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.
Big Lots (BIG)
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.
Nasdaq 100 (QQQ)
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.
Fight Back With Selective Trades
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.