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Strategies & Market Trends : Trading the SPOOs with Patrick Slevin!
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To: Brister who wrote (5921)7/18/2000 2:13:35 AM
From: John T.  Read Replies (2) of 7434
 
Hi Brister:

I read your conversion with Patrick about PREM. I thought I'd show you how I watch PREM. This might help you understand PREM better. Click on the following link to see a picuture of one of the screens I use for trading:

home.swbell.net

My PREM screen is on the right half of the screen; fourth panel from the bottom. This is a 5-minute chart of PREM. Each morning I put three lines on the PREM chart. The top line is the buy trigger, the middle line is fair value, and the bottom line is the sell trigger. I get the fair value and buy and sell triggers from:

programtrading.com

Note that the charts on the screen are several months old.

Mainly I watch to see how fast PREM erodes or builds up during moves. If the market is rallying and the premium drops quick, the market is getting weak and as the rally continues, I start entering my trades.

By following this chart, I can anticipate buy and sell programs that will drive the market higher or lower. If the PREM bar suddenly crosses above the buy trigger (upper line on my chart), buy programs will invariably kick in and driver the market higher. If it crosses the sell trigger (lower bar), sell programs kick in and push the market lower. Also, I've found that on days when the PREM is persistently low (staying between the sell trigger and fair value), that short trades have a higher probability of success. Conversly, on days when PREM is persistently high (staying between fair value and the buy trigger) long trades seem to have a higher probability of success. The PREM indicator is not a stand alone, mechanical trading system.
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