I’m always renewed in my interest for options trading and generally understanding the market. I just finished readhing “The Talent Code” by Daniel Coyle, a must read for any teachers or coaches and anyone seeking improvement at any skill. AFter reading a series of studies done on chess players, I realized that market wathcing, stock and optinos trading are much like playing chess…it’s all pattern recognition. We each have (or should have) a set of “rules” that define when we get in and when we get out of a trade.
The technical chart patterns are nothing more than just that…a pattern. I reasoned that the better I can get at recognizing patterns, the better trader I will become.
So i’m going back to basics, chapter 1, the beginning. What direction is the market moving? In simplest terms one can look at the daily indexing average or a moving average over x number of days. Does the line go up or down? Probably the simplest pattern to recognize.
Taking it one step further…look at the volume trading for the day. How does it compare to the day before? How does it compare to the volume average? AGain…a very easy pattern to recognize.
Now we combine these two simplest patterns…market direction or variance from yesterday and market volume to give us a matrix of options. Is the market accumulating or distributing? Accumulation with rising prices is a good sign of a either strong bull market or of a market follow through indicating market bottom. Distribution with falling prices is a sign of market top or a bear market.
I’m going to be following these most basic market indicators by studying day by day charts of the three major indexes, the NASDAQ, the S&P and the NYSE. I’m going to become a master at pattern recognition.
Suzanne @ October 6, 2011
setups, Watch List
WLT, Walter Energy, has been on my watch list for about a year now. It’s technical chart shows a steadily rising 30 day MA, with a small pullback last week. Then it continued to climb and just closed above it’s 7 day MA. I like the look of the chart, so it’s time to check the fundamentals and see what the experts say.
Company Profile: Walter Energy Inc (WLT)
Company Description: PRODUCES HARD COKING COAL AND STEAM COAL FROM UNDERGROUND MINES FOR USE BY THE STEEL AND UTILITY INDUSTRIES.
Investools basically gives this company and it’s industry group the thumbs up. If I had a little more time to research, this might even be a good buy & hold stock. The financials are sound and the industry group (COAL) is solidly held by the big investors rating a 99% this week.
Investors Business Daily gives it a smart select rating of 99, EPS rating of 98, and RS rating 95. The group rating gets an A+. Other leaders in its industry group include AHGP, ARLP, ICO and BTU…all companies worthy of further research for purchasing of equity or options.
this looks like a solid BUY to me, so let’s check the options available:
Underlying Price: $130.27
Risk: $10 on underlying
March 135 Call
Option Risk (Risk * Delta) = $4.60
% Account Value 14%
March 140 Call
Option Risk (Risk * Delta) = $3.80
% Account Value 11%
Both of these are high risk trades due to the small size of my account. If we go out one further, let’s see how the risk improves:
March 145 Call
Option Risk (Risk * Delta) = $3.00
% Account Value 9%
That at least brings the risk down below 10%. Keep in mind that I would likely sell before hitting that price, but I want to keep my maximum risk in mind.
I ended up putting in a bid for 100 shares of the March 145 call option at $4.10. I’m willing to pay an extra $5.00 (.05 x 100 shares) to have a better chance of getting the option when the market opens. Ideally I’d wait till after market open and see what direction we’re going, but I’ have to work at 6am, so I’ll miss out. I’ll check back in after 9AM and see how its going.
Suzanne @ February 1, 2011
Well, I don’t know if I was lucky or good, but VPRT continued higher today. I liked the stop loss strategy I employed… I added a sell stop just below support like I explaned the other day, but I also added a trailing stop at 2 points. At this point, the trailing stop loss is even higher than the support level I picked out, so I’m fairly well assured a profit with this.
As of close, my option was up 60% in just 1 week, and my total account value up 6%.
Suzanne @ February 1, 2011