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Today's question - It's all about the momentum of looking at resistance as stock prices go into higher levels.
Question About the Resistance Point - Submitted by Abdul Rahman
The question: "When a stock reaches an all-time high, as there is no historical point of resistance, how do I know when the stock is possibly approaching a new resistance point. And where do I stop and start taking out some or all of my positions?"
Quick Look At Charts and Angles
The main thing is to recognize how greedy do you feel or how happy do you feel when a stock is reaching highs.
The simple approach is looking at angles. The way I like to phrase it: The angle of elevation at 30 degrees it's an ordinary healthy dividend playing stock.
A stock that starts to accelerate very quickly is, in my opinion, a rocket stock.
If you're somewhere in between you might be okay, but the faster (the steep) the incline and the longer, the more stretch things get.
Here we're taking a look at examples that really can clear up this matter for you.
Example #1 Nvidia
If you take a look at Nvidia you can see here on the yellow - it starts accelerating very quickly. It starts to get a little scary, and it accelerates very fast for a long time.
And that's why eventually these things pullback. The smartest thing you can do is look at it as an angle.
Example #2 Microsoft
If we look at Microsoft that angle is a lot slower. And the situation seems more stable. Maybe you want to start drilling things down into a daily chart if you're trading more actively.
Then, you can do the same thing. Pay attention to those angles. You can take a look at the weekly chart or on a daily chart. It doesn't matter. What you want to see is how fast angle is.
Sometimes things as pullbacks, resistance, and retracements happen even if the stock is moving at a normal angle: the main reason - market conditions.
Example #3 Boeing
If you have something like this, you have to pay close attention to the variation. First, we had an angle that was healthy; then you had a more accelerated angle. After some time there is again normal angle. Actually, It was more of a sideways.
But now if you look at the shorter term - boom! That thing's accelerated, so I wouldn't be surprised if this thing pulls back.
When Do You Want to Take Profits?
The faster this thing goes, the more profits you want to take. Some people will say: I look at the RSI, I look at the MACD, I studied moving averages. All those things can give you some clues, but the reality is that you have to notice this:
Is that stock is moving too fast?
Or is it moving normally?
If it's moving too fast, it's probably too stretched which means you should take some money off. Keep things simple, because the more complicated you get into, the more it'll play tricks on you.
Example #4 CMG
Now, let's take a look at CMG. You don't have to hit every point when you're drawing the angle and the range of the movement.
Look at that part on the picture. Pick points where the stock changed direction to where it is now, and there it is.
I found that making things more complicated is a bad idea. That just drove me insane, so keep it simple and analyze those angles throughout the desired period.
That's the way I would look at it when a stock is making some all-time highs where you can't even see where the resistance point is.
The steeper that angle is, the higher the chance that pullback is going to happen. And if it doesn't happen for a while, then it is going to be nastier on the longer term.
Be careful and understand that if your stock accelerates and you see your account positive, when everybody's happy and when they're all buying - that's when you're taking some profits.
We had a interesting week here with the markets. The earnings here that have been coming out with Apple and all the other stocks that tech-based Amazon was shooting up like a rocket. A lot of these companies have been moving very sky high but the VIX, as you know, has not been doing too well. It's been going low. For active traders, I always say you want a higher fix which typically means a sell-off and that's just because you get more volatility. With more volatility, you get more opportunity opportunity. It allows you to make more money in the end.
In either case, you know with the volatility as low as it's been, it does concern me to some degree. It's something to always be careful of when other people are greedy, you probably want to be fearful. And when other people are fearful, you probably want to be greedy
In other words, buying stocks when they sell off and selling them as they continue to go higher.
If you look at the SPX, you can see we've keep treading and grinding higher. Those of you that are my bears, I'm sorry, it's just what's going on - what's happening, there's been a lot of volumes that also came in with some of these tech stocks.
We are stretched. I would still like some pullbacks even if they're light ones but this is just the market that we have going on. Without a pullback or a good solid pullback in quite a long time, you definitely want to be very careful because it just means it's stretched like a rubber band. It can go on for months, years, you never know but you always want to prepare for the risks at hand. That's what you need to do as a trader.
Canadian marijuana stocks are blowing up. Do you think there is any risk involved?
Of course, there are risks with marijuana stocks. With anything, there are always risks involved.
The question comes down to what risks are you thinking of? What risks can you handle? What risks are you willing to take to be able to gain for the return?
