More About Mel's Strategy

Jerome "Mel" Hickerson's service provides day trading signals focusing on the S&P 500 for e-mini and ETF index traders. The day trading model is based on four indicators -- breadth, divergence, institutional buying, and MEL trend (Model to Evaluate Leverage) -- and two signals. They are:

Indicators

• 1 Hr Breadth: The Breadth usually ranges from -50,000 up to 50,000. Numbers close to zero are more indicative of a stalled market or a turn in the market. If this number steadily increases, a short position should have nervous feet. Likewise, if this number steadily decreases, a long position is threatened. Experience says this number will drive the market but often takes an hour or more, allowing time to look for a good exit or entry point based on other factors.

• Divergence: A Divergence of 10% (negative or positive) is statistically more likely than not to produce a winning trade. Positive Divergence for Long, Negative Divergence for Short.

• C: The "C" is my favorite internal indicator. It attempts to represent corporate institutional buying/selling, especially by High Frequency Traders. When C is positive, I am extremely reluctant to go short; when C is negative, I am likewise reluctant to go long. I make exceptions only if C is trending strongly in my direction. If C is greater than 325, odds of a successful long position are good; if C is less than -325, a short position has a good chance of success.

• Trend: The MEL Trend shows how much the Indicator has changed over the last 45 minutes. A Trend change of 5 points is meaningful. A Trend change of less than 5 points is still worth noting but can more easily whipsaw back and forth.

Signals

• Keeping it Simple: Watch For: C > 325
  Breadth trending for 45 minutes
  Divergence > 10%
  MEL Trend change > 5
  The more of these the better the odds. I want at least two signals before entry.
• My Preferred Strategies: C greater than 325 or less than -325 makes for a good entry signal. (>300 Long, <-300 Short)
  Divergence greater than 10%. Enter long if the divergence is positive and enter short if the divergence is negative. Best success rate comes when breadth also matches the direction of the trade.

Mel believes that in order to make money in this market, you have to correctly identify the trend and be with the trend, using risk controls. You don't need all of the trend in order to be profitable. Like a great hitter in baseball, you wait for your pitch before swinging, and then make your swing count.

In addition, he believes that mechanical trading systems have no EGO (No Emotions, No Greed and No Opinion). They are mechanical systems because they have decisions made based on rules; all judgment has been exercised in creating the rules. Mechanical systems work best by following every signal; when you pick and choose, you risk picking losing trades while not participating in the winners.

These systems are based on playing historical odds in order to only enter positions when the odds favor a successful trade. Not every trade is a winner of course, but over time the winners will outnumber losers and the size of the winners will be larger than the size of the losers.

All systems have hot streaks and slumps. By having multiple systems, we increase our chances of trading every session and having hot systems.

All systems use UPRO (Long) and SPXU (Short).

System 1
Triggers at 10:30am ET. Long, Short, or No signal. Target and Stop is 1.5%. Only triggers at 10:30. Exit before close if target or stop are not triggered. System 1 will also trigger a swing position from time to time.

System 2
Triggers at any time of the day after 10:30am. Target and Stop is 1.5%. Occasionally an early exit signal is given based on market action.

System 3
Triggers between 9:45 and 10:05am. Does not signal every day. Purely mechanical system with exit at noon ET. Traders may wish to exit a System 3 position early if either System 1 or System 2 gives a conflicting signal.

NOTE: These systems are focused on the S&P 500. Market movements often affect all ETFs but results are tracked against the ETFs UPRO and SPXU. Choose your own vehicle but understand that there are times that other indices do not move the same.

All three systems may be open at the same time. A fourth swing position may also be taken at times, but the positions described above are day trades that will be exited before the close each day.

Sign up now for a Free 15-Day Trial!