2019issue C076-7
Inverse ETF pair daytrading with pyramiding and a trailing stop
This archive article restates a historical daytrading workflow that treats inverse ETF and ETN pairs as one procedure. An index-state filter comes first, then a dual buy-stop selects the working leg, and pyramiding plus a trailing stop keep entry, add-on, and exit together.
- The archive handles named inverse ETF and ETN pairs as inverse chart images and takes the first fill as the working entry.
- The out-day-filter prefers an S&P two-day high, two-day low, or high volatility and treats a mid-range open as the least suitable state.
- After a fill, a protective stop, later adds on the working leg, and a trailing stop keep entry, add-on, and exit in one sequence.
- When both legs fill in chop, the adverse side is scaled out and the profitable side is scaled into.
The inverse-pair procedure
The archive builds the workflow around high-volatility, high-volume inverse ETF and ETN pairs named as TVIX with SVXY, DUST with NUGT, LABD with LABU, UGAZ with DGAZ, and UWT with DWT.
Pairs-trading here means simultaneous handling of inverse ETF or ETN legs as one procedure, taking the first fill and managing both sides against each other. The procedure is justified by treating the selected pairs as inverse chart images, so a move in one leg is expected to coincide with the opposite move in the other.
Filter the index state first
The intended market state is an S&P two-day high, two-day low, or otherwise high volatility. An open in the middle of the prior day's range is treated as the least suitable state.
That screen is the out-day-filter. It prefers index two-day highs or lows, or high volatility, and skips an open inside the prior day's range.
A dual buy-stop selects the working leg
An opening-range-buy-stop is placed on each leg, and the first fill is the working entry. The archive does not state a single placement: the narrative places a buy-stop $0.30 above each leg's opening-range high, while the step list places that same $0.30 buy-stop above each opening price.
A preferred entry window is after both instruments have made a sustained move and begin to pivot, often between 10:15 a.m. and 11:00 a.m. ET. A secondary window is the opening half hour when the pair is printing new two-day highs or lows.
Protective stop, pyramiding, and trail
After a fill, a $0.50 stop is placed immediately under the entry. Size is added to the working leg about every $0.80. That add-on step is pyramiding: adding size to the profitable inverse-pair leg at fixed price intervals while reducing the adverse leg.
If both legs fill in chop, the adverse side is scaled out and the profitable side is scaled into.
A $0.50 trailing stop is used to exit. The trailing stop is a fixed-distance trail kept under the working position after the initial protective stop is placed.
Entry windows and the close hold
Holding the working position into the close as an intraday swing, rather than flattening on the open, is the management style described as leaving room to add later in the morning or early afternoon. That style is the intraday-swing-hold: keeping the working leg into the cash close instead of flattening on the opening move.
All readings on this track · 17 readings
- 1982Six-category classification as a trend and pyramiding case study
- 1986Fear signals an untested decision process
- 1987Paper lots, stop orders, and pyramids as a Wyckoff apprenticeship
- 1992A pre-trade checklist for locked stops and trend pyramiding
- 1992Stop-first pyramid adds from locked profit
- 1997Long-term trend following and pyramiding as one holding-period procedure
- 1999Pyramiding after a maximum favorable excursion support
- 1999Confirm early scale-ins, then shrink late units
- 2004Stacking crossovers, MACD and pyramiding across currency timeframes
- 2008Scale in after launch confirmation
- 2008Range-breakout trend entries with early stops and pyramids
- 2015Why win-rate chasing fails the decision process
- 2016Expectancy through loss cuts, add-ons, and bounded leverage
- 2018Wide-range breakout, trailing stops, and pyramiding
- 2019Inverse ETF pair daytrading with pyramiding and a trailing stop
- 2019One procedure for breakout entry, trailing stops, and pyramid adds
- 2020Scale-in construction for swing breakouts