I don't look at any industry-specific - it could be marijuana stocks, it could be airline stocks, it could be an underwear company. You look at Under Armour, for example, that used to look at this one. It was a high flyer when the IPO came out and then well with time wasn't as hot anymore so things happen.
It doesn't matter really what the company is. What matters is what are people investing in and how is the perception relative to the price because the price is always perception.
What does it really mean when stocks' at $10? It's a matter of what people are willing to pay for. It depends on the ticker symbol. Do I know what they're going to do?No. I look at it at the time and evaluate it based on what I see on the movement. That's what I do and it's not necessarily when they're blowing up.
If they're too far stretched, you want to be careful of course because then they get a pullback. That's the main concern for me. Depending on what you're looking at.
But are there any risks involved? Of course. There's always going to be risks involved with anything in trading or walking down the street. There's always going to be some kind of risk there. It's just a question of which risks are you familiar with and which ones you can handle.
What behavior do you recommend to have with our family who doesn't have an idea of the market?
What the learning curve is? Should we lie and say everything is good? Tell the truth about the losses and receive and complain and bad energy from them or avoid talking to them about trading? The reality is the emotions the good ones and the bad ones are impossible to hide to those who we live with.
Yeah. It's definitely very difficult to talk to people especially your close involved family members who don't understand trading and can't grasp the concept of it. It's a whole different world because they don't comprehend the risks involved. They don't comprehend what you see and it's a whole different industry.
So would I lie to them?
No. There's no point in lying to family members. This creates tension. It's like loaning money to family and friends. You don't usually want to do that because it can create tension.
It's like getting into a business deal again with your family members. Sometimes you just want to avoid it because there's tension that will occur.
There's no reason to lie to them though as far as what you're doing.
The thing is, do you need to share everything with them?
No, you don't. For example, even with my folks and parents and just close family and friends, I don't share with them my stresses that are involved with trading. Sometimes I do but it's very rare that that happens. I might share a subtle thing, maybe works busy, there's a lot of things going on, things aren't working out in my favor.
In those situations, it's good always to trade lighter especially if you haven't grasped things. But it's tough to manage those emotions and put it on people.
I know we want to chat with people and get those things out. The better approach would be to gather and have a friend that you can connect with and network with. If you have a friend or colleague that you just coordinated once a week or once a month together and just chat about your strategy. Chat about what happened throughout the week on the stock market.
Again, I would say trade lighter or smaller at the beginning till you get things which reduces the stress. There's no reason to really lie about it. You may not need to share every single detail of what you did, how much you lost, how much you made - all those kinds of things because it does add up and take a bit of a toll on you emotionally and also, on your friends and family. I hope that makes sense.
Of course, with your very close ones near wife or partner and so on, you probably will need to share some details. That, of course, is going to be important part of the relationship.
What is the difference between a pullback and a consolidation? Did they give the same results or do they provide the same results?
A pullback is usually a retracement. A retracement could be to the upside when a stock is moving down.
When a stock is moving down, you could say this slightly is a retracement. It's probably more of a consolidation.
Usually, retracement or pullbacks are at an angle. Whether it's this way or this way depending on the direction of the stock, they're at an angle. Whereas, consolidations are more sideways.
Do they give the same results?
Yeah, they do. They give breathing rooms. They give a chance for the stock to digest the upward motion or movements.
If we look at this movement here to the upside, here is our pullback. You can see it gives that stock breathing room to continue moving higher. Whereas here, which is a little smaller, I'll zoom into it here in a second. This, I would say, is more of a consolidation or a digestion. Again, it allows you a consolidation. Allows you to digest moves. Also, another one right here.
If you go into a shorter time frame, you can see these even more. Here we have a little bit of a consolidation right here. Here's some consolidation. This one is longer, as you can tell, than the previous ones. This is where the stock changed direction quite a bit so you could see the longer digestion moves.
The longer or the stronger the move either to the upside and then you need a pullback, the stronger you'll want that pullback or the longer in time you'll need it. It's like going to a restaurant and you go and eat a whole bunch of food. The same concept applies. If you just have one plate full, you don't need as much time to digest. If you try and have five or seven plates, you're going to need a lot more time to digest.
The same thing in a stock. When you have a massive movement, you need time to digest and turnaround that boat. Even though you had some here in between, some digestions that digested the small lower movements all take time. That's what you're looking for.
Where can I find information on your ABCD process? And number two, I have thinkorswim and need to learn how to use stops.
Let's take a look at some ABCD patterns, they take time to really understand. Usually, they're a little bit easier to find on things like the weekly, if you're new. Also, they're more concrete, more precise, and more reliable. That's why I prefer to look at them and the weekly or the monthly especially if you're just getting started.
