fbpx

 

A lot of us, including myself, found the last couple of weeks of trading to be hard. 

Nearly everything I attempted went against me. 

As if the market was out to get me…

Eventually, I had enough!

However, that’s all part of the game. If you learn how to manage risk correctly, you’ll be able to absorb drawdowns and live to fight another day. 

You may even make some adjustments like decreasing your position size, or limit the number of trades you take, until you regain your form and confidence. 

In my case, I’ll be looking to do both.

Here are the three plays I’m eyeing…

Stitch Fix (SFIX) –  42% Short Float

Out of all the momentum stocks I traded in the last couple of weeks, SFIX is probably the only one that kept its bullish trend.

While names from Wayfair (W) to Etsy (ETSY) got bludgeoned, Stitch Fix managed to crank higher and higher.

Trade the market long enough and one of the lessons you’ll learn is not to fight a good thing.

And right now, that’s what Stitch Fix is.

So, let’s take a look at the setup.

SFIX 78-Minute Chart

Using the 78-minute chart, I can create a trade that should finish up by the end of the week.

In this chart, I found a TPS setup that’s at a decent spot to add to my positions.

If you’re not familiar with my TPS setup, they contain three core elements:

  • Established trend  – A sharp move or a consistent push higher that most people would agree on. I drew a blue arrow to help you visualize this.
  • Chart pattern – After the bull run, I want price to trade sideways for a bit, allowing shares to consolidate before the next move. The chart pattern connects the highs and lows of the candlesticks with solid blue trendlines. As long as they’re parallel or converging, I’m good.
  • Squeeze – When the Bollinger Bands indicator moves inside the Keltner Channel, that creates a squeeze identified by the red dots at the bottom. When they turn green, the energy is released, often leading to an explosive move.

With this trade, I can use call options that expire this week or the following week.

If I go with expirations for this week, I like calls further in-the-money that reduce the extrinsic value. While that doesn’t lead to as large of a percentage gain, it cuts the amount of time decay that eats away at the option premium.

Otherwise, I’d go with options slightly at or out-of-the-money that expire the following week.

If shares plunge and close below the lower Bollinger Band or trendlines for the day, chances are the squeeze will fire short. At that point, I would cut my losses.

Now, I want to take a look at a popular stock from LottoX in the past week.

NIO Inc (NIO) – 18% Short Float

If you want to know what a short-squeeze looks like, take a gander at this chart.

Once shares ripped higher, they kept on going.

Since they had time to consolidate, I think this chart offers a nice risk/reward setup.

NIO 130-Minute Chart

You can see the TPS setup elements in this chart as well.

What I want to point out is where current price stands.

If you consider the top of the pattern as the target and the lower Bollinger Band or trendline as the stop, then I’m much closer to the stop than the target.

That gives me a sweet risk/reward relationship since I could potentially make more than I might lose.

So, I’d look for in-the-money call options in this name early next week.

Sleep Number (SNBR) – 21% Short Float

Lastly, I offer you a totally random stock with a great TPS setup.

I can’t say I ever traded SNBR before. But a setup is a setup.

SNBR 130-Minute Chart

With a nice TPS setup and a high short float, this offers a potential short-squeeze that could send shares soaring higher.

Plus, you can see at the bottom how momentum has shifted higher (illustrated by the histogram).

Now, a lot can happen between now and Monday morning.

So, if you want to see how I take these trades, the best place for that is LottoX.

Not only do you catch my trades in real-time, but you get my full trading plan emailed out to you every morning.

 

Author: Nathan Bear

Although Nathan Bear has made options trades that resulted in over 1,000% profit, he’s “only made a few” he says wryly! Nathan is one of the best options traders there is. Period. His unique approach incorporating his adaptive 3-step “TPS” trading strategy, has so far brought Nate well over $2 million in realized trading profits.

Nate is a down to earth trader who now imparts his simple trading methods and relaxed approach to his trading subscribers to help give them the keys to trading success.

Take a look at this chart of Zoom Media (ZM) that I shared with LottoX members.

