A while ago I wrote a blog post about Starting Over. There are a lot of things I wish I had known when I started my trading career. One thing I wish I had done was to learn how to trade 8*$SPY - 13*$IWM. This is my favorite trading vehicle. I think most traders should keep this spread on their screens. The trading apprentice should play with it in a sandbox. Here is the statistical run-down on it:
For a larger image, click here.
Here is a graph of this spreads at a shorter time scale:
If you want to become a professional trader, there is a lot to learn. When you are first starting out, SPY-IWM is a great product because it is liquid, easy to understand, can be traded on a short (but not instant) time-frame, and provides lots of opportunities to make money. It will help you learn some of the subtle yet important aspects of trading, such as:
- Setting probabilistic and symmetrical stop losses
- Emotion and it's impact on the market
- Liquidity gaps and spikes
- Pricing lags in one security versus another
- Changes in the market environment, and how to adapt your strategy
- Intraday time windows
What is your favorite trading vehicle?
Written by Michael Bigger. Follow me on Twitter and StockTwits.