Active-Trader - Into the Black

Welcome back Active Traders and Wealth Builders.
This past Friday my E*Trade accounts finally came into the black for 2014.

Recall we had a solid 2013 but then stocks sold off hard on the first day of the year, and for most of the month of January.   Most of this past week gains can be attributed to Facebook which is my largest individual stock position and a monster trend in the making.

Unfortunately, my TradeStation account is still down for the year but staging a recovery.  The above gains are paltry considering the performance of my mentor John F Carter.  Having just completed my first full year as a member of Simpler Option,  I have learned much from my association with Mr Carter, and it well worth the $147 per month.

Here is a quick summary of the key points:

1) Don't expect anything from the market.

Coming into trading with a mindset like "I need to make $1000 a day trading" is totally wrong.  Instead, wait for the market to show its hand before taking any action.   A great JC quote which sums it up is "Don't anticipate, participate."   If you take your time picking trades properly from Tuesday-Thursday, you will most likely get paid on Friday.  See #3 below for more on that.

2) Don't trade all the time.

JC has no problem sitting and watching the markets all day and if he doesn't see any setups, he doesn't take any trades.  It sounds simple enough, but he trades only when he sees a setup in the making.

I read a great quote in my first every edition of thinkMoney (magazine from Thinkorswim):

Day-trading is like owning a Bed & Breakfast.  Most people do it until they run out of money.

3) Most trading takes place between Tuesday and Friday.

Most positions are opened late in the day on Tuesday, Wednesday and Thursday when JC is live in the room.  Friday is mostly for closing out positions opened the prior 3 days or preferably letting them expire worthless. Every Friday is payday in the world of weekly options and you want to be on the receiving end of the transaction.

This one took me a while to finally sink in.  Most of the time, stocks that have great looking charts on Fridays give you a much better entry point between Tuesday and Thursday of the following week.

4) Sell Premium

If you are bullish sell put spreads,  If you are bearish sell call spreads.  If you are really bullish or bearish, use the proceeds from selling the spreads to finance directional positions.

5) Sell Premium at +1 and +2 Standard deviations.  JC does this by treating the Market Maker Move at 1 SD and just multiplies by 2 for the 2 SD.  He will be happy to take in 50 cents on a 5-dollar spread.  That's right, he's making $50 with a max loss of $450!  Terrible Risk to Reward ratio, but highly likely to pay out.

I haven't brought myself to do this yet, but this past week I sold puts in NFLX for 0.80 credit for a 5 dollar spread and it worked out okay.

6) Size properly.

JC has no problem risking 5% of his account on a position that he has some conviction in.  I'm still sizing too small for my account size, but i'm slowly starting to make my way out of 1-lot syndrome.

Also, it was my first full week of trading with 100% awareness if the Voodoo levels. Remember in last week's post I said next resistance in PCLN was the treeline at $1261 a full 65 points away?  Well PCLN did that move and then some! Next targets in PCLN are the snow lines at 1300 and then 1322.  And above that you can see the 423% of the original wave 1 move which would be the top of wave 5 at 1361.

Facebook (FB) also responded well to the Voodoo levels as shown in the graphic above left.  We have a few snow lines to get through at 68 and change and 69.37 with the next tree-line up at $71.60.

Voodoo has changed by whole perspective on price action and i'm never going to look at a chart the same way again.  Using Voodoo I had profitable trades in PCLN and FB.

As for next week, GOOG looks very interesting.  We close above the psychologically strong $1200 price level and for this week, we have resistance at 1210 and support at 1192.  The next major upside target is 1240.

You can position for a move to the 1240 level by buying an in the money call debit spread such as the 1200/1230 call debit spread for as close as you can to a 1x1 risk reward ratio.  For example, you would pay no more than $1500 for the spread (which is your max loss) for a maximum profit of $1500 if it goes fully in the money in your favor.

And thus are my predictions for the future, use them to your benefit and have a great week ahead.