Markets are closed today in observance of Memorial Day, and I’d like to take a second to thank all the Americans who served in the U.S. military.
Even though stocks aren’t trading today, I want to game plan for the holiday-shortened week because I think it will be filled with action.
Last week, we saw pot stocks make a move…
And if you missed out on the moves in Aurora Cannabis (ACB), Canopy Growth (CGC), Tilray (TLRY)… don’t beat yourself up because many other traders did as well.
However, that doesn’t mean we can’t find momentum stocks in the cannabis space poised to move.
When it comes to momentum stocks, there’s a concept that many traders fail to grasp…
When it comes to momentum stocks, I find that stocks in the same sector have leaders and laggers… and that can help to identify potential momentum trading opportunities.
Today, I want to show you what sympathy plays are and how I identified some pot stocks to keep an eye on this week.
With pot stocks making a move last week, there is a chance they can continue higher… however, I don’t necessarily want to chase the ones that have already caught a pop. Instead, I think it can be beneficial to find the ones that are lagging.
In other words, the ones that haven’t already made a massive move like ACB, TLRY, or CGC.
Here’s how sympathy plays work…
Typically, you may see a stock make a move (this would be considered a leader)… then there may be laggards that move in sympathy with the leader.
For example, when ACB made a move… there were pot stocks just popping off.
Now, if you missed the move, then you might want to check out some of its peers to see which ones haven’t made a move.
With ACB’s massive move in the past 2 weeks, it seems as if it’s a leader in the space, in terms of price action (as the stock has made a move from under $6 to $16 in just about 2 trading weeks).
So some names that may be laggards include: APHA, CRON, CGC, TLRY, CRBP, and HEXO. Even those these names have moved higher… they haven’t had the same run as ACB.
In other words, there may be other momentum traders looking for some action missing out on the move in ACB.
When it comes to sympathy plays, I believe it’s important to have a few on a watchlist to keep an eye on them.
With the watchlist, I think it can be helpful to devise a trading plan and have entries, targets and stop-losses in place.
Basically I saw it had the potential to make a move… and here’s what I sent out in the watchlist.
HEXO is more of a risky play because it’s already up 20%+ on the day but the pattern has range to the $.80’s and maybe even $1. Offering behind and a sector that’s catching pops, I’m interested in entry around $.58 with a stop loss below $.54 and a goal or 20%+ next week, assuming I take a position. Currently at $.63 I’m not looking to chase but enter on a dip, should one present itself.
On Tuesday morning, I’m going to keep an eye to see if these pot stocks come up on my scanner. If they do and I notice one of my bread-and-butter setups, I’ll let my subscribers know in an advance notice alert.
The thing is, this approach can work for other sectors… not just cannabis stocks, and it’s just one of the ways I look for momentum trading opportunities.
Now, if you want to learn how I hunt down momentum stocks poised to run, then you may want to check out this important training session I’ve put together.
In this exclusive training, I reveal my edge when it comes to momentum trading… and how I’m able to hunt down stocks poised to move ahead of time, on a part-time schedule.
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If you know me, I love hunting down momentum stocks and uncovering breakouts.
Today, I want to show you what I believe to be the anatomy of a breakout trade with one of the most-talked-about stocks in the small-cap space recently — Aurora Cannabis (ACB).
The stock went from $5.30 to nearly $20 in just a few trading sessions…
And I want to show you how to spot potential breakouts because I actually saw it on my scanner, and alerted subscribers about it in an advance notice email.
Of course, I missed out on the trade… but that doesn’t mean I just forget about it and move on. I actually want to show you how I spotted it and what I could do better next time.
On Friday, May 15, cannabis stocks were rocketing… and here’s what I sent out to subscribers.
Cannabis stocks are rocketing higher Friday morning, despite U.S. stock futures being red. ACB, which I brought up in the advance notice alert of TLRY Thursday, is up 30% as I type.
TLRY, CRON and CGC all in the top ten.
It’s nice to wake up Friday morning and be in the #5 stock on all of Wall Street sorted by % gain with a minimum of $200,000 at 7:30 a.m. ET. Hell ya! I ended up buying 5,000 shares of TLRY, not 3,000, and my entry was smack dab in the middle of my $7 – $7.20 zone, picking them up at $7.09.
Good start to my day. The positive headlines flowing Thursday into Friday say it all.
ACB pot sales grew faster than expected and revenue beat forecasts. Then U.S. cannabis operator Green Thumb (GTBIF) reported tripling revenue as it pared down losses but shares don’t trade in the U.S. or it’d be on the board. But the point is it helps the sector and therefore TLRY. If I can get $.50 / share today or $3,500, I’d be happy with it but my goal is $1 / share as of right now.
Now, I was able to lock in about $3,000 in TLRY… but I actually want to learn from my mistake from not taking ACB.
With ACB, I spotted it on my scanner… and there was news in the name.
Prior to that, the company actually conducted a 1-for-12 reverse stock split. At one point, the stock was actually trading below $1 and in order to remain on the NYSE, it needed to trade above $1…
With the reverse split, it brought the stock price above $7.
