Warnings Trade

Most companies that warn do so after the market is closed or prior to the opening.  On the warning we will automatically make the decision to buy Put options.  There is no decision chart for a warnings trade - the fact that a company warns IS our decision.

When the market opens the 5 minute chart will act as our action chart.

Wait for a good pullback (in this case, a rising stock) where a quality trend line can be drawn connecting at least 3 points.  Following the break in the trend line, the majority of the charting indicators must be signaling a falling price and the MACD Histogram must agree with this.  Patience is a must here, as the correct entry point may take as long as a couple of days to materialize.  Be mindful of the market calendar and any upcoming events and plan this trade accordingly.

Purchase either in-the-money puts or 1 strike price out-of-the-money puts.  If it's early in the month you can buy this month's puts, otherwise it's safer to buy next month's puts.  It is also safer to use in the money puts.

General Notes:

Warnings happen every warnings season.  Basically, a warning is a company issuing lower guidance on their upcoming earnings projections, and saying they won't beat their upcoming projections.  These projections are issued by the company... so by them saying they won't beat their own projections, that tells Wall Street one of two things: the company either sucks at what they do, or they are liars.  Either way, the stock will go down.

Be mindful of the market calendar.  If you attempt a warnings trade when the entire market is set to rise, it may not work.

OEX Trading Rules

Rules for trading the OEX are as follows:

1) Only purchase this month's options - never buy time.

2) Purchase out-of-the-money options for a multi-day play, or in-the-money options if you plan on being in and out of the trade in the same day.

3) Only purchase strike prices ending in zeroes (ex: 600, 610, 620, etc.)

4) Purchase the strike price with the most volume after the open that is one to five strikes out of the money.
As an example, since we only purchase strike prices ending in zeroes: 600, 605, 610, 615, 620 would be 5 strike prices, but we would only consider 600, 610, or 620.

5) Only use the 55 minute or 34 minute charts as the decision chart, and the 8 or 5 minute chart as your action chart.

6) Due to the charts we are using we expect to be in these plays for a matter of minutes, up to a MAXIMUM of 4 days.

There are usually two very opportune areas in each month to play the OEX:

1) The 7 trading days that include the last 4 days of one month and the first 3 trading days of the next month.

2) The 8 trading days leading into expiration Friday.  Though a play could be started on Wednesday (first day of the 8) it is generally preferred to begin plays on Monday (5 days before expiration).

General Notes:

• All plays should be closed by 1:00 PM on Expiration Friday AT THE LATEST.  After 1:00 PM noone cares about options that will expire in 3 hours.

• OEX options move in either direction very quickly - be prepared!

• There can be no "deer in the headlights" in the OEX.  If you become a deer in the headlights, you will be run over by the OEX.

Multiple Day QQQ's Play

Rules for trading the QQQ's using a multi-day time frame.

1) When the Daily Nasdaq Futures charts and the Daily QQQ chart indicate a trade, use this as your decision.

2) If using an action chart, use the 21 minute as your action chart.

3) Purchase options either 1 strike price in the money or 1 strike price out of the money.  Only buy out of the money if it's within like 10 or 20 cents of being out of the money.  In the money is ALWAYS the safer bet.

4) Purchase plenty of time, you want enough time to capture a multiple day move.

5) Enter the trade when the bid/ask spread is no more than 5 cents apart.

6) If the Daily QQQ chart is coming off the bottom bollinger band headed up, or the top bollinger band headed down, you can typically expect a large move that can be as much as $4 per share.

Steps to a Great Trade

These are the steps to a great trade based on my own individual trading rules.  I'm posting this here for personal reference.  If you read this and don't get it, it's probably because you didn't take the same classes I took :-P lol

The weekly is to ALWAYS be your trend chart UNLESS a quality trend line can't be drawn with it.  THEN AND ONLY THEN will you use the daily as your trend.  THIS INCLUDES THE SUMMER ZONE!!!!  In Summer, the daily will FREQUENTLY be our trend chart but NOT ALWAYS

 

The 233 chart is only a decision chart and can be used as one throughout the year.  The 55 is only a decision chart.  45 is occasionally a decision chart during summer.  21 is action when daily is decision (also used for intra day Q's trade).  8 minute is action chart when decision is 55 or 233.  5 and 3 minute are used for 5 minute technique, slingshot, and warning trade.  In 5-minute technique and slingshot, the 5 is both the decision & action chart.

 

Big charts = big money (duh!), peaceful trading experience, very few losses (following all the rules all the time), less opportunity but less risk for loss

 

Little charts = little money (duh!), high anxiety trading experience, dramatically increased number of losing trades, more opportunity but more risk for loss

 

Weekly, daily, and 233 are "big" and the rest are "small"

 

Daily charts for decision = the trades will usually last 3 days, sometimes going into weeks.  Fall/winter will usually be weeks, transitional will shorten up as it gets closer to summer, and summer will usually last only a day, rarely 3, and almost never a week.  It depends on what trading zone you're in.

 

233 for decision = trade lasts anywhere from half a day (tho usually at least a day and a half) and possibly turning into 10 days.  10 days is the absolute max.

 

55 for decision = trade lasts a matter of hours (anywhere from 1 to up to 24 market hours).  24 market hours is about 4 business days.  This is the MAXIMUM that they ever go, they rarely reach this

 

34 for decision = trade lasts for a few hours, less than one market day.

 

Number of candles after a cross will RARELY go more than 20.  FEW trades go the maximum length.  If you're in a trade for 20 candles or more, GET OUT!!!!

 

Steps for a great trade!