Do they happen on the daily? Absolutely. But they're a little more difficult to spot but you could still see them. For example, looking at it here, you could look at it actually right here and then again you could continue this pattern but there's more noise there.
As far as the process goes, it's tough to explain it here. I could probably speak an hour about ABCD patterns. Usually, they come with Swing points or so. When you're looking for stock movements and swing points where stocks change direction, this is where you can find potential ABCD patterns. It doesn't always work out, but it gives you a starting point for learning things.
Sometimes, they're hidden. With Tesla here, I actually had a nice short that I remember a while back. I looked at it like right here. This was my ABCD pattern that I watched in Tesla. It's a little nasty looking but it worked out really well for me on the trade simply because this I noticed. This was the retracement and the reason I could tell this was that lighter volume right there, that was the key for me.
When I saw this volume pick up again, that was the shorting opportunity, and that was an excellent trade, and I remember it.
One of the other key takeaways was this big bar right there. That's kind of a big flag then once the stock goes higher here with a dry up and volume right there showed me that it was an ABCD pattern.
Did I know it would go here to this point and stop and continue moving forward? No, I didn't. But what happened here, as you can see, it was the next leg. The volume again dried out so that again as it started to pick up right here told me to get back into the trade.
When you take a look at this from swing point to swing point right here, you get about 90 points the retracement if you do the Fibonacci sequence.
Fibonacci's not always reliable. It's a guide but you can see how that guide comes right into that 50%. Again, we had from here to here, 88 points, and then from here to here 81, 75, 79 points so fairly close and worked out well.
We're getting the next leg right so here, we have about 75 points and then next one we're already 88. We're a little stretched, and that's why I say we're a bit stretched here.
As far as stops go, I mean if you're talking about mental stops then that's personally depending on where you do it. I do it usually a little below certain swing points could be on the day as well.
In options, do you always own the stock or only when you place a naked strategy?
When you trade options, you don't need to own the stock at all. It really comes down to your option level and approval and requirements that you have within your broker but you don't need to trade. You don't need to trade the stock at all. You could just trade the option and that's what many beginners kind of don't understand when it comes to options. You don't need to own the stock at all.
It's another way to make a little bit of extra money, but I could just sell this on its own. I don't need the stock, but you need to be approved for that in an account for higher option trading requirements.
Of course, you could also do things like let's do a calendar here to show you an example by one on the January 18th shows you a little more advanced option trading strategy. This, of course, without any stock and you can see what happens day in and day out that white line current. White line is the current today line gets closer and closer to that green line and eventually with time I could get out of this anytime that option premium decays because the one in December decays fast or the one I'm selling than the one in January.
Keep in mind, and this is a positive Vega so as volatility increases this graph also grows. As you look at it, it starts to expand again a little more advanced for the question, but it gives you an idea.
It looks like that's the only level my broker will ever approve, does this greatly limit my potential investing power and option trading?
I've been approved by my broker for option trading at level 1 which allows for covered calls and long protective puts since my account is an inherited IRA. It looks like that's the only level my broker will ever approve, does this greatly limit my potential investing power and option trading? I mean is it more serious money making capability more so at the higher approval levels or is level 1 approval really all I need to be very competitive in option trading.
It's an interesting question with IRA accounts. They will limit you and you don't usually get the higher permission levels when it comes to trading options, for example like naked strategies level 4 option trading strategies. You can't even get portfolio margining when it comes to IRA accounts.
If you've never heard of portfolio margin, let me share with you what that is. Think of it like going into a bank right and taking out a loan. Most people know about margin. but most people do not know about portfolio margin.
When you go into portfolio margin and you start looking at it, how does it work well in portfolio margin, they take a smaller amount. Instead of going on and putting in $50,000 on a stock or a trade, they only margin you out a certain percentage. Instead of 50,000 on a trade, they might give it to you for 20,000. It allows you to trade almost three times as much.
Instead of going to a bank taking out a loan like you would buy a house, this is the same thing except you don't have to pay anything extra for it. The only way to get that is if you take a test. You have to take a test which I took. That test it's not too bad you get approved, you also need to have at least $125,000 in your account. There's a lot of other requirements that go with it.
Can you make more with a higher level of options?
You definitely can we live in a capitalistic world. The more money that you have, the more you can make. That's the sad part about it because for me I also always advocate that.
