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At the end of each quarter I put together a list of stocks I have my eyes on.

And while, while the quarter is not over yet, I’m really excited about these five names. (Spoiler Alert: none of these are meme stocks, yet at least).

Three of these stocks I like as longer term swing trades. The other two could be worthwhile in the short term.

In a few moments, I’ll share with you what these five stocks are, why I like them, as well as my temporary game plan for them.

ELAN

This stock is consolidating under the 200 hourly support average with the 13/30 hourly momentum averages coiling around the price.

Right now there is a shorter term base being established near the $33 price, and the recent pivot low seems to hold the price at this level. If the Higher High/Higher Lows can re-establish an uptrend, I expect prices to break above the 200 hourly moving average and continue to trade higher.

My Trade Plan: Right now I want to keep an eye on the Higher Low that was put in along with how the price acts at the 200 hourly moving average. If this level is held and the stock makes a new HH/HL, I will start to look for a place to enter this trade on a pullback. My target price is back to the pivot high near $36 (or higher).

ANGI

This stock has been consolidating around its price near $14 since the end of May. It is currently forming a symmetrical triangle between its recent pivot high and pivot low around the 13/30 and 200 hourly moving averages. If the 13/30 hourly momentum averages can support the stock, the higher high around $14.50 can easily get broken for prices reaching for $15 at the next pivot level.

My Trade Plan: I want to keep an eye on the $14 pivot level. If this stock can make a new higher high and higher low staying above the 200 hourly support level, I think the stock can trend higher and get back to $15 or more. I will be looking to buy this stock on a pullback instead of chasing it higher.

IPW

This stock is forming a bull flag with the 13/30 hourly momentum averages acting as support. Over the last 3 bull flags that were formed, these averages continued to push the price of the stock higher. I am expecting similar price action at the 13/30 hourly moving average now that it has pulled back, with a target of $9 or higher.

My Trade Plan: When trading bull flags, I don’t typically like to chase the breakout higher. As you can see from the last 3 bull flags that occurred, the breakout usually leads to a pullback that forms another bull flag. So what I want to see is the 13/30 hourly moving averages continue to act as support, and get the stock to drop down to these levels. If this happens I’ll be looking to buy the dip in this name as I think it can break out past $9

Trade Lesson: Bull Flags

These are one of the easier patterns to spot when looking at a stock chart. There are 5 main characteristics of a Bull Flag that you need to remember:

  1. What is the prior trend
  2. Identify the consolidation channel
  3. Identifying the breakout levels
  4. Locate where you are going to place the stop on this trade
  5. Confirmation of trend continuation

SNOW

This stock took a little bit of a hit the other day, trading down below $240 before quickly bouncing back higher. I believe that this stock will trade in a large range with increased volatility for this upcoming week. Technically, SNOW needs to trade higher than $250 in order to turn the resistance level into a support level in order for higher prices to be seen in this name. Once this happens, I’ll be looking for a HH/HL pattern to form to confirm the uptrend is being held.

My Trade Plan: I plan on selling a put credit spread if SNOW takes another dip and continues to hold the pivot low around $240. If the stock breaks out higher than $250, I will look to sell put credit spreads using this level as a support price for the stock.

LOVE

This stock has been on a tear since March, with a very clean Higher Highs and Higher Lows (HH/HL) pattern in place. I expect that there will be buyers at every dip and down at the 200 hourly support average as well. Right now I want to keep an eye on the 13/30 hourly momentum averages for price to continue the uptrend at this time.

My Trade Plan : This stock has been in a strong trend with buyers at every dip. I am going to start to look for dips in this stock where I can sell a put spread at resistance levels. Right now, I would like to see a dip back down to $85 so I can sell a put spread below the pivot low and 200 hourly support level near $80.

 

Author: Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

If you’ve been following the market closely over the last few weeks it has been the strength of meme stocks.

What’s been even more impressive is the size of the gaps many of these stocks have had.

That’s why I want to take some time with you today and explain what are gaps, the six main types of gaps, and how traders try to take advantage of them.

 

What Is a Gap?

A gap is an area where the price of a stock moves sharply up or down. Gaps occur because of fundamental or technical factors that are influencing the stocks.

They are typically found around periods of news or earnings that drive the price away from where it closed the day prior. For example, if a company’s earnings are much higher than expected, the company’s stock may gap up the next day.

For day traders, a gap is a highly anticipated momentum signal. Every day these traders have the same focus. Find the biggest gappers, search for a catalyst, add to a chart in your grid, and execute trades when momentum picks up.

 

6 Types of Gaps

There are 6 fairly common types of gaps that can occur in a stock chart, with each having wildly different outcomes from one another. Get your analysis incorrect, and you could be placing yourself on the wrong side of the markets with very little time to exit the trade.

Gaps can be classified into 6 groups:

  • Breakaway gaps
  • Exhaustion gaps
  • Common gaps
  • Continuation gaps
  • Pattern gaps
  • M&A gaps

 

Breakaway Gaps :

Breakaway gaps are typically found at the very end of a price pattern and are typically seen as a shock to traders.

