The LRC Channel has a twofold purpose. First, you can use it to leg into index credit spreads with higher statistical probability of success. Second, you can use the direction of the LRC (linear regression curve) to trade the trends in individual stocks. Here is a recent example:
The center line on $C (Citigroup Inc) indicated a long trend direction on April 9. On May 1, the curve turned down indicating a reversal in trend direction. The total run up on $C was 8.6% but the trend netted a 4.45% move. This type of "give back" is very common with trend following. To offset this give back we can hedge the position with $SPX which is much less likely to see the 5% to 10% moves that $C can generate.
Using Read more [...]
The LRC Channel has a twofold purpose. First, you can use it to leg into index credit spreads with higher statistical probability of success. Second, you can use the direction of the LRC (linear regression curve) to trade the trends in individual stocks. Here is a recent example:
The center line on $C (Citigroup Inc) indicated a long trend direction on April 9. On May 1, the curve turned down indicating a reversal in trend direction. The total run up on $C was 8.6% but the trend netted a 4.45% move. This type of "give back" is very common with trend following. To offset this give back we can hedge the position with $SPX which is much less likely to see the 5% to 10% moves that $C can generate.
Using Read more [...]