Option Millionaires

[Nolerman]

Posted this earlier....just making sure you see it.

CHARTING and TRADING

By: Nolerman (and his friend Macallan 18)



This is my first shot at trying to put together years of trial and error, failed chart patterns, successful indicators, useless “confirmations” and eventual success, into one cohesive and naturally flowing, SHORT editorial. That said, bear with me here. I’ll try to cover everything. I should start by saying that these are charting techniques that I have put together in a way that works for me, with my objectives, my timelines, my comfort levels and my level of risk aversion. These may not line up with your particular makeup…adjust accordingly. By nature, I am a trader at heart. I love to swing trades, play leaps, create spreads (both debit and credit), short otpions (my favorite bear market technique) and more than anything in the world….I am a day trader. This implies that I will execute several trades in a day that hit 30% profit or more, roll the balance to the next trade, and compound profits into the end of the day.



FOR THE PURPOSES OF THIS PRESENTATION I WILL AVOID DAY TRADE SETUPS. Lets face it, trading stocks is hard, trading options is harder, trading weekly options is considered taboo and day trading weekly options is considered by many to be a “lottery.” To keep confusion to a minimum, consider this a road map to swing trading. There are rules, my rules, but rules that I follow. Develop your own, and stick to them. The hardest thing to learn is now how or what to trade, but WHEN TO TRADE. I am fairly confident that of the options I swing or go long (NOT DAY TRADES as I trade ITM, ATM or very slightly OTM) only about 10% AT BEST ever actually go In-The-Money. If you can take your cost off the table do it, and if you have a nice profit on the runner leg and price begins to stall or invalidate a pattern, lock in total profits and look for the next play. This goes twice as much for weekly options.



NOW ON TO CHARTING:



For the purposes of this presentation, you need to know the basics. Rather than assume you do, I’ll provide links for descriptions of the indicators for you to read on your own.



MACD:

http://www.investopedia.com/terms/m/macd.asp?o=40186&l=dir&qsrc=999&qo=investopediaSiteSearch&ap=investopedia.com

RSI: http://www.investopedia.com/terms/r/rsi.asp?o=40186&l=dir&qsrc=999&qo=investopediaSiteSearch

Slow Stochastic: http://www.investopedia.com/ask/answers/05/062405.asp?o=40186&l=dir&qsrc=999&qo=investopediaSiteSearch&ap=investopedia.com

Bollinger Bands:

http://www.investopedia.com/terms/b/bollingerbands.asp

Volume By Price Band: http://www.investopedia.com/terms/p/pricebyvolume.asp?o=40186&l=dir&qsrc=999&qo=investopediaSiteSearch&ap=investopedia.com

Pivot Points:

http://www.investopedia.com/articles/technical/04/041404.asp?o=40186&l=dir&qsrc=999&qo=investopediaSiteSearch&ap=investopedia.com

Ichimoku Cloud:

http://www.investopedia.com/walkthrough/forex/advanced/level7/ichimoku-cloud.aspx?o=40186&l=dir&qsrc=999&qo=investopediaSiteSearch&ap=investopedia.com

SMA (Simple Moving Average):

http://www.investopedia.com/terms/s/sma.asp?o=40186&l=dir&qsrc=999&qo=investopediaSiteSearch&ap=investopedia.com

EMA (Exponential Moving Average):

http://www.investopedia.com/terms/e/ema.asp?o=40186&l=dir&qsrc=999&qo=investopediaSiteSearch&ap=investopedia.com

TICK:

http://www.investopedia.com/terms/t/tickindex.asp?o=40186&l=dir&qsrc=999&qo=investopediaSiteSearch&ap=investopedia.com

TRIN:

http://www.investopedia.com/terms/a/arms.asp?o=40186&l=dir&qsrc=999&qo=investopediaSiteSearch&ap=investopedia.com

NYMO:

http://www.investopedia.com/terms/m/mcclellanoscillator.asp?o=40186&l=dir&qsrc=1&qo=serpSearchTopBox&ap=investopedia.com

CPCE:

http://www.investopedia.com/articles/optioninvestor/02/052102.asp?o=40186&l=dir&qsrc=999&qo=investopediaSiteSearch&ap=investopedia.com

TTM_Squeeze:

https://tlc.thinkorswim.com/center/charting/studies/studies-library/T-U/TTM-Squeeze.html



My method involves 2 specific charting plans using TOS for my active trading/charting/trend line system, and Stockcharts.com for a hard chart reference. I’ll dive into these more in a minute.

I also actively follow unusual option scanners to see where active resistance, support, and quick trades may be developing throughout the trading day/week/month.

