Here is video going over our recent trade on TVIX and some tips for trading trend reversals in the over all market:

Knowing When To Trade TVIX

TVIX is an ETF with huge range and great liquidity when the overall market gets weak. It is a great instrument to trade during periods of high market volatility. You can see on its daily chart how much volume and range comes into it on days when the SPY is tanking:

You can see the correlation between the two ETF’s. You can notice that the TVIX only gets range and volume coming into it on days where the overall market is having a big down or up day. This means you only want to be trading it when there is an obvious trend in the overall market, otherwise there is no edge.

The correlation is not exact. The SPY going down does not guarantee TVIX will go up every time. TVIX is also a leveraged ETF. This means that the SPY tanking 1% would probably result in a 5% increase in TVIX. You MUST manage your risk even more aggressively when trading this.

Size Proportionally  

When you are trading these stocks with this kind of range, you need to give yourself a looser stop loss, which means buying less shares. TVIX can rip 5 points in 20 minutes, but it can also dump just as fast. If you are trading too much size on TVIX, you will see some wild PNL swings that will definitely make you emotional. Check out the intraday chart below of TVIX from Wednesday to get an idea:

I made the mistake of keeping too tight of stop loss while trading this. You can miss big moves by keeping a stop loss too tight on large range instruments like TVIX. Never put your stop loss on exact support levels, or right on half and whole dollar marks. Give one candle’s worth.

Do Not Hold For Long Periods of Time

My rule for trading TVIX is to never hold it overnight. You can see on its daily chart above what usually happens after it has one or two big up days. It can gap up or down huge pre market, and it usually never holds its gains for an extended period of time. It has been in a non-stop downtrend for the past several years, since the overall market has been in a strong uptrend. It is best to just trade TVIX for day trades only. 

Don’t Chase Strength in ETF’s

You should never be chasing stocks, but especially with ETF’s with a range like TVIX. You can see on its intraday chart above how quickly it can reverse on you to either direction. Always wait for a pullback or consolidation for a bit of time before entering. Stocks get their power from consolidations and bases. You are much more likely to get an entry before a big move if you are patient, and wait for the stock to come to you.  

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The post How To Trade Trend Reversals | TVIX Trade Recap appeared first on Bulls on Wall Street.

Timing the trend change and profiting from it is easier said than done. If you cannot manage risk and cut a loss quickly it’s very possible to blow up if you’re being stubborn on the wrong side of these strong trends. If you can manage your risk and know how to time your entry, you can sometimes make 5-10 times your risk on these setups. Here are 3 ways you can increase the probability of timing a reversal to the long or short side on a parabolic setup.

Watch for Parabolic Price Action

A lot of traders make the mistake of trying to short or long a trending stock when it is just slowly grinding up or down. You don’t want to take a reversal trade on a stock until it starts to get parabolic, or is speeding up relative to prior price action. Look at the HMNY price action from the middle of September to the beginning of October. It’s up 300% or so in three weeks, but it is in an orderly trend. Every time it’s had a pullback it has held up in the higher part of its range. Once it started to gap up and the expending daily bars, it’s giving us some real extension for better risk versus reward. However, you don’t just want to start shorting full size once you get the speed up of price action. It is sometimes best to wait for confirmation on the daily chart that the trend is over.  

Wait for Daily Confirmation

On strong daily trends like HMNY, it is sometimes best to just wait for the daily to tell you when the trend is over. Once you get the parabolic look and a big doji like we did with HMNY, that is a major sign of buyer exhaustion. When there is so much downside available, you don’t have to catch the exact top to make some nice gains. If you waited till the first red day after the big doji daily candle and had a 28 average for your short, you still could have easily made 5-10 points a share over the next couple days.

Don’t Be Afraid to Take A Small Loss and Retry  

It is very rare that you will catch the turn of the trend on your first attempt. The risk reward is so good on most of these plays that taking a small loss should mean nothing. Once you do catch the turn, you should make 5-10 times your risk on huge parabolic plays like HMNY. You cannot blow your daily max loss on one attempt on these kind of plays (for more advice on using a daily max loss check out this article). You have to leave yourself physical and mental capital so you will be there when the trend ends.

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