Playing Both Directions for Better Trades
Below is a MRR and PLR article in category Finance -> subcategory Other.
Mastering Both Directions for Profitable Trades
Summary:
Starting my trading journey in the '90s was a stroke of luck, coinciding with a booming market. Writing covered calls integrated well with rising stocks, making profits almost effortless during those times.
Keywords:
trading strategies, investing, finance, profitable trades
Article Body:
My introduction to trading in the '90s was fortunate, coinciding with a soaring market. My initial strategy of writing covered calls meshed perfectly with the upward trend, resulting in consistent profits. It was relatively simple: buy a stock at $9, sell a $10 call for $1.50, and enjoy the returns as the stock price rose.
Reflecting on those days, I realize how lucky I was. Success wasn't solely due to skill; the market was favorable. With time and experience, I learned that markets are ever-changing, and adaptability is crucial for sustained success.
Navigating Changing Markets
One of my main challenges has been adapting strategies to suit shifting market conditions. What works during a bull market might not be effective when the trend reverses. While numerous resources cover various strategies, I'd like to highlight an approach we use in the AfterHours Trading Lab.
In the evenings, I collaborate with fellow traders to plan trades for the following morning. The AfterHours Lab targets both medium-term (30-90 days) and long-term (over 90 days) trades. These provide stability for daily cash flow and contribute to long-term financial growth. Let's delve into medium-term trading strategies.
Medium-Term Trading Strategies
Previously, my go-to medium-term strategy was writing covered calls. This allowed me to schedule trades maturing in 30, 60, or 90 days, offering predictable cash flow. However, as premium dried up, finding suitable stocks became challenging. I began focusing on volatile, yet somewhat predictable stocks as alternatives. Here’s what I've learned.
Identifying Stock Movement
Finding stocks with significant movement is key. Using my Chart Navigator, I identify stocks with an average daily range (ADR) of at least $1.50. In our trading labs, we naturally eliminate stocks with minor fluctuations. But identifying volatile stocks is only the first step?"you must also predict their direction.
We narrow our search to high-volatility stocks moving within a predictable range, much like a "channeling" stock. For example, consider a stock trading between $32 and $42, consistently oscillating with an average daily movement of $2.40. This stock exhibits significant movement yet remains effectively sideways. By trading this stock in the medium term, we minimize reliance on covered call trades.
Executing the Trade
Predicting a stock’s direction presents a challenge. Without insider information or flawless analysis, it’s largely speculative. Acknowledging this uncertainty, we choose to capitalize on movement in either direction. Given a stock with high daily fluctuation, it’s unlikely to remain at the same price. Thus, trading both upward and downward movements is crucial.
Though buying and shorting a stock in the same account isn't feasible, purchasing both a put and a call is an option. This strategy, known as a "long straddle," allows for profit regardless of the stock’s direction, by discarding the losing side once movement becomes clear. This method reduces the guesswork historically associated with trading.
The Catch
If the straddle strategy is so effective, why isn’t it universally adopted? The answer lies in trade management, a topic I'll cover in our next newsletter. If you believe our daily trading labs could enhance your trading skills, feel free to contact us at 1-800-743-0360.
Make it a great day!
Bob with Better Trades
You can find the original non-AI version of this article here: Playing Both Directions for Better Trades.
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