 

ZM Hourly Chart

 

For whatever reason, the $400 and $500 became important price levels.

Almost like magnets. 

Today I’m going to talk to you about why support and resistance levels play such a key role in building a trade plan.

In fact, I am going to show you right now how I use them to develop a trading plan from A to Z.

 

Bunching of orders

 

I want you to try something.

Go find a stock that is approaching a round number like $50 or $100 and either hasn’t hit that price before or it’s been a long while.

You can also look at historical charts for this as well.

Look at how shares trade intraday at that point and then over the next several days to the weeks.

You should notice a few things.

  1. When price breaks that level, there’s often a spike in volume
  2. This often causes a quick, sharp reversal
  3. Shares may take a few days before they either use it as support or find resistance and retrace

Let’s use a chart of Fastly (FSLY) as an example.

 

FSLY Daily Chart

 

You can see how the first time it hit $100, it closed above that price. However, it traded away from that price over the next several days lasting for a couple of weeks.

Now, let’s zoom into an intraday chart.

 

FSLY 15-Second Chart

 

Check out how intraday, once it hit there was a short spike in volume and then a pullback. While it’s not a lot, it’s enough for a scalp trade with a high of $100.22 and a low of $99.55.

Stepping back a little further, you can see how price jumped up to a high of $102.29 before coming back down to the $100 price, stopping for a moment (and another potential scalp trade), before pushing through.

 

FSLY 15-Second Chart

 

Imagine knowing this ahead of time. Look at all the potential trade setups here in and around that one line!

 

Finding price levels

 

So what constitutes a round number?

That depends on the price of the stock.

Here are some general guidelines to get you started:

  • $0.50 and $1.00 increments for stocks under $50.
  • Stocks $10-$100, $5 and $10 increments work better
  • Over $100, $25 increments do nicely.
  • Over $500, about $50 increments,
  • Over $1,000, $100 increments.

The bigger the number, the more important. So, even if a stock is approaching $100 for the first time (or even $50), those are more worthwhile than say $90.

Lastly, levels should be fresh. Newer ones are better. However, if they haven’t been visited in a long time (months at least), then that also works.

Think of it like this.

These trades work because folks put stop orders in for losses and breakouts at these numbers.

And frankly, it’s just because they’re easy.

Put it this way…if you wanted to buy Amazon, would you take the time to type in $3245.17 or just $3240?

 

Creating setups

 

Now that you know where to look for them, let’s finish with developing setups.

You can never know how well any of these levels work ahead of time, nor how much price might slip past.

Going back to our example, FSLY could have slipped past by $5 before pulling back.

Even that scalp could have pushed past by $1.00 instead of just $0.22.

The first step is deciding what type of trade you want – a scalp or a swing.

A scalp requires analyzing the typical movements of the price to figure out your profit targets and stop losses.

Swing trades tend to last a couple of days.

With those, it’s driven more on a day by day basis.

For example, if I wanted to swing trade against FSLY on the daily chart, I would simply go short at ~$100 and set a stop loss of say 10% (another nice round number). 

Then, I could target another support level or even a round number like $90 or even $95.

There’s no cut and dry answer to every trade.

That’s why continually show LottoX members real-life examples to help them understand how to put these trades together.

So, do yourself a favor – register for my upcoming LottoX webinar and see what it’s all about.

Click here to register.

Author: Nathan Bear

Although Nathan Bear has made options trades that resulted in over 1,000% profit, he’s “only made a few” he says wryly! Nathan is one of the best options traders there is. Period. His unique approach incorporating his adaptive 3-step “TPS” trading strategy, has so far brought Nate well over $2 million in realized trading profits.

Nate is a down to earth trader who now imparts his simple trading methods and relaxed approach to his trading subscribers to help give them the keys to trading success.

Markets chopped me up this week.

Heck, I saw one of my worst trading days in LottoX for the year…and let’s say I didn’t take it well.

You don’t want to see me when I get angry!

Taking a step back, I want to lay out my outlook on the market.

