Dual timeframe linear regression and SPY spread trades.

I have been looking at a number of methods to have a trend indicator properly indicate a trend. The trouble is not so much getting an indicator to do this as it is to get one to do this with the sensitivity that works for me. I can easily eyeball a price chart and see the trend setting up even without the typical SMAs.

One that seems to give me both a trend indication and a channel range gauge is plotting two linear regression tools on the same chart.

One is 40 days which gives me some level of sensitivity as it uses the last 8 week average price slope bracketed by one standard deviation.

The other is an 80 day which gives me a larger trend slope and one standard deviation channel.

The slope of each with respect to the other gives a very easy and quick idea of where the trend is likely to be heading and what the most likely outer range is going to be.

See the shorter 40 day is mostly bracketed by the longer 80 day LR channel and they are both, more or less heading in the same direction.

This would let me place trades within the upper channel for a bear call spread while keeping me out of any put spreads altogether. If I were one to play the odds on something like this I might place the call spread for a credit and use that credit to buy a long put to give me some further downside exposure, but that is another strategy for another time.

Here is another period with the same linear regression settings:

The wide deviations are almost horizontal indicating a likely shift in trend with the shorter term LR heading sharply up. A typical phrase is to "trade with the trend" but here which trend to choose. Normally I would suggest the longer term IF it were more pronounced. In this case the longer term is weak and the shorter term is much stronger.

On trade day the price is approaching the 200 sma which can be typically resistance so a decent spread is available that might use that as an additional guide. Notice how the 300 turns from resistance once it is broken and the price literally bounces off of it and forms the beginning of the latest trend toward recovery.

The last chart is two months farther along. The long term has turned up but the short term has weakened. This is a good time to pull a spread in a little tighter as the price will head up long term but the short term trend is a little consolidation, prime spread time and full iron condors would be appropriate here so puts spreads would bracket this on the bottom. The 200 has turned support so this gives more odds in favour of a further move up, eventually.

Enough for now except to note that the dual linear regression periods may just take the place of my more complicated calculations for risk and range for spreads in order to simplify this whole process... afterall that is one of my goals.

Jeff.