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I have been an avid student of the markets for almost 17 years now and every year I see aspiring traders come into the market to seek fame and fortune but end up broke and embittered. Why is this is so? This new century presents more tools for success (real-time data feed, instant news reports, expert opinion by the greatest financial minds in the world, neural networks, trading systems, etc.) yet traders tend to struggle more now than when I started out. Successful stock option trading doesn't come packaged in newly made CDs or computer hard-drives but comes from the disciplined implementation of effective trading methods. In my own trading style I use several trading techniques including one which helps me spot trend reversals in a stock. If I see a stock that has been range bound but remaining near it's all time highs while the rest of the general market has been selling off for several days and declining in price then I'll make note of it and continue to watch it. After the general market bottoms and the stock begins to come off the bottom of it's price range and approach moving past it's old highs I"ll take a position to ride the new momentum to higher heights with stock options or a stock position. If a stock is strong enough to resist a market sell-off then it has the potential to reverse course when the general market recovers and starts a new rally. Using a pullback method, I first make a list of stocks that are both strong fundamentally and technically which to me suggests that they have the potential to move higher or the opposite for short candidates. I'll use a variety of stock option strategies to trade them but for long candidates the stocks must be above there 200 day simple moving average or 200 day SMA and must also have a Relative Strength (RS) of 90 or higher. I also watch to see if there price range has been range bound for at least 2 months in a flat price base pattern. If the stock moves up and out of that price base I will then watch its relation to it's 10 and 20 day SMA. Once price pulls back evenly to its 10 day SMA without violating its 20 day SMA(which acts as a stop for a position once entered) I wait for price to trade over the high of the previous day's price high to enter. This allows me to trade high-flying stocks at the beginning of a big rally with stock options while controlling my risk with an adjustable stop in place (the 20 day SMA). Seasonal patterns in the general market help me determine which strategy to use at different times of the year. Many funds will begin to run the market up starting around September in order to improve there funds year end returns. This gives me the potential to make huge gains with stock option trading and taking positions in the strongest momentum stocks all the way into the end of December. It also shows me that the market tends to cool off and sell down near the beginning of the year so I know to sell my longs and look for short candidates to use with put option trades. Gap explosions in either direction are also very powerful moves to take advantage of with a combination of call or put option strategies. A gap explosion is where a given stock is trending in a given direction or is range bound but then suddenly the stock gaps significantly higher than the previous day's closing price in the opposite direction. You can measure the reaction by using a variety of indicators like moving averages, price channels, or my preferred method which is to use Bollinger Bands. When using this method you can catch incredible moves as you are getting in on the beginning of a new trend. I have made incredible gains on Goldman Sachs, Apple Computer, Chicago Mercantile Exchange, and others using a combination of stock investing and option trading with this trading technique. Having been in the trading game for a long time I have observed much of new advances being promoted in this new century of trading to both aspiring and veteran traders alike and I have come to believe that it does more harm than good. New trading systems, the latest indicators, neural networks, esoteric trading secrets, etc. do not guarantee trading profits nor trading success. Having a strong sense of the markets and stock option trading combined with the disciplined implementation of effective trading techniques will do more to produce successful trading results and consistent profits than the latest fads in the marketplace.
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