 

1) Check the trend line

 

2) Go to decision chart.  Only trade the FP or HRFP.  HRFP doesn't indicate the size of the gain, but it indicates the size of the confidence in the trade.  HRFP just works more often than FP, but they're both incredibly reliable.

 

3) When following the decision chart candle closing, switch to the action chart.  EXCEPTION: 233 chart closes 2 candles a day, one at 1:23 and one at 4:00, but we'll consider it closed at 3:50.  This is the only exception to waiting for a candle close.

 

4) The action chart will look like the move has been going on for some time, to the point where it'll look like you've missed the move.  You haven't, it's cool.  There will be approximately 3 of the 21 minute candles in an hour if the 21 is your action chart.  Your action chart may be at the top of the bollinger bands, about to turn over, etc... but it's cool!  Wait for it to back up then turn up, this is when you get into the trade.  Wait for a pullback on the action chart before trading.  A pullback is when a quality trend line can be drawn connecting at least 3 points, then having it broken, then having the majority signaling the trade (a FP or a HRFP, but on the Cd he says "Christmas cross" or "macd").

 

5) After entering a trade, you switch to the decision chart & then wait for exit criteria.  RIGHT NOW!

 

EXIT CRITERIA:

 

1) If you're in a trade and hit a 20th candle in whatever time frame you're using for your decisions, GET OUT.  You are playing with fire and WILL get burned.

2)  New Students: up a buck & out.  You have to be right with real money at least 25 consecutive times in a row before you go beyond up a buck & out.  Beyond this, you will be "happy in Seattle."  You're never going to be Bill Gates on a single trade.  You will build a fortune off being "happy in seattle" over time.

 

3) Up 100% = GET OUT!

 

If you work 8 to 5 and cannot see the stock market at all, you do not use an action chart.  You ONLY have a decision chart & an action chart.

 

If you can not see the market during the day while it's open, you can ONLY use the weekly for trend and daily for decision.  If you can only see the market maybe twice a day for 20 minutes total, then the 233 is your best bet.

 

If the 55 is your decision chart, the FIRST candle of the day closes at 10:25, so the first candle of the day closing is your decision chart.  Ignoring the fact that this is amateur hour (for this example), you'd go to your action chart & wait for the action chart to signal a trade.  Sometimes, you will see the decision at 10:25, but the action chart won't signal a trade till like 3:30.

 

Amateur hour is the first hour of the day.  This is where ignorant people have invested purely off stock "news."  Anyone who trades during the first hour will get KILLED!  At lunch time, the market sags a little if it had been rising, or it rises a little if it had been falling.  This is the market going to lunch, so to speak. The beauty of the 233 is that it balances out these 2 portions of the day - the first 233 candle of the day captures both amateur hour and the lunch time sag (or rise).  The second candle captures the rest of the day.  So the 233 candle gives you a good idea of how the stock did despite amateur hour & lunch time.

 

If you miss a stock going up, cheer it on.  Because after up comes down, and you can always watch the up and then make money on the down.  So when a sector is hot, look for it to go down, and ride the down trend for a good play.  If they're talking about a sector being hot early, get on.  If they've been talking for a while, prepare for a drop.

 

Have a basket of 10 to 12 stocks that you trade.  Included in this basket are your expert stocks.  Over time you will gravitate toward 18 to 20 stocks you trade, including your expert stocks. 

 

About the MACD

 

The MACD has a histogram on it that looks like a comb with vertical black lines.  The histogram ALWAYS is a road sign telling us a turn is possibly coming.  The histogram will ALWAYS turn before every trade, but just because it turns does NOT mean it's a trade.  Do NOT turn on that sign, wait for your indicators!  It means a trade may be coming!

 

Remember it's a sign!  The stocks will keep going in the direction they've been going for a little while.  It's like a road sign, you don't turn AT the sign, but the sign tells you the turn may be coming up.  But not every sign tells you to trade, it tells you there's a possible trade coming up.  NEVER get in on the histogram, but know a possible turn is coming.

 

If there's no FP or HRFP, can it be a trade?

 

Yes, it absolutely can.  If you research how a stock behaves over several years of its history, and can identify repeatable patterns through specific dates or events, you can trade without the HRFP or FP.

 

If your charts matches your history & research, you trade boldly there.  If the charts do not match the history & research, you either trade the chart with caution or you don't trade at all.  Just because history dictates something, it does not mean you should trade.  A stock may have a history of doing something the past 10 years, but this year may be different!

 

Studying stock history

 

Different stocks hold at the different average lines in different ways... and they hold in different ways at different times of the year.  That's why you research!

 

Explaining the trading zones

 

In the summer time there's no volume.  This is because everyone's on vacation (ie: less trading).  As a result the market is generally flat in the summer time.  When do people come back from vacation?  After labor day.  After labor day is when the market generally starts rising again.

QQQ Intraday Rules

Posting some rules for trading the QQQ intraday that I will follow myself.

1) Use the 21 minute chart as the decision chart

2) Use the 1 minute chart as the action chart

3) Use the Nasdaq 55 minute futures chart as the trend chart

4) Purchase options either 1 strike price in the money or 1 strike price out of the money.  Only buy out of the money if it's within like 10 or 20 cents of being out of the money.

5) Buy options that expire this month only.

6) Enter the trade when the bid/ask spread is no more than 5 cents apart.

7) Place a GTC sell order 15 to 20 cents higher IMMEDIATELY after the trade has been entered.  In the example given, the 15 cents higher was enough to make a 25% profit so a 25% profit may be a more accurate goal.