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Powerful Signals for Stocks & Commodities

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Works with stocks, commodities, futures, options, FOREX, bonds for intra-day or position trading
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THESE RESULTS ARE BASED ON SIMULATED OR HYPOTHETICAL PERFORMANCE RESULTS THAT HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE THE RESULTS SHOWN IN AN ACTUAL PERFORMANCE RECORD, THESE RESULTS DO NOT
REPRESENT ACTUAL TRADING. ALSO, BECAUSE THESE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THESE RESULTS MAY HAVE UNDER-OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS
LACK OF LIQUIDITY. SIMULATED OR HYPOTHETICAL TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY
ACCOUNT
ACCOUN WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THESE BEING SHOWN. THE TESTIMONIAL MAY NOT BE REPRESENTATIVE OF THE EXPERIENCE OF OTHER CLIENTS AND THE TESTIMONIAL IS NO GUARANTEE
OF FUTURE PERFORMANCE OR SUCCESS. TECHNICAL ANALYSIS OF STOCKS & COMMODITIES LOGO AND AWARD ARE TRADEMARKS OF TECHNICAL ANALYSIS, INC.
Stocks & Commodities V. 37:07 (6–7): ETF Arbitrage Daytrading by Ken Calhoun
TRADING ON MOMENTUM

Perfectly Correlated

ETF Arbitrage Daytrading

There are few guarantees in the stock and SVXY are shown during the same one is going against me and scale into
market, but here is one you may be able two days side by side. Note that they are whichever one is producing profits. The
to start using. exact mirror images of each other. This single best time to enter this trade is after
technique can be used both for scalping a sustained move from both instruments,

An
by Ken Calhoun
old Wall Street saying is
that “every trader needs
an edge” to be successful.
The challenge of course
is that stock charts are often random
and unpredictable. There is only one
consistent edge I have found that is ex-
ploitable for profits, which is simultane-
ously trading inversely correlated ETFs
(and ETNs). This occurs because when
one goes up, the other is guaranteed to
go down.
This uniquely valuable technical cor-
relation is the only one that exists in the
stock market. While classic technical
analysis is immensely valuable in helping
you potentially improve your odds when
considering a trade, unlike this correla-
tion, there are no guarantees. I consider
this a breakthrough that is of significant
value and urge the trading
community to test and
improve this arbitrage-
style approach. As with
most trading techniques,
the biggest challenge is
managing pullbacks and
minor reversals during a
trend.
as well as for intraday swing trading, in
which you enter during the morning and
exit right before the closing bell.
The way that I daytrade these is to
put buy-stop orders $0.30 above the
opening range high of each one for long
entries. Whichever one hits first gets the
order fill. Occasionally, they will chop
around and I’ll be long in both of them
simultaneously. But since I don’t want to
just break even, I scale out of whichever
There is only one
consistent edge I have
found that is exploitable
for profits, which is
simultaneously trading
inversely correlated
ETFs (and ETNs).
as they start to pivot. This often occurs
between 10:15 am and 11 am ET. The
next best time is during the opening half
hour, if the ETF or ETN pair is taking
out new two-day highs or lows.
Step-by-step action plan
Here’s how you can start using this
strategy:
Step 1: Visually scan charts of the
tickers I listed earlier to see which
ones have the biggest recent trading
ranges and volatility.
Step 2: Set buy-stop orders $0.30
above the opening price for each one
when the market opens.
Step 3: Once you get an order fill,
immediately set a $0.50 stop under
your entry.

Opposites
Attract: Your
Arbitrage
Advantage
This technique is designed
to be used with the highest-
volatility, highest-volume
ETF and ETN inversely
correlated pairs, such as
T V I X /SV X Y, DUST/
NUGT, LABD/LABU,
UGAZ/DGAZ, and UWT/
eSIGNAL

DWT. Take a quick look at FIGURE 1: ARBITRAGE DAY TRADING (TVIX/SVXY). These charts are exact mirror images and can be traded against each
Figure 1, in which TVIX other.

Copyright © Technical Analysis Inc. www.Traders.com

Stocks & Commodities V. 37:07 (6–7): ETF Arbitrage Daytrading by Ken Calhoun
Step 4: Add shares to whichever one
starts moving in your favor, every
$0.80 or so, and use a $0.50 trailing
stop to exit the position.
Insights: Why this
technique works
Anytime you can find a guaranteed cor-
relation in the stock market, trade it. It
is extremely important to focus on using
this technique when the S&P is taking
on new two-day highs or two-day lows
(a.k.a. “out” days) or is otherwise highly
volatile. If the S&P opens in the middle
of the previous day’s trading range, that
is the worst possible time to trade using
this or any intraday trading technique.
This technique is effective because the
charts are perfectly inversely correlated
with each other. I consider this a
Trade management tips
breakthrough that is
In testing this strategy myself, I found my of significant value
best winning trades are intraday swing and I urge the trading
trades, in which I hold positions until community to test and
right before the close. Unlike scalping
the open, this approach lets me add to a
improve this arbitrage-
winning trade late in the morning or early style approach.
in the afternoon without getting shaken
out. Next to the concept of position sizing,
and using conditional orders, you may based training systems for active traders.
find this becomes one of your favorite He is the founder of TradeMastery.com,
trading techniques as well. an educational resource site for active
traders, and is a UCLA alumnus.
Ken Calhoun is a producer of trading
courses, a live trading room, and video-
Copyright © Technical Analysis Inc. www.Traders.com
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