One of the things I would say when you go to a bank, and you want to open a safety deposit box, and you just got your first job, and you have $100. That safety deposit box is going to cost you $50 a year or $100 a year.
It's not set up to help the poor. The economy that we have is not set up to help other people. It's set up to make money.
This world, as far as economically goes, is set up for people with money. That's heartbreaking when you think about it this way because you have a guy that just got a job, he wants to open up a safety deposit box, or even a bank and you got monthly fees of $20, when he only has a hundred dollars. But you put five million dollars in there, you bet you're going to get free checking. You're going to get a free safety deposit box and you might even get a free massage with it.
They'll do a lot of things for you at those banks, the more money that you have. That's just the way the world works. It's sad, but that's the way things work.
Fortunately, people like Bill Gates, Mark Zuckerberg, they contribute quite a bit charitably financially. That's kind of the human factor. That's great around just people but unfortunately the business side of things in the market is just based on greed.
The same thing with option trading. When you look at option trading especially when you're in an IRA, you're going to make less money when you can only sell covered calls because you can't. You have to hedge. You have to do protection because when you have a stock right here what you could do and I'll show you some of the strategies that I basically can do.
This is what happens. That's the industry standard. You do limit your potential as far as making money. So level 1 always good to have a higher level.
Can you explain any complications that might arise when buying back iron condors?
I have a question about closing sold iron condors and taking profits early. Sometimes I can't buy back the Condor I sold and closed or reduce my position. It's not being able to get out of position on a tip thing. Can you explain any complications that might arise when buying back iron condors? Thinkorswim is my platform.Thanks.
Do you have a ticker symbol that you're watching or trading this we're having trouble closing?
Look at Shop. I don't think you should have a problem but let's look at the liquidity. What you want to see is the liquidity of the options and the volume.
I mean if you're looking at December 17th, the standard options not the weeklies. If you're doing the weeklies, there are usually less open interest. Those are a little tougher to close out. You have to pay a little more of a premium and you take a little bit of a hit on that because the liquidity is less.
I struggle a lot with companies like Priceline just because the open interest is minimal. You could see it doesn't trade that much, so even when you go to the standard options, the public interest is light.
When you look at Shop right here, and you're trying to trade options, if you're doing the weeklies, you're going to have some trouble maybe. You have to take a hit which means the bid-ask spread is not going to be in your favor. You have to give a little.
If you're doing the standard options, you should be okay unless you're trading like 90 contracts, which I doubt you are five contracts.
What strike price are you trading?
You shouldn't have a problem with five contracts especially if you're kind of in this range 80, 85, 90 or even 110, 105, 115. I don't think you should have a problem if you're in the weeklies on this December 8th. Here's December 15th because you said December 17th.
I'm going to say the only thing you should really watch out for is - if you're way out on your strikes and the open interest is light, then you might have some trouble, and you need to give a little bit to get fulfilled or get filled on those orders otherwise you shouldn't have a problem.
The other thing you could do is get out of it in verticals. Because if you do it in vertical, sometimes it's less for the market makers to fill all in iron Condor especially if it's moving against you or in a weird position. Sometimes doing a vertical on one side then doing another vertical on the other side, taking it off and since in legs can be just fine and you can put those in real quick together. But that, of course, depends if your capital allows you to.
How do you get approved level four for selling calls naked? Is it experience, money, or how long you've been with your broker?
Everything. I mean they take a look at everything. Experience, how long you've had that open account, they might even look at your track history, they might make you take a test. It depends. I got approved a while back and it's wonderful. You can make more money on it but you want to call in and ask them. But they're not going to give it to you right away because they take on more risk.
Because, what happens is, I mean imagine, I sell a lot of calls simply because I'm trying to hedge my other side positions. You got this risk on and if I'm selling ten of these and look at the risk you could have on here with just ten contracts. You're looking at 217,000 on the loss. That's at $320 a share but even if it gets to 130, you're at $22,000 loss just if that stock jumps to 130.
So, the losses can become extreme, and as you start trading larger, they get intense and the broker. If you don't have a lot of capital in there and you haven't been trading for a while, they're not going to give it to you because then you owe them money and they're not going to go chase after you. So they check everything.
I've not traded for many years. The last time I did, it was all done through the broker. Is there a class or book I can study how to put in trades on the different platforms available today? Thank you.
I do have a couple of things on my website on how to place a trade. I believe in something straightforward.
If you go to this section, there's a lot of things out here. What is the stock? How you make money in the market? I think this one puts in a trade in there and there might be some others in here. Step by step of placing video number nineteen at the moment. You could go ahead and look at that. I'm just constantly evolving this section.
