Julia Ellinghausen

How To Play Both Sides In The War Of Price Fluctuation

With D-Day approaching, the stakes couldn’t have been higher. As the Allied forces prepared their historical assault, the Nazis frantically tried to pinpoint the exact place and time of the landing.

After years of planning, one of the final details would fall to Juan Pujol, a double agent. As a key figure in Operation Fortitude, he would help mislead the Nazis into believing that the primary invasion force would land at Calais rather than Normandy.

Double agents providing counter-intelligence played a pivotal role in the outcome of WWII. Playing both sides to advance the cause involved a running string of shifting positions based on evolving information.

Both sides of price fluctuation can also be played to advance your cause through the Short and Reverse (SAR) system – without having to pick a side. Used in conjunction with a basic oscillating tool, you can make a run on profits during times of price fluctuation.

A clandestine system for all price levels

Being a double agent means you’re constantly in play, either gathering intelligence or reversing and sending counter-intelligence.

Like agent Garbo, you are constantly in the market using the SAR system, either with a short or a long position as price oscillates up and down. Just as the name indicates, you are continually exiting a short position and immediately entering a long trade to take advantage of the upswing.

It’s best employed with instruments that have lots of price action, like the CL (Crude Oil Futures), or the EUR/JPY (Euro/Yen currency pair). These will give you multiple opportunities for clean entries and exits due to their constant fluctuation.

Simple entries and easy escapes with one tool

To pull off his stunt, agent Pujol was constantly managing a vast network of relationships. Astonishingly, many of the relationships were fabricated. He created these ‘cutouts’ to give the Germans the illusion that he had a network of spies working on their behalf.

You’ll only need to manage one relationship using the Simple Moving Average to run your SAR system. Easily found on any trading platform, the SMA will give you the prevailing trend for price across multiple time periods.

Quickly adding two SMA time periods to your chart will reveal the moments when short term price movement is going to intersect with longer term averages.

Make your entry and escape with profits without either side knowing the better.

Note the CL chart to the right where two SMAs have been added – a 14-period band (green) and a 50-period band (gold). As price fluctuates, you can see how the relationship between the two averages responds.

Simply monitoring this will put you in a position to make a high probability entry.

Unlike Garbo’s ‘network’, this is a simple system to follow, with lots of opportunity for profit.

How can I use SAR to make a run on profit?

Garbo was unique in that he set out on his own to become a double-agent. He was self-trained and generated his initial results with very little resources.

SAR is easy to set up and doesn’t require any additional indicators or platforms. With this system you can set out on your own, without spending additional capital on trading gadgets.

Using the relationship between short- and long-term periods offered in the SMA, you can work both sides of price easily. Just as the strategy describes, you:

  • Short when the green 14-period band crosses under the gold 50
  • Reverse, exiting your short and assuming a long when the 14 crosses over the 50-period band
Pick up profits regardless of where price heads.

In each instance, you’re looking for a clean cross-over as a signal to make your exit and reversing entry.

Back to our CL example, this simple strategy would have netted you three winners, with one of them being a monster pop to your account.

Knowing when to abort your SAR mission

With an active trading system, there are no stops or advance targets. It’s fluid and entirely responsive. Managing your risk to avoid getting pinched requires discipline and knowing conditions are not optimal for SAR.

Remember that healthy distance between period bands is good in advance of a cross-over. When the period bands are running closely together, criss-crossing with high frequency – you are in a grinding market and it will be hard to turn a profit.

The SMA is often best coupled with an oscillator like RSI (relative strength index) or the MFI (money flow index). Both will tell you if you’re trading in overbought or oversold conditions. They will also confirm if the market is simply grinding along.

When conditions are not ideal, simply back away and avoid taking unnecessary risk.

Profits and prestige for playing both sides of price

Employing the SAR system isn’t quite as daring as espionage, but the results can be just as historic when executed successfully.

Simply set your SMA with a 14 and 50 band and monitor for crossover as your signal to move. Enter long when the 14 crosses over the 50. Exit and head short when it crosses under. Add a third band set at 200 if you’re looking for more immediate confirmation and additional long/short opportunities.

Keep a watchful eye out for price with little fluctuation and constantly interweaving bands – with little or no space. This is your sign that price is not fluctuating, but rather grinding and you may be compromised.

Profit on both the long and short side of price all day with SAR.

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