Are you ready to explore a foundational strategy in our Ultimate Credit Spreads Trading System Course? In this lesson, we’ll delve into one of the foundational strategies outlined in our free PDF guide. This comprehensive guide condenses years of experience into actionable rules and systems designed to help you profit from credit spreads trading.

The Squirrel Strategy: Navigating Sideways Markets

The strategy we’re exploring today is known as the “Squirrel Strategy.” Why the quirky name, you ask? Well, a touch of drama and memorable names make learning more engaging. Just as a squirrel hesitates while crossing the road, unsure of which way to go, this strategy thrives in the face of market uncertainty and sideways activity.

Sideways and neutral market phases occur when the market lacks a clear direction. The stock price swings up and down, often leading to gaps and sudden reversals. The Squirrel Strategy capitalizes on this confusion by taking advantage of the market’s inability to establish a definite trend.

Using the Impeccable Stock Band Indicator

To spot these sideways markets, we’ll use the Impeccable Stock Band indicator. While it’s typically available to credit spread members, you can replicate it using Bollinger Bands with specific settings. A market trending above the upper blue line indicates an uptrend, while a market below the lower line signifies a downtrend. Sideways markets fall between these lines, characterized by substantial swings and uncertainty.

Applying the Squirrel Strategy: Setting Up the Trade

When the market falls within the sideways range, it’s time to apply the Squirrel Strategy. Here’s how to proceed:

1. Criteria Check: Confirm that the market is within the training band indicator’s range, indicating sideways movement.
2. Strike Price Calculation: Determine the strike prices for the credit spread trade. If the stock price is at $438, multiply it by 0.96 to get $420.48, rounding down to $420. This becomes the sold option. The option below it, $419, is the protection option.
3. Expiration Date: Calculate the expiration date by adding 12 days to the current date and rounding up to the nearest Friday.
4. Minimum Credit Requirement: Ensure the minimum credit requirement is met. Details about this requirement are covered in a later lesson.

Back Test Results and Profit Potential

We have back-tested the Squirrel Strategy and achieved impressive results. Applying this strategy to SPY resulted in an 88% win rate, which translates to an 18% annualized return. This remarkable performance demonstrates the potential for substantial returns even in sideways markets.

Conclusion

The Squirrel Strategy is a powerful tool for profiting from sideways markets. By accurately identifying these market conditions and following the outlined steps, you can increase your chances of success in credit spreads trading. To delve further into essential concepts, don’t forget to subscribe and enable notifications for upcoming lessons.

Remember, this lesson is just a glimpse of the valuable insights our Credit Spreads Trading Guide and Handbook offers. Harness these strategies to elevate your trading game and potentially achieve exceptional results in various market conditions.

Would you like to access the entire video course now? Here’s the backdoor link to The Ultimate Credit Spreads Trading System Course for FREE! This backdoor link won’t be available long.

Thanks for reading 🙂
Austin Bouley
CEO & Chief Strategy Officer