Weekly Expected Move (Locked)
One indicator I use frequently is the Weekly Expected Move indicator – this particular one is “locked” and shows what the next week expected move will be. I did not code this indicator but I added a little code to count the number of weeks showing on the chart and I added code to show how many weeks closed outside the boundaries of the weekly expected move.
Bias
This indicator was developed for the S&P index but is often used for other markets – the important thing to understand about using this measurement comes from the fact that this expected move is not dynamic – it will not update as volatility changes. Typically, expected move indicators update as volatility changes – presenting a new measurement of expected move and giving traders a glimpse of how far a market could travel within an expected time period.
Utility
So – How do we use an indicator like this? At the OEC, Signet has developed nearly two dozen strategies for the Weekly Expected Move indicator for options and futures trading. Once placed on the chart, It is recommended that you only use it on the daily. The TOS coding does not correctly display the lines on intraday charts and will give an incorrect expected move projection.
This indicator can be used to identify a weekly increase in the expected move – just look at the previous week and look at the current week – if the current week is bigger, the market makers have increased the volatility. If the current Weekly Expected Move is smaller, the market makers have decreased the implied volatility.
Futures Trading
When trading the Futures Indexes, it is advised to watch price action as it nears these lines; as a pivot point – these marked levels become a place of high volatility and very often price will either reject here or “pin” here. Understanding how far a market has moved in a week often comes to having a perspective on how far it was expected to move within the week.
Options Trading
When trading options – these weekly lines present us with a variety of trading signals; from contrary trade triggers to mechanical trade logic, these Weekly Expected Move lines give us the opportunity to trade verticals, iron condors, butterfly’s and so much more. The accuracy of the trading strategies is constantly changing, but we can always determine an expectation of the current accuracy for each market we want to trade & for each product we want to trade. This is an important distinction when we are trading mechanical strategies, because the accuracy of the strategies changes when we are trading something like $CAT or something like $SPX.
Coaching
Interested in learning more about the Weekly Expected Move indicator and how you could use it to trade futures and options more effectively? Reach out to Signet and request a free consultation for One on One coaching today!
