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Trading below 200 SMA – Overnight Trading SSO and SDS Etfs

March 30, 2020


What can we do if the bearish regime in the stock markets persists below 200 SMA? Well, the first and easy take away idea is to stay out in cash until the stock market (Emini, SPY, SPX) comes back above the 200 SMA.

If you remember from my stop loss tactic here, and here, my 1,3% stop loss is considered a “disaster stop loss” only above 200 SMA when the volatily and ranges are not as wild as below the 200 SMA where it becomes a normal stop loss.

Well, since 2009 we had always hit and run brief periods below the 200 SMA and we simply waited out of the market.

But now, the outlook is different. It’s probable we will face a long period, maybe many months or more than a year below 200 SMA. To manage overnight trading safely the US stock market, we could simply move from Emini to Micro futures, as I’ve previously mentioned in past articles.

But there’s a big problem with that: ranges are wild in the Micro futures too, and our stop loss trigger frequency would remain the same, only with a smaller amount of equity invested, halting Nightly Patterns performances too much. There would be too many profitable nights turned into stopped out trades.

The only way is to exploit Etfs. They aren’t trading in the overnight session, so no stop loss orders is active. I know, I know you would trade UPRO 3x leverage etf. But it’s too much. It can loose easily more than 20% in a single night (have a look at this month performances). Too much. We must count for the Black Swan too:

on the weekend between Friday the 13th and Monday the 16th of 2020, SPY opened with a gap down of 10,45%. Too much to be 3X fully invested. That’s why we need lower leverage with:

SSO (Proshares Ultra S&P 500) and SDS (Proshares Ultra Short S&P 500) Etfs

or for prudent traders, they can trade the SPY directly.

I’m trading 100% of my Nightly Patterns dedicated capital in both cases.

If you have any questions, I’ll be glad to answer,

Marco Simioni

Nightly Patterns

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