For the purposes of this demonstration, I’ll use my trade in WYNN today as an example to show why I traded when I did, what would have made me sell, why I sold ½ when I did, and where my target is for complete exit.









BASIC Formula for considering a trade on StockCharts.com and “STALKING” it the following day on TOS.



~10EMA/30SMA/STO/MACD/BB/VBP/Ichimoku Cloud



1. Bollinger Bands have pinched and are beginning to expand (Ignore the Keltner Channels for now, as they are incorporated into the TTM_Squeeze feature which will be covered in the TOS chart).

2. Volume is expanding and the price action enters the Kirby (area of relative low volume price points denoted by the VBP bands, above a large band and extending to the next major band). This is a virtual volume vacuum where price can move quickly.

3. The 10EMA is above the 30SMA and price surfaces above both

4. MACD has emerged above the zero line

5. Stochastic is turning back up.

6. Price is above the Red line of the Ichimoku Cloud at least, but ideally above the cloud in total. This step is not a necessity, however it adds an additional confirmation and acts as extra resistanc/support



Once a trade is triggered and you execute, mind the 10EMA. All dips should bounce here and continue up if trend is to remain strong. If the 10EMA breaks, next up will be the 30SMA. I usually sell on a break of the 10EMA and look for confirmation to rebuy on a bounce off the 30. Also, Pivot Points should be plotted to market areas in which you should be taking some or all of you profits off the table, depending on several factors such as time left in the option being played and your personal profit target, which should be set before entering the trade. Notice I took ½ profit at the R1 area marked on the chart below. My next target is ~$104.20.



I also like to plot a Fibonacci Retrace chart on the most recent move in order to see if price is holding the 38.2 fib on pullbacks. There are entirely too many patterns involved with Fib patterns to get into with this short write-up and I could easily talk for an entire day on the subject. For this technique, lets just keep it simple.



Here is the chart I was looking at before taking the trade today. Notice that there were several other opportunities to possibly trade this last week, however the volume never had the energy to push the price into the Kirby. I did notice several days of price coming down and testing the 10 EMA and the BB were expanding nicely. Once I saw the overall market strength today and price retesting yesterdays pivot and bouncing, I took the trade. Had price invalidated by going below the days low I would have sold and reevaluated until the pattern confirmed. Notice the rising trend line…this move is going to go for a while so long as the overall market remains in the uptrend.



Which brings up my next point. DRAW. Every morning, pull up all the setups that have a potential to trigger and draw. Draw trend lines. And keep drawing until a picture presents itself. It will happen, and it will hit you like a ton of bricks, and the light bulb will go off. Arts and crafts pays off…I guarantee it.



Once the basic chart tells me I may have a good trade candidate, I add it to the next days trade list and begin drawing on TOS. Once these trend lines are drawn, you will see on the following chart that I use them to trade against. I include TTM_Squeeze, which is triggered by a BB compression to within the Keltner Channels, followed by an explosive expansion out of the channels. I couple this with balance of power, which essentially says who’s winning the battle today in this particular stock, bulls/bears. You can see the moment it triggered my trade today. I was a little early, and price retested the daily pivot (red line) and began to bounce, as well as bouncing off the 10 min Ichimoku cloud. I tripled my position and lowered my cost average, and off she went. A break of the Red base of the cloud and the pivot point would have triggered an exit.

Trigger:



And subsequent follow-through:





Finally, and this one may give everyone a headache, but if you take the time to absorb what each window represents, you will see why I have confidence once I enter the trades. This is my trading screen. See the definitions I gave at the beginning of this write-up to interpret what each means….but in the simplest of terms: THE 4 SCREENS TO THE RIGHT TELL ME INTRADAY BREADTH AND WHERE THE MARKET IS HEADING.

If the stock we are trading is above its pivot, above it’s 10EMA, above the cloud, it’s RSI, MACD and STO are all in bullish territory, but the price is stagnant….so I look to the 4 screens on the right and they say that 3:1 the market is buying……I don’t care how long price stays where it is because I’m fairly sure it’s going to break up in a big way.



I understand that this is a lot, and like I said you can take some, all or none of it and incorporate it into your own system so that you can own it and create a system that lets you trade with confidence. Bottom line though, if you don’t get AT LEAST 3 of the confirming triggers to fire, sit on it and watch for another trade. As long as the basics remain lined up (10EMA/30SMA/STO/MACD/BB), you will have time to enter it at a later time/day.



Note: If the market turns and bear rules take effect, simply flip ever rule and they work equally as well in the inverse.



I hope this helps, and at the very least it can make some of the charts I post with squiggly lines everywhere make more sense. Good luck and feel free to question trades I make in the future.



- Nole