With a reverse split, it actually reduces the float… and it can cause some wild swings, which was what happened with ACB in my opinion.
The thing is… it had legs because of two catalysts.
But I want to show you two chart patterns and how I could’ve traded it.
Chart Courtesy of StockCharts
Notice the blue horizontal line in ACB above?
Well, that was a key resistance level, now I could’ve played the breakout by purchasing shares above $9.60 and taken 10-20% profits.
Another way I could’ve played it (if I missed the entire move to $19.68) would be to wait for the rest and retest pattern.
That’s when I would break out my Fibonacci retracement tool to identify key areas of value.
Chart Courtesy of StockCharts
Basically, I would identify the swing high and swing low and draw the Fibonacci retracement, thereafter I could see areas where I could’ve potentially entered the stock.
Here, I could’ve looked to buy shares at $12.43, right around the 50% retracement, which can be a support level… and looking for a 10-20% profit target.
Now, it does take some time to learn how to use these patterns… but that’s why I created this special training session…
That can potentially put you on the fast track to learning my part-time trading strategy…
And how I’m able to uncover momentum stocks poised to run.
Now, if you want to learn more about my strategy, click here to register now.
In this market environment, it can be a little difficult to pick the direction of stocks… and if you’re trading calls or puts outright…
I don’t think it’s very efficient unless you have a high-conviction strategy or setup.
You see, if you buy calls or puts outright, you’re essentially placing two bets.
What do I mean by that?
Well, the first bet is direction. In other words, you need the stock to move in your favor to make money.
The second bet is a volatility bet because when you purchase options, you need the level of implied volatility to rise.
Not only that, but since options have a useful life, when you factor in time that goes into the options pricing model…
The odds can be stacked against you. That’s why I think so many traders struggle when they purchase options.
Now, if you want to learn how to trade options without worrying about time decay and the need for implied volatility to increase…
Then listen up, because I’m going to show you a strategy that may be easier to implement.
What if there was a strategy where you didn’t need to figure out where to have your profit targets and stops… worry about time decay… or the need for implied volatility to go up?
If you think about it, that can make options trading easier, right?
Well, first off.. Let’s go back to what needs to happen when you buy options. I’m going to stick with calls for this example because I think it can make things simpler.
When you buy calls, you need to be right on the timing.
In other words, if you purchase a call option in Tesla (TSLA) with a strike price of $900 expiring in a month when the stock is trading at $825… you would need the stock to move higher for you to make money.
Now, that means your execution would have to be nearly flawless for you to make money, when you select the strike price and expiration date.
You would need to time your entries, and would need the stock to move higher and implied volatility to increase.
Of course, implied volatility is the market’s outlook on the underlying stock and lets us know how much the stock could move. Now, keep in mind that implied volatility is based on supply and demand…
So if the supply exceeds the demand… then the implied volatility will drop and so will the price of the options.
That means implied volatility directly affects your position. For example, let’s say the annualized volatility for a specific series of calls is at 120%, if the implied volatility rises to say 130% and the stock moves higher, you can make money.
On the other hand, if the implied volatility pulls back to 80% (which is very possible) and the stock moves higher, you can lose money.
Sounds like it sucks to be a call buyer right?
You would need to watch your positions… be perfect on timing… and absolutely nail the direction.
I don’t know about you, but I don’t want to stare at my positions all day and have the odds stacked against me.
That’s why I developed a strategy that I like to call the “casino” strategy… I also like to think about it as the “insurance company” strategy.
Unlike buying calls outright, with my breakthrough options spread trading strategy… you don’t necessarily have to be right on the direction.
For example, right from the jump, you would know your maximum profit and loss.
Here’s a look at what I’m talking about.
This is known as the risk profile or profit and loss (PnL) at expiration.
Basically, it shows you what your max profit and max loss are for a bull put spread trade on the expiration date.
Now, with this strategy, I believe the odds can be stacked in my favor.
I like to think about it as being an “insurance” company.
Basically, the way insurance companies make money is that they sell premium and protect against damage. Most of the time, they’ll make money… and just a handful of times they’ll lose a bit of money.
Well, with this strategy, I can become the insurance company… but my risk is defined, so I can go to bed being comfortable with your downside. When I sell premium… I believe my win rates can be high at times.
You see, when I place spread trades (for the purposes of this lesson, I’m only focused on bullish spread trades here)… the stock just has to stay above a specific level. That means the stock could:
1) Run higher, and you’ll make money and be at your maximum profit.
2) Stay sideways and trade between two levels. As long as the stock is above a specific price, you’ll make money.
3) Fall a little, but still stays above the lower strike price you selected when setting up the strategy.
Not only that, I also benefit from time decay. You see, every day that passes… options lose value… and if you’re a seller of options premium, you benefit from that.
If you want to learn more about my options trading strategy, and why I believe it’s so efficient… then check out my eBook, Wall Street Bookie. In it, I detail my number 1 edge in the options market and how I use credit spreads to my advantage.