These gaps are typically found when a pattern is coming to a conclusion and buyers (or sellers) stepped in and started the next trend cycle.

In this example, the major triangle pattern is finally being invalidated by traders and a new direction is being declared.

 

Continuation Gaps :

Continuation gaps are also known as runaway gaps.

These gaps occur in an already existing pattern signaling a rush of buyers (or sellers) who believe the stock is continuing the current trend.

This is typically fundamentally driven and has outside influences other than technical trading patterns. It is usually assumed that cash inflows are being rushed into the stock from major investment banks or institutions trying to get on the bandwagon.

 

Exhaustion Gaps :

Exhaustion gaps are typically found at the very end of a price pattern when buyers (or sellers) are stepping in to attempt starting a new trend.

These gaps are usually a final attempt by the controlling side to force the stock to new highs or lows and cause traders to exit their positions.

Exhaustion gaps by definition are almost always found at stocks highs and lows and are difficult to navigate since they are only noticed in hindsight.

Traders regularly confuse exhaustion gaps with continuation gaps while looking at stocks. This confusion is because the gap tends to support a viewpoint from the trader and helps confirm a market reversal at the top or bottom of a trend.

 

Common Gaps :

These are also called “everyday gaps” because they occur every day. This is due to overnight chatter, news, and stocks settling out in the closing rotations.

The common gaps don’t typically tell much of a story and are difficult to gain any insight from.

 

Pattern Gaps :

Pattern gaps are usually extremely volatile and sporadic in nature. They tend to form at or near market tops or bottoms due to the active fighting for direction between the buyers and sellers. Pattern gaps are sometimes also called Common gaps, and tend to be larger in size.

I stay away from pattern gaps as there is no trend or direction chosen and it is extremely easy to be caught on the wrong side of the markets.

 

M&A Gap:

Merger and Acquisition gaps occur around news and other corporate takeover events. These gaps are typically generated from buyout rumors, buyout deals, and FOMO trading from retail investors since all major news outlets are publishing headlines on this stock.

Here is an example of TD Ameritrade that gapped higher based on M&A news overnight. As expected, there was immediate selling in the stock as traders took profits and sellers stepped in to drive the stock lower.

 

Trading the Gap

Now that each gap is identified, let’s take a look at two different ways you can trade the gap.

Each trader has their own idea of why a gap was formed and which direction it should take. Every gap tells its own story and therefore bears a different meaning to each trader who analyzes it.

There are two categories that you can trade a gap.

  1. Gap Continuation
  2. Gap Fading

Gap Continuation:

Gap continuation is a trade that continues in the direction of the gap. Usually gaps will continue their trend only when it’s a healthy market and the primarily buyers (or sellers) want to remain in control.

Breakaway gaps and Continuation gaps are typically the only two gap patterns that will have continuation in their price action.

Pro Tip: institutions and large hedge funds will tend to pile into stocks when there is a healthy trend causing these gaps to occur or continue.

Gap Fading:

Gap Fading is a trade that reverses the direction of the gap. This usually occurs when a trend is becoming exhausted and stall out. Gap fades are typically seen at the top or bottom of trends and the opposite direction is about to begin.

Exhaustion gaps and M&A gaps are typically the only gaps that tend to fade.

Fill The Gap

Is it common for gaps to be filled? Yes and no.

Depending on the type of gap and the strength of the move, it’s possible for a gap to be filled. Both of those factors will determine if the gap can be filled that same day or if it will require more time. The speed at which a gap is filled usually depends on the ‘shock’ the gap produced in the chart.

Pro Tip: Some gaps are so strong that they can destroy technical patterns and invalidate setups.

Why are gaps filled?

It’s important to remember that gaps are caused by emotion. Due to human emotions there are many different factors that impact a stock. It’s always hard to know if a stock will fade from the open or just continue in the new direction. When a gap is filled it usually boils down to a handful of reasons.

Gaps are filled from 3 major reasons:

  • Irrational exuberance
  • Technical resistance
  • Price patterns

Irrational exuberance :

When the initial spike in price may have been overly optimistic from FOMO traders getting into the breaking news. They are exiting the trades with either a quick profit or after they have realized they made the wrong decision.

Technical resistance :

Common when a price moves up sharply. If a stock gaps up into technical resistance, it has a higher probability of reversing and filling the gap to the downside. Some examples of technical resistance are trendlines, technical patterns, support and resistance zones, 52-week high and lows, etc.

Price Pattern :

Important since it gives the trader the “bigger picture” as to what the stock should be doing. Price patterns are typically used to identify exhaustion and continuation gaps.

Author: Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

The battle between fundamentally and technically minded traders is one that has raged for decades.

As the years go by, however, more-and-more market participants are realizing the value of combining these two forms of analysis.

