Go Long Dow & Short Nasdaq?

[Peter123]

I was considering a strategy where I would go long the strongest market index and short the weakest during times when the market was just going sideways (like right now). That way if the market went up or down I would (or hopefully would) make money on the differential. Has anyone tried this?

[Peter123]

Great charts!!! I have a subscription to StockCharts so I can add these to my favorites. Thanks!

[Gizmo]

Some ratio charts I find useful in hedging strategies.

Rut/Spx
http://stockcharts.com/def/servlet/SC.web?c=$rut:$spx,uu[w,a]dallyyay[dd][p][vc60][iUb14!La12,26,9]&pref=G
Ndx/Indu
http://stockcharts.com/def/servlet/SC.web?c=$NDX:$INDU,uu[w,a]dallyyay[dd][p][vc60][iUb14!La12,26,9]&pref=G
_________________
Gizmo

[Peter123]

When trading other systems (such as yours) I use a brokerage account and ETFs. I don't have a futures account. My I own personal trading is done using ProFunds (there is also Rydex, Potomac, etc.). The transaction costs are zero on an incremental basis (just annual operating expenses). I would just do a 1/1 ratio. I always use scaling in my positions (using a set increment per day such as $1,000, $2,000, or $5000, etc.) the same would apply to a trade like this. I have found scaling to be very effective since the market seems to always want to do a fakeout move before moving ahead. Scaling often gives you the best average price or allows you to get out if the trade no longer looks good.

[HenryTo]

Peter123,

I think this strategy is probably do-able. I just have one question, though: Do you plan to do this with futures? Futures is definitely the way to go, since the transaction costs will kill anyone who are planning to scalp a few percentages here and a few percentages there.

Can you us perhaps some more details? Such as the Dow-to-Nasdaq ratio you were perhaps thinking of in your trade?

Thanks,
Henry