It is estimated that more than 70% of trading is done by algorithms, and most fundamental-based traders are not entirely discretionary. Instead, they approach their trading with the assistance of support and resistance levels and technical as well as fundamental analysis.
In October, West Texas Intermediate crude oil dipped below $90 per barrel for the first time in 18 months. From February of 2012 to October of 2014 crude was tethered to the $100 level, occasionally rising to $110 and dipping to $90, but remaining roughly inside that $20 range.
Markets as a whole—and even individual stocks—not only move up or down but they can move sideways or be range-bound, often for great lengths of time. If you anticipate just such a situation, then there are two excellent credit-generating option strategies at your disposal: The iron butterfly and the iron condor.
At any time, 40 quarterly Eurodollar futures contracts are being traded. Although the volume of trading falls with the longer expirations, there is generally no problem with liquidity through the next five years. On Nov. 28, 2014, the volume for the March 2015 contract was 64,600. For the December 2018 contract it was 11,125.
A client posed the question a few years ago during one of the many rolling sovereign credit crises then roiling the Eurozone as to when the whole thing would fall apart. The answer was, “Never.” The Eurozone elites could never admit an error of that magnitude.
Support and resistance levels often identify price points where major moves take place, but how do you identify support and resistance? Traders use many methods for finding these key areas, including past areas of interest, simple mathematic equations and sophisticated computerized trading models.
Trading often is viewed as a game of strategy and risk, so you can understand how Glenn J. Graham, principal of CPO/CTA Golden Point Capital Management’s Global Fund, compares his successful algorithmic strategy to the game of backgammon.