It happens to all of us, myself included. You see the market moving hundreds of points and wish YOU were part of that trade. If only…
Markets play our emotions like a fiddle with every tick. They suck you in only to take your money, leaving you wondering what just happened.
Stop paying attention to your emotions and start trading like a pro!
Easier said than done, right?
Not if you follow these steps I’m going to outline for you.
You don’t need to be in every trade, just the right trades. I may only play a few times a week. But when I do, I make it count.
So what are these crucial steps?
My secret – watchlists.
I don’t just have one watchlist; I have several. With the current market, I like to keep my options open (pun intended). Look at my Weekly Money Multiplier stream, and you’ll see the stocks I plan to trade.
I keep them front and center for everyone to see!
I’ve seen too many traders dismiss the power of watchlists. The fact is, watchlists narrow your focus down. You can make a darn good living just trading one stock.
There’s plenty of opportunities out there right now without looking far. When you focus on a handful of stocks, you start to understand their rhythm. After a while, you get an intuitive sense of their movements.
More importantly, it keeps you flipping from chart to chart, trying to chase the fastest movers. That’s a quick way to blow up your account.
~80% of the time, I stick with my TPS strategy. That involves finding stocks with a clear trend, consolidation pattern, and a squeeze. In this market, it means moving to shorter timeframes.
Do I use other strategies? Sparingly.
Right now, I’m not trading as much as I would during typical market conditions. I know from experience that I don’t thrive in this environment, nor does my TPS strategy. The trades I documented over the years show that my TPS strategy works much better in bullish markets when swing trading.
Trading is about making money. However, part of making money is survival. In this market, that means limiting losses for most folks. For me, I prefer just to step back and only take choice setups.
Keeping myself constrained like this may seem drastic. But let me tell you something, it keeps me out of a lot of bad trades.
Imagine being long $100,000 SPY calls overnight, only to watch the market limit down the next morning. Sounds absolutely terrifying!
No, it didn’t happen to me, but I’m willing to bet it did happen to someone.
Even when I lose on trades, I know exactly how much I will lose. When you own stock overnight, you could wake up to huge losses well past any stop levels you had in mind.
Instead, consider risk-defined strategies like credit spreads. When you set these up, you choose precisely how much you can win and lose.
No other tool will keep your emotions in check and improve your skills as a trader than a journal. I harp on this a lot in my upcoming webinar and every day to Weekly Money Multiplier and LottoX members.
When you use them honestly, trade journals tell you exactly where you strengths and weaknesses lie. As you read through the lines, you’ll spot patterns that may not have been obvious to you.
Here’s a perfect example. The other day I was talking to a friend about his trade journal. He noted that even though his strategy was sound, he was losing money. When he dug into the trades, he noticed he would take too many of them at the same time.
Instead, when he spread them out, he’d achieve more consistent results in-line with what he expected.
It took me years to develop my TPS strategy. I wanted something that fit my personality and needs.
In my upcoming webinar, I discuss how I created this strategy along with a host of tips and techniques you can apply to your trading.
It’s been a rough week out there for a lot of folks, yours truly included. Even for professional traders, these are challenging markets.
If you find yourself emotionally down, try not to beat yourself up, and please don’t play the coulda…woulda…shoulda game.
I had to do this recently when I got smoked in my futures trading, after the market went limit down last Sunday.
Did I get mad? Of course, I’m human!
But I reset. And then went back to what I knew best—trading stock options utilizing my TPS setup.
This market will challenge our emotions to the fullest.
Make sure you stick to your trading plan. And have adjusted your position sizing to reflect the volatility we’re seeing in the market.
Now, I want to talk to you about three setups that I think could work, even in this horrible market.
You wouldn’t think that the giant Chinese search engine would be a good stock at the moment.
Well… you’d be thinking wrong!
If you actually look at the FXI ETF, the Chinese stock market isn’t off its highs nearly as much as the US indices. With the Coronavirus cases seemingly under control, their economy may be already restarting.
But let’s face it, I’m a chartist at heart. I take my cues from what I see pictoraly, and this chart looks pretty nice.
Let’s take a look at the 30-minute chart.
BIDU 30-Minute Chart
I have to admit, this one is quite interesting. Normally, my TPS setup includes three things: a strong uptrend, a consolidation pattern, and a squeeze.
In this chart, I have a squeeze as denoted by the red dots at the bottom. There’s a clear triangle pattern forming as well.
But would I call this an uptrend?
I wrote about relative strength the other day. This is where a stock performs better than the rest of the market. Friday, this Bidu was down less than 3% compared to a horrid day for most equities. That stands out for me.
This is where I would practice good risk/reward management. I have a reversal candle off the bottom. You can see how there’s one large green candle’s body that engulfs several candles before it. However, the stock is in a clear downtrend overall.
