11 Jul The Small, Quick Winning Trade
It sure is a common theme in today's media - a common complaint about today's society - we want everything and we want it NOW! Call it the "instant gratification generation" or whatever you want, but there are some times when an instant win shouldn't necessarily be viewed as a bad thing.
I'm referring of course to how this relates to a certain trading setup; a setup that gives you instant feedback. Well, "instant" in relation to most option trading setups which are weeks to months in duration. Using over-extentions and over-reactive selloffs and solidifying those events in a trading setup is a favorite trade of mine.
If you are one of my Twitter followers, then you've seen these trades first-hand lately. I'd like to use this post to break down the setup in terms of what I look for, what I like to anticipate, how I search for these setups, etc. For those of you who haven't been following me on Twitter, here is a little recap:
In the morning on July 7th, I tweeted the entry:
And here is the result in a tweet the day after:
Here's another trade on the same day:
Ok, so Twitter isn't your thing - I understand - well here's the same setup on my Facebook page:
Now the above trade isn't necessarily a quick-win like I've been talking about. As you can see, the entry was on June 25 and the exit was on July 7, however the premise of the trade is the same - trading an over-extension using a few indicators and a little experience.
So to begin, I'll load up a popular Finviz scan to get me started. This scan is really simple, it's just stocks over $10, that are optionable (has options on them) and that have moved up (or down, if I flip the scanner around) 10%.
From here, I'll go in and do a little do-diligence about the company and analyze the reason it moved. For a explanation on how to handle stocks which move on certain news events and why, check out my post here. And for an explanation about timing your entries, try this post.
Lastly, I'll go out to the option chain (either a put or call - whatever is in the opposite direction of the recent move) and see what I can find that is AT-THE-MONEY for less than $1.00 in premium and risk 1% of my account on this particular one, and depending on the speed of the retracement, I'll take profits at any where between 30% to 60% - though sometimes you'll get lucky and get much higher.
Now there are times when I find this setup straight out of a news story and not necessarily from any scan. In any case, over time you will get a feel for what is real and what is hype.
If you'd like to learn from me directly, my 12-hour video course which teaches you everything about my trading style can be found here.
Happy Trading Everyone.