There are some books you should read. There's a full book list practicing technical analysis. Some video courses and some brokers and things like that. I take a look at that, so that's a right section to check out.
Also, your broker can help you out with that. They'll usually be helpful to show you how to place a trade because they want you to trade.
How many stocks to swing trading portfolio of 30,000 to generate 1% to 2% return monthly?
I'm interested in swing trading which charts and timeframes to follow for entry and exits once the trend has been determined. How many stocks to swing trading portfolio of 30,000 to generate 1% to 2% return monthly?
It's not the number of stocks that will determine your return. It's either appreciation or dividends or selling call contracts or trading options that will give you that return. It comes down to your risk levels.
How many stocks? I always say if you're trading 5, 10, 20 million dollar account, you don't need more than 5. The only time you're trading more than 5 to 6 positions is if you're more of a hedge fund and you have like 3 people working for you managing those positions. In that case, you might bump that up and usually that's with a much higher account value.
Usually, for most people, three positions is all you need. 1 to 2 even. You don't need to be that diversified at the beginning unless you're anxious about things collapsing or you're buy-and-hold and set it and forget it kind of person.
The reason I say that is because diversification now is very easy. You could buy like an ETF, and it makes it very easy for you to diversify.
As far as the timeframes go for entries and exits, I always start with typically the weekly is my nice go-to timeframe because it allows me to spot opportunities faster.
Sometimes, when I scan 2 to 3 days is beautiful because it allows more things on the chart. Just the time view and time frame but the weekly is my main thing.
I'll also check the monthly to see the bigger picture. So again, monthly weekly and then the daily, if they all line up and everything's pointing in the same direction, then it's excellent. It confirms your chance of success. It makes it much higher.
Anyways, that's the way. I look at it if you want to optimize it, you're trying to get all three time frames. If you only see the daily, sometimes people get faked out with this - like Underarmour that we showed earlier. If you look at this one and look at the monthly, it's toast. If we look at the weekly, it's toast. But if you look at the daily, and let's just say we were looking at things like that, you could say well the volume is picking up stocks going higher. It's getting into the gap. It'll probably get to 25. Shouldn't I get into the stock? No, absolutely not, because we know the weekly and the monthly is weak. If you just look at the daily, obviously you'd say I'd get in but that's why you look at those timeframes.
Interested in your guidelines - on how to select candidates for selling cash secured puts.
Typically, any option trades. I'll give you my fundamental insight on just options in general.
You probably want to trade. Normally, you want to trade options when the volatility is higher. That's why I always talk about higher VIX. Higher VIX is better sell-offs are good for the market for option traders. Even selling cash secured puts or selling puts, selling calls, anything option related. What you want to do is go ahead and look for stocks - usually above $50/$70 is what you want to look for like things like shop and very nice option open interest.
Anything over 50 with a little bit higher volatility is good. So things like Microsoft may be okay because it's 84. But the other issue is the volatility. Here you can see it's 16 or so it's a little light, so the premium there is not really fantastic. So that's the other issues even with higher stocks. If they're not that volatile, the premium there is minimal. Can you do it? But you need to leverage up with more contracts and some other strategies.
When I trade in small quantity, I'm always right. When I trade big, I always fail how to fix this.
How small is small and how big is big?
If you're trading small, then you're trading big is 50. You might want to start somewhere in the middle or in between. Take it in stages. Be consistent.
The great thing about having a real account is it allows you to grow personally as fast as your account grows.
If you start at $10,000 and let's say you're trading 50 shares, then you might be able to trade 57 shares of the same stock in 59. It allows you to grow incrementally.
But if you're going from 5 shares and then 50 shares or 500 shares, that's a big leap anytime you Joe from one hurdle to the next. Think of it like weightlifting. If you're lifting up five or ten pounds and you're doing your exercise to a hundred pounds, doesn't work that way. Never works out well. So you always do it in stages and you got to grow yourself personally. A lot of it is due to emotional psychology that you psych yourself out though the risk that you have. You're not in your flow.
Here's a little flow channel for you.
If you draw this out, some of you've probably seen this in my trader transformation course. If we have skill versus your difficulty of the task, if it's too difficult and you have low skill, obviously, you're going to have anxiety. If it's the difficulty is low and you have a ton of skill, it's going to be too easy and you're going to be bored. That's why you have the flow channel. That's where you want to stay match the difficulty with your skill.