Fundamental analysis tells an investor what to buy or sell and technical analysis tells you when to buy or sell.

Among Wall Street analysts, there are two primary designations that are sought. The CFA (Chartered Financial Analyst), which is what fundamental analysts look to acquire, and the CMT (Chartered Market Technician), which is what top technical analysts hold.

A long-running joke between these two organizations is that the CFA will help you get the job, but the CMT will help you keep the job.

This is probably because it can often take several quarters for a company’s fundamental picture to translate into an anticipated market move, but the company’s technical picture helps prevent the analyst from being too early or too late in timing of his or her official upgrade or downgrade

Timing is everything in options

I often preach that while fundamentals trump everything, technicals are critically important in options trading because of the time element involved.

Think about it. If you’re simply trading or investing in stocks, time really isn’t a consideration.

Sure, the subject of time is a factor when we’re concerned about a trade being classified as a long-term or short-term taxable investment, or if we are trying to avoid executing a “round trip” trade or violating “wash sale” rules.

However, in all of these cases, the passage of time does not cause the value of the investment to lose value.

In the world of options trading, however, time is everything.

The time portion of an option’s price decays over time and will always become zero at expiration.

Therefore, it is essential to understand how to use patterns and other indicators like momentum and moving averages to help identify windows when price is poised to either move aggressively or remain rangebound.

My Total Alpha trade ideas are largely based on a variety of technical price patterns and moving average signals.

The patterns on the hourly charts that I find work best for me allow me to position near key price levels (support during bullish patterns and resistance during bearish patterns) ahead of an anticipated breakout.

You may find that this approach differs from how many other traders enter positions, which is to chase the trade after a breakout.

But I find my method to be more effective at helping my subscribers both define and limit their risk.

 

Certain options strategies offer better probabilities than others

One of the problems that many beginner traders have is that they think in terms of success or failure, when the key is to actually think in terms of probability.

Something you might not realize about trading options is that each strategy has quantifiable odds of success. There are no guarantees and no one can predict what trading markets will do at any given time, but that does not mean there are no considerations to keep in mind.

When they are just starting out, many options traders gravitate to trading just puts and calls.

Since these single-leg strategies are the easiest to understand and offer the greatest potential for profitability, this preference is certainly understandable.

What they fail to grasp, though, is that these options are the most vulnerable to losing their value as time passes.

The process of learning how options work and how to trade them successfully is one that requires study and a lot of practice. Total Alpha members have total access to comprehensive educational materials such as our Stock Options Explained curriculum, which is designed to help you reach your goals of becoming a successful option trader.

As I mentioned earlier, however, options traders can find higher probability trading strategies.

Rest assured, many of the Total Alpha trade ideas members receive are centered around these strategies that seek to increase probabilities, such as with bullish and bearish vertical credit spreads when trading options.

Why?

Because time is a trader’s friend when using these strategies.

Not only that, but the price of the stock really doesn’t have to do anything during the life of the trade.

 

Let’s take a look at how I use technicals to structure these trades.

As I mentioned earlier, I use several different price patterns to help give me an edge in terms of timing and risk management.

One of the patterns I favor is called a Pennant pattern.

Pennant patterns are brief periods of contracting, sideways consolidation that are preceded by a sharp rally (known as the flagpole) and followed by an equally sharp rally.

I’ve annotated such a pattern with green lines on the chart directly below.

Given that the rules of this pattern state the bottom of the Pennant can’t be violated by price, I am able to use the starting point for the bottom of the pattern near $15 to set up a Bull Put Vertical Credit Spread. Credit spreads are options trades where a credit is collected by the trader rather than paying for the trade as would happen with a debit trade.

In this example, given my personal trading strategy, I would Sell to Open (STO) a Put Spread that anchors at the bottom of the Pennant pattern near $15. Again, this is because I based my plan for this trade on the rules of the pattern, which tell me the price of the stock simply can’t fall below $15, as this would violate my pattern-based thesis (i.e. my original plan).

Vertical spreads are considered a great starting point for traders who are trying to learn options spreads for the following reasons:

  1. They only contain two legs of the same type (i.e. either selling a put and buying a put or selling a call and buying a call)
  2. They focus on the same expiration month.

I’ve annotated the legs of a hypothetical Put Credit Spread trade in red on the chart above.

The beauty of these trades is that as the clock ticks towards expiration, we want the value of the spread to decline to zero.

As time passes by and grows closer to expiration, we only need the stock to stay above the breakeven point, which is just below the anchor point of $15.

That means the price can go up, sideways or even down a little for the trade to be successful.

Compare this to just buying straight calls, when the price absolutely must start to rally in short order to fight time decay, and you can see this strategy’s benefit.

While it is true that I am limiting my profit potential to the credit I receive when executing these trades, the tradeoff is that we are aiming for a higher probability of success and defined risk, as time ticks away.

Having a strategy like this in your arsenal is a great way to continue to develop and hone your personal training strategy.

Author: Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.