And it builds on my discussion the other day about why I went flat on nearly all my positions.

Because this trading environment isn’t great for swing trading.

But sets up nicely for day trading.

And here’s why.

 

Range traders delight

Each day we see inconsistent rotations, a lack of followthrough, and yet indexes remain relatively flat.

You can visualize the choppiness of the market in the daily chart of the QQQ.

QQQ Daily Chart

Notice how many narrow body candles there are (open and close are very close together).

More than that, the recent decline hasn’t been sharp.

Instead, we have a slow, steady bleed lower.

And that makes options trading exceptionally difficult.

Assume for a moment I bought put options to play a move lower.

Owning options means time works against me, with each day eating away at their value.

A creeping decline means I can be right on the trade direction and still lose!

As an options trader, that is by far the most frustrating thing to experience.

However, there are wide intraday ranges that work nicely for day trades.

Take a look at Wayfair (W) for example.

W Hourly Chart

Even though shares declined through most of October, with well-timed entries, I could still turn a profit with long calls.

That’s why one of the adjustments I made is to take more conservative entries.

Here’s an example with Stitch Fix (SFIX) using my TPS Setup.

SFIX 30-Minute Chart

With my three components, I have a strong uptrend, consolidation, and a squeeze.

One thing you may not know is I use the 8 and 21-period exponential moving averages (EMA) as my entry zone. 

However, when I want to get more conservative, I use the 21-period EMA and the lower Bollinger Band.

Yes, it gets me into fewer setups, but it puts my entries closer to my stop out. That tends to cut down on my risk without sacrificing much in terms of my win-rate.

 

No-man’s land

I expect markets to remain choppy up into the election.

At the moment, all the major indexes look pretty much the same.

SPY Daily Chart

We’re in this wide area where equities are effectively trendless.

The problem is that there doesn’t appear to be one sector or set of stocks doing better than the others.

And, until we break out of this range, chances are we’ll head straight sideways.

However, the longer we do, the more explosive the move out of the range will be.

What I also want you to notice is how the 200-period moving average continues to creep higher.

That often acts as support.

However, if markets trade in and around that indicator for too long, it loses its meaning.

That often precedes a downturn.

 

Creating a gameplan

For the moment, I plan to keep my trades limited and mainly intraday. Holding things overnight doesn’t work well for choppy markets like these.

Once we get past the election and any aftermath, that’s when I’ll look to become more active.

Hopefully, we also get some clarity around the coronavirus and vaccine at that point.

That would lead to more sustained trends.

Until then, I’m looking for stocks in strong uptrends that show relative strength. That means on down days they’re often up.

Stitch Fix (SFIX) is a great example.

Even as the market struggled to gain traction, shares of this momentum stock kept climbing higher.

SFIX Daily Chart

Despite weakness in the market, the TPS setup played out nicely, sending shares higher and higher.

In fact, this led to one of my best trades of my career, netting over $50,000

*See disclaimer below

While I might normally hold trades in 10-15 different stocks, I only want to keep 5 or so at the moment.

That cuts down the clutter and puts me in what I consider the highest probability setups for my trading.

Now, this all starts with putting together a daily trading plan. 

And that’s exactly what I send to LottoX members every morning before the market opens.

I explain which stocks I’m watching, the current trades, and what actions and trades I’m looking to execute today.

If you’ve never experienced LottoX, I strongly suggest you check out my upcoming webinar.

You’ll learn exactly how I train and educate traders just like you every single day.

*Results presented are not typical and may vary from person to person. Please see our Testimonials Disclaimer here: https://ragingbull.com/disclaimer

Author: Nathan Bear

Although Nathan Bear has made options trades that resulted in over 1,000% profit, he’s “only made a few” he says wryly! Nathan is one of the best options traders there is. Period. His unique approach incorporating his adaptive 3-step “TPS” trading strategy, has so far brought Nate well over $2 million in realized trading profits.

Nate is a down to earth trader who now imparts his simple trading methods and relaxed approach to his trading subscribers to help give them the keys to trading success.