long again now did that part make money I don't know let's look at it so here now we're going short we're shorting here we're getting stopped out here we're shorting here we're getting stopped out here so both of these are small losses right technically you did not make any money we shorted here and we we got stopped out if you and I and I'm using the term stop you're not getting stopped out you're getting this you're getting signaled out so we we shorted here small loss shorted here small loss shorted here big gain right and this is typical of bear market stuff right where you're gonna get chopped out and when it goes down it goes down big and fast so here your your your shorting if you will at 275 and you're getting out at 263 which is you know 12s p/y points times 10 that's about 120 s py points if you will and you know just think about you know the option side of that and and how you could possibly apply it and we'll you know again another video but here you're going long I'm sorry you're stopping out and you're not going long yet and it wasn't until this candle that the weekly chart went long so at this point you're no longer shorting here and now you're taking long signals to the upside to get stopped out you're not you know so I just wanted to kind of go through one of these massive reversals and the takeaway for me here is if you're trading in the direction of the weekly chart momentum you're gonna avoid some of those big big reversals about knowing when to get out and you're gonna know when to get out because the boat the the Bollinger Band told you here hey close your long and wait for the next long signal that saved you a ton of money here so I think by now you should have a pretty good idea of how the strategy works and kind of the whole gist of the thing multi timeframe one indicator if you have any questions or want some clarification definitely put something in the comment section I'll be checking that over the next few days or so and don't forget if you're a toss user and you'd like to get the full strategy for your platform and you want to get the spreadsheet with the the trades that already came out that's going to be made available to patrons over on patreon so at the home page of the YouTube channel you can click to become a patron you can sign up there and don't forget to subscribe and like the video as well I look forward to the comments and I look forward to posting this strategy again and maybe a couple months it will kind of just like I said them previously will walk this forward so you guys have a great day thanks for watching and we'll see it the next video

Channel: Stock Market Options Trading

Views: 17,537

Rating: 4.7542663 out of 5

Keywords: vsa, sp500 swing trading, sp500, spy, spx, sp500 trading strategy, swing trading, swing trading strategy, spx trading strategy, swing trading spx, swing trading spy, sp500 strategy, trading strategies, trading strategies that work, swing trading strategies, spy trading system, spy trading strategies, thinkorswim setup, thinkorswim

Id: riinBK4Hx2g

Length: 33min 22sec (2002 seconds)

Published: Sun Dec 16 2018