Making Money in the Market by Using Mean Reversion to Become Free Carried

[Click on the picture to learn how to use mean reversion to get you into free carried positions in the market. Murray thinks the E-mini S&P 500 will have a good move over the next few weeks now that quadruple witching hour is out of the way.]

I am very interested to see how the S&P 500 trades this week after quadruple witching hour happened last Friday. In my experience, futures and options expiries have often been the catalyst for a reversal in prices.

My own theory is that option market makers make far more money when options expire worthless, so it’s in their interest to nudge the market to a point where they will reap the most benefits.

The 3000 option strike in the E-mini S&P 500 futures had huge open interest, therefore the market was ‘pinned’ to that price for the last few weeks as we headed into expiry.

Once the expiry is out of the way prices will then be free to move and any false buying support will evaporate.

That’s why I am so interested to see how prices trade this week.

We had a daily sell pivot confirmed on Friday due to the early departure of the Chinese delegation from America, which had the rumour mill going into overdrive that the trade deal was off the boil again.

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News over the weekend that the Chinese delegation left because they didn’t want to be seen to be interfering in American politics means that the trade deal is still on the cards, so prices leapt out of the gate in the overnight market (Monday morning Australian time) and the E-mini S&P 500 futures are up about 15 points at 3004 currently.

So the market is now neatly poised. I think a move below 2980 should see further selling pressure emerge and my target on a sell-off from here is at the point of control of the most recent wave down at 2900.

The whole point of these videos is to give you an understanding of my trading process so you can work out whether it is a trading style that may suit you.

The cornerstone of my approach is to use mean reversion to give me the chance to take part profit (where I am happy to stop out) and become free carried with an average entry price.

If that sounds confusing just watch the video. It will all be explained to you using my charts.

Murray Dawes
Editor, Alpha Wave Trader

PS: US–China trade tensions have actually created some incredible opportunities for Aussie investors. Click here to discover three unique plays on the US–China trade war.

Murray Dawes is the Editor of Pivot Trader and contributing Editor at Money Morning. He was one of five, from 5,000 applicants, chosen for a graduate position with the Swiss Banking Corporation — now part of banking giant UBS. The bosses quickly cottoned on to his potential and pushed him up the ranks as a futures broker on the floors of the Sydney Futures Exchange. Murray later broke out on his own and developed custom trading systems to trade leveraged financial instruments like futures. Due to his success, Murray became the ‘hired gun’ trader for Australia’s rich and famous. Today, Murray runs a trading service through Fat Tail Investment Research to help everyday Aussie investors use his advanced trading methods.

Money Morning Australia