Author: Chris Hood
Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.
I’ve been saying for months, September and October are tough for traders.
However, market pullbacks and corrections don’t last forever. Eventually, the market finds a bottom and starts the run back up.
How do I know this?
It’s happened every year since the beginning of the stock market.
Up, back, then up again.
So rather than throwing in the towel and missing the end-of-year rally, you should be positioning yourself to make as much money as possible.
So how will you know when it happens?
My subscribers and I use a set of proprietary technical signals to help us interpret key stock and index charts. Obviously, I can’t give you all that here, but let me help you devise a strategy.
My trading relies heavily on the daily 21 and 34-period estimated moving averages (EMA).
When the price is trading below the 34, I no longer consider the stock in an uptrend, avoiding any bullish trades.
No long calls, bull call spreads, and especially no bull put spreads.
Of course, I could make some bullish day trades, but for any position I intend to hold for a few days to a few weeks, this is a non-negotiable level.
The market and sector ETFs, the 34-EMA, can act as either support or resistance. Uptrending stocks that fall to that level have a high likelihood of bouncing. This makes a great ‘buy the dip’ entry.
When we’re in a downtrend, I’m looking for the price to fight its way back above that level and hold.
On its way back up, the first critical level is the 21 EMA. A couple of daily closes above this level are essential. Of course, this also needs to be backed up by bullish signals on my indicators.
This is a simple system that has been highly profitable for me over the past 20 years.
When we’re looking for a market rebound, it’s critical to understand that no significant recovery will happen without big tech.
Sectors like industrials (XLI), utilities (XLU), and financials (XLF) just don’t have the power to carry the market.
We need the big companies involved.
Heavily weighted companies like GOOGL, FB, and MSFT are ones to watch closely.
As these recapture their uptrends, we can have much more confidence a rally is underway. So never forget about your watchlist.
To maximize your profits on the rebound, you need to get in just as it begins.
There’s a tendency for recovery trends to gap and go.
If you miss out on the initial move, you’ll end up chasing the trade when call premiums have already spiked.
At best, you’ll be making a fraction of what you should have, and at worst, you get in just as everyone else is taking profits from an overextended run.
While it might not matter as much when you’re trading stocks, a sharp pullback will slaughter long option positions.
So pay careful attention, and let’s catch this bounce at just the right time.
If you want to do it with me, all you need to do is join our growing cadre of AlphaHunters!
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