That’s why I need to be cautious. I want to take the trade as close to my stop out as possible. With price trading near the lower Bollinger Band, I’d be fine taking an entry on this Monday near this price. But, if the stock opens up much lower than here, I’d simply move on.
Retailers are in a lot of pain at the moment. The marginal ones are lucky if they survive. Big Lots fits the bill for a discount outlet that is probably on it’s last legs.
This stock might be difficult to trade with options. When equities start to cross that $10 mark, it makes it harder to profit with the options.
Nonetheless, this is still a great TPS setup to look at…because it’s bearish!
BIG 78-Minute Chart
Rarely do I look at bearish setups. However, the current market has me considering put options more and more.
Big Lots provides all the TPS components, just in a bearish manner. There’s a clear downtrend, consolidating chart pattern, and a squeeze.
Now, I want to be careful here. These smaller stocks have a tendency to pop hard. However, there isn’t much short float here with only 20% of shares sold short. If I would trade this, I’d keep it on a very short leash.
Wait can I do that? Am I actually bearish on a major market index?
You bet your sweet roll buns I am!
A TPS Setup doesn’t care what I want. It says what it says, and right now, it says bearish!
QQQ 78-Minute Chart
Look you may not want to hear this, but this chart says Monday or Tuesday we’re going to see this market lower.
Why? Because we have a clear downtrend, a consolidation pattern, and a squeeze taking place. Frankly, I wouldn’t be surprised if we woke up to a gap down tomorrow morning.
However, keep an eye out for this same TPS setup on smaller timeframes. They keep popping up intraday all the time.
Most of us are stuck at home riding this pandemic out. The best way I know how to fight it? Trading – cause I love it.
A great way to get started in this market is with my LottoX service. You get text alerts for my trades that last anywhere from a few hours to a few days. My goal is to keep ‘em short, make some money, and move on.
There’s a few companies out there that are just getting obliterated in the market. At some point the short-interest gets so high that the odds are suddenly stacked in favor of the longs.
For example, I grabbed trades in both Boeing (BA) and Delta Airlines (DAL) in my Weekly Money Multiplier account. I managed to sneak in some quick profits on Delta, while I’ve got the Boeing trade on right now!
The question isn’t which names I pick up for the trades. It’s how, why, and when I pick them up, and that’s what I want to explain today.
Sure, you could scattershot all the most beaten up names, like all the airlines. Problem is we’re starting to see correlation break down. That means some stocks are winners and others are losers.
So how do you go about finding the right moment and the right stock?
One of the key elements to getting these epic moves in stocks is the short-squeeze. Here’s how these short-squeezes occur.
First, you get a lot of people betting against a stock. They ‘short’ shares by borrowing on margin from their broker. They make money as long as the stock keeps going down. However, they lose money when the stock gets above their entry price.
Here’s the problem. In theory, stocks can go up forever. So, at some point the broker forces them to liquidate their positions. That means they buy shares to close out, which sends up share prices even further. That causes more traders to cover their position, and you get a cascading effect.
That’s why you get some ridiculous moves of 20%-30% in some well known names.
DAL Hourly Chart
It’s almost like they become penny stocks!
Now, you don’t want to grab just any stock with high short-float. Rather, find the ones that have higher short-float now than they do normally. Bigger names are also better. The more well known they are, the more likely they’ll get a short-squeeze from a broad market rally.
As with any chart that you trade, support levels become a crucial element to the setup. That means looking back at historical data to figure out what’s going on.
Check out how Delta found support at its IPO price from before the financial crisis.
DAL Monthly Chart
Even going back 13 years, you can find support levels within the chart that is crashing.
Now, there’s a few methods to finding support levels.
If you can get several of these to line up then you’ve got a nice high probability trade on your hands.
The last thing you want to do is swim upstream when the market is falling. It’s not easy in this market, but there’s a few things that can help.
First, look at the natural patterns we’re seeing throughout the day with the market. We gap down, get a move higher into the midday, and then selloff to the close. It’s been pretty rare to have a gap down and fall much further. I use this market cycle timing to my advantage.
I’ll also look for signs of relative outperformance. This doesn’t have to be a lot or last very long. Even if you see a market that’s down 7% and the stock is only down 3%, that’s something to hang your hat on.
Chart reversal patterns are a great way to spot trade setups. Not only do they give you a heads up on a potential move, but they also provide something to trade against.
Think of an engulfing candle, where you have one giant green candle’s body encompass the previous candle or two. That gives you a low to trade against. If the stock closes below that low you can simply exit for a small loss and move on.
Pay attention to the markets. They may be difficult, but they have a lot to teach us. I’m constantly learning new things and jotting notes into my trade journal.
It’s something I talk about extensively in my upcoming webinar. I explain how I used this to develop my TPS strategy and become a consistently profitable trader.