I'm doing 30 day long calls with 50 Delta and usually close out a few days later with small profits. Any suggestion for better performance what would you do?
I have 500 dollars. I have learned options for the last year. Just started real training a few months ago and I'm down 380. I'm doing 30 day long calls with 50 Delta and usually close out a few days later with small profits. Any suggestion for better performance what would you do?
Most people that are profitable trading options do not buy options. They're hugely selling options. You buy options to hedge your positions. I'll buy options on an Iron Condor.
In certain situations, let's do Tesla. It's maybe easier. I'll buy an option to hedge but you're normally selling. So if we sell an Iron Condor and just slap this on real quick.
Let's say I have this iron Condor on. Will I hedge sometimes if things are going against me? Yeah. You can hedge by buying a contract but normally I'll go like let's say to the 72 range. I might buy a single, let's say it's moving a little against me. It may make the graph look a little funky but what it does is it transforms my Iron Condor and it hedges it like that.
If the stock continued to head higher, I could hedge it for a few days like this. That's the way you would do it, as far as buying things.
Usually, when you're doing 30-day long calls, 50 Delta, you want to go wider, and that's why most people lose money on options because they're buying options and again as I mentioned earlier, it's set up to make make it difficult with the level one option requirement.
You can't do an iron Condor spread without at least a margin of two thousand.
I'm just sharing with you the reason I would be buying an option most of the time.
I mean, if you have five hundred dollars and you're trading options, you're better to take that 500 dollars invested in yourself. Books whatever and build that account up rather than blowing it on options because when you do that you're making guesses at which ones are going to explode, and they need to explode quicker because you have the theta decay anytime. You're buying an option contract like this one, and you look at this, you have an option call and right here you have a theta decay of $10 every day. Of course, you'll be losing that money in premium.
I'm still not sure how to develop my strategies. They're a set of questions I should look to answer. Thank you.
It comes down to your personal risk style and strategy. It's tough to figure it out. Sometimes, you might want to follow a few different people to get some ideas and experiment with things.
It comes down to looking in the mirror. That's the end thing.
When you look in the mirror, are honest with yourself, that's really where things will click, and come together. But it takes a long time and some people never get it because they're always looking for someone else's strategy.
My goal and purpose is to share with you different insights so that you can find your own strategy. Because the way I trade may not work for you or somebody else and so forth but what you might be able to take as a small little piece of that and use it for your benefit. To continue to explore other opportunities to create your own strategy around that.
It comes down to discovering things for yourself. Just like what exercises will work for you. What type of foods do you like? As a baby grows up, you need to discover those things.
The same thing here. You need to play with different ideas and trading lightly can help do that.
What's your take on algotrading over live market action. Are you referring to algorithmic that you place your money into algorithms or algorithms just trading in the live market?
As far as algorithmic trading to investing into these machines or robotic investors, I mean for me I don't care too much for them because they do things automatically.
For many people, it works out great because they don't have to think much about it and it's fine. If that's the way you want to trade and best, there's nothing wrong with that. It's just a different approach.
As far as the just - the general movement of the markets, the way they've been moving, I don't usually like it. I don't like computer trading because it reduces the volatility. Most of the movements these days, at least probably 30 40 percent of it, is all computer-based.
Again, it slows down the trading. It makes more difficult to trade. So you're a little less active with lower volatility because that's what they do. They buy things up or they sell things at higher prices. There's a lot of things that happen like that.
I'm training on the Robin Hood app a couple of stocks, but I don't know how to read charts as to when to get in and out. Do you have any advice or direction for me?
I completed your introduction course. I'm training on the Robin Hood app a couple of stocks, but I don't know how to read charts as to when to get in and out. Do you have any advice or direction for me?
Yeah. You could study technical analysis.
Robin Hood is not usually an excellent charting platform or an app. I talked about this in the last webinar that they typically route things through their partner platforms or partner brokers.
Anyway, if you're looking for learning how to read charts, you could pick up a book on technical analysis and start there. Or look at the getting started page that I mentioned earlier. Bring you right back to this and start right here. You could even go to here technical analysis basics. You could start right here and go to that and that'll give you a lot of education as far as that goes. So look at all these videos.
If you want it in sections, there's a training section up here, and that'll point you to the same area for technical analysis basics. I think that's the main one and then you get a full list of all those videos.
There's quite a handful of them. So by all means, enjoy, and they're all free.
You seem to use several timeframes in your chart analysis like 6-month daily and 1-month daily. How do you decide which one to use for each stock?
I mentioned this one an earlier question. I always check the monthly, the weekly, and the daily. You want them all working together. You don't just pick one timeframe for one stock, you look at all of them. You look at all things and put them all together. You don't just look at one thing, you want to see the whole picture. So that's how you decide.
Since 2013, we have never seen any significant correction. How to judge when it will come?
You really don't know. You don't know when that correction will come. Oftentimes, what I look for is any time you have a huge explosive moves to the upside for a long extended period of time. What is long really just depends on the past. That's when you'd be careful.
When everybody's happy, when you're cheery, when your neighbor is getting into the market, when you hear people at the gym talking about stocks, when you listen to it on a regular radio - that's usually the time I'm very cautious.
As you look at it, they like to pump these things up. If we start looking at these things, they are stretched, and I don't like it, but that's the market we have. That's the game that's being played.
The further it stretches, the more careful I always get. Every time people are happy, I'm always more cautious, and every time people are selling and dumping shares, that's what I'm looking for.
So, usually, you like to see open interest in the hundreds or more.
Yeah. When you're talking about options. Depending on the size that you're trading.
I like to trade very highly liquid things just because it's good for my account and the size that I trade. But you know, if you're trading one or two contracts, it's usually not an issue to trade lighter open interest. The issue is - you have that bid-ask spread. That's the problem because you lose out some money as far as favorability goes.
Anyway, higher open interest is always good. So I would always look for more open interest when possible.
What is your process for determining which stocks to trade?
I understand the stock market, but my biggest issue is picking stocks. I make a list of the potential trades nightly and seem to decide to trade the wrong ones. The ones I don't choose seem to be the ones that run. What is your process for determining which stocks to trade?
Typically, I have my list of favorites. There's not a massive amount of them. It's only 179, and usually, I will trade the same stocks over and over again.
Most of these I haven't touched. I probably touched the main ones. Things that I've posted in the critical charts of like the Amazon, Apple, Facebook, and Netflix.
I've touched a handful of other things for shorter term trades: AMD, Caterpillar for a while back now I think it's a little stretched.
You'll typically trade the same stocks over and over again. Like going to a restaurant. When you go to a restaurant, is it going to be a brand new restaurant every single time? You go out. You've probably been to the same restaurant a couple of times, and you have your favorites or places you pick up.
The same thing in stocks, you'll probably have your favorites and the ones you like trading because you know them. How they behave, react, and move - those are the ones you'll probably want to stick with.
If they're not moving, if the charts not set up, be patient. Allow them to set up and then do those.
Don't force yourself to trade stock just because you're trying to push yourself to trade that day or deciding to trade that day.
Just continue to reduce and then you're only looking at three to four stocks and then you decide that day or that week, but you know make a plan and then go for it.
That's the process simplified but usually I'd trade the same ones over and over. You get familiar with them - just like your best friend, your mother, your father. You get familiar with them and what they're going to do if you burn the carpet down or what they're going to do if you spill milk on the floor. You get familiar with them and their behavior. The same with stocks. It's just you learn and it makes it easier to predict the outcome.
Did you personally trade more stocks or options?
At the moment, especially in these market conditions, definitely more options. Just the way that we've been trading with the grinding, definitely more options right now.
I would say for sure more options. Stocks are fine. I'm just too concerned with where we are in the market, and I find options can reduce that much more.
And also, as you look at options and you get more advanced - again this is level four option strategy, you can do synthetic trades. Which if you don't know what a synthetic trade is I think I might have shared it before. I try not to share too many advanced strategies with people on YouTube or open area not because I don't think you can handle it but sometimes it'll do you a disservice and it'll scare people. I try to make things the level that you're at when we do coaching sessions. I do get into these things.
But here's a synthetic for you that starts out with a call, and then we go ahead, and we buy a single over here on a put - not that one there we go sell a put.
You can see and understand stocks, and you go, and you buy a stock. You buy a hundred shares of stock. You have your delta of 100, and this is buying a stock, and it requires much more capital.
When you look at a stock, the capital that's required to put on this trade is well quite a bit more than if I was to go ahead and buy a call at 305, and then I sell the same thing on the put side. It gives me still a delta of that hundred with a decay of only about a dollar. It's not much so even if you move up and down, it gives you an exposure of a stock. The same graph basically as you would just in options.
You can do quite a bit with options. If you know what you're doing - maybe that blows your mind, maybe it doesn't, but you need to have the appropriate risk levels in your account to be able to do that.
With a stock, it's easier to get in and out. You don't have to account for the volatility with that you do with options. There's always pros and cons with each, but at the moment just based on market conditions, I do prefer options the way they are.
Doing synthetics like this, you can make it look exactly like a stock or just about very close as you can.
Do you think it's best to trade stocks over $5?
Yeah absolutely. Typically, stocks priced anything under $10-12, they're cheap, and they're cheap for a reason. Just like you go to buy toilet paper - you go to buy something that's cheap, that usually costs a hundred dollars but you might be able to get it for $35. It's less expensive because it's less expensive for a reason.
You either sacrifice quality. You sacrifice service; you could sacrifice salesmanship, delivery could be wrong.
There's a reason that stocks are cheap and sometimes you can't find good value.
Remember, it's about the percentage of gain on the stock rather than the number of shares you can buy.
Would you recommend covered calls for a beginner? If so, what is the downside as it sounds easy to do?
Definitely. I would recommend covered calls for a beginner because it's a good starting point for options.
Let's say you have your stock of Tesla and you sell a hundred shares at 335. The biggest downside is when you have a stock, and you get the assignment, and the stock moves past it, then you have your single call which looks like this. Then you combine it. It caps your profits.
The issue is if that stock breaks past that 335, if it's three thirty-five and one pence, well you lose your stock, and then you get back in it, and you keep doing that process.
The downside is you lose your stock, and you pay maybe exercising fee of $30 or $50 or no dollars depending on your brokerage account or what rates you have. Then you get back into the stock, and you keep doing the process.
That's the downside. You still get to keep your premium low, so you always make your $960. But of course, you're putting up a lot of capital for the hundred shares of Tesla. That's the downside other than that.
There's no real major downside. You have to cover calls. You're doing it with stocks and options combined. If you had 300 shares, you could just do two shares to sell the covered calls. That kind of changes your graph and it allows you to keep an extra hundred shares. You don't really have to sell three contracts. If you have three hundred shares, you could just do two or you could even do one so then only 100 of those shares are gone if it moves against you.
Do you use news when deciding to trade a stock? I hear a lot about Ben Zynga as a source for stock trading news.
Yeah. I actually did a review on the Ben Zynga platform. It's decent platform for news. I don't use news at all to be honest with you. I don't read any news thing. I don't read really any articles as far as news goes. I don't watch TV for stock trading picks.
I do have financial channels on to see headlines just to see if there's something sudden that happened or an alert. That's probably the only thing I really use it for. I glance things over because I have another whole computer set up with another six monitors over here to my other side. I'll just quickly glance over and see if things are what's going on is. There are some issue because they'll report on it very quickly but otherwise I don't really look at the news. I don't really watch anything like that.
Even earnings reports. Nowadays, I don't also listen to them because I'm not in the earnings when those earnings reports come out. Usually, I'm getting into them after the earnings. If it's a stock which nowadays I'm trading more options and sometimes more indexes as well because just with the market the way it is.
But the point is I'm looking at the movement of the stock not necessarily what the news is. The news is just there for entertainment. They always have a bull and a bear and they have that thing to attract viewership.
It's not always useful for investing, and it clouds my judgment personally, which is what I found over the years.
I just signed up for your critical chart service, where should I start with using your videos to enhance my trading skills?
Start with the start here section, go back. I would recommend you watch all the videos there in the critical charts. If you just look through charts, it's great to just look at the critical charts. To just go ahead and learn some technical analysis skills. Not every chart is going to hit perfect and it's not always going to work out but it just gives you some train of thought to to see a different perspective.
Your opinion might be different about specific charts, and that's perfectly okay. I'm sharing you my insight. If you have a different way to analyze things and it works for you, there's nothing wrong with that.
Start putting those things together - multiple forms, multiple factors, and start thinking about it. Either get a buddy or a friend to piggyback off of you and make you feel about those things to say you're wrong here. Or start second-guessing yourself so that way you can involve yourself to that next stage.
Hey, this is Sasha. Thanks for joining me here for another investing or stock trading question by video. By the way, you can see all of these questions and answers in video format at my website tradersfly.com.
Today's question is all about a college degree, so the question is "What is the best college degree for trading stocks or being successful in the stock market?" Read More
Hey, this is Sasha Evdakov and thanks for joining me here for another video lesson about trading, investing in the stock market.
In today's video lesson what I want to do is share with you another frequently asked question, and one of the questions I get is " Is there a minimum to investing in big companies? Doesn't make it difficult for the working class to invest?" Read More
I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More
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