Options Trading – Focus on Trading Process

by | Jan 14, 2019 | Bishop's Corner

The stock market is looking to shake off a rocky open, after China released weaker-than-expected trade data. Now, I wasn’t waiting for the data to come out before getting bearish… I was positioned from Friday.

No, I don’t have a crystal ball to forecast Chinese trade data, and I couldn’t care less about it actually. I care more about when stocks are telling me things are about to go lower.

You see, the most money is made when you can anticipate the trend before it happens. Of course, I don’t have a crystal ball… so I settle for the next best thing… I look for my money pattern and take action. 

It has the uncanny ability to spot trends right as they develop…

Allowing for some pretty obscene returns in such a period of time.

Think I’m joking?

I’m not… but I am laughing all the way to the bank again today:

You see, while most traders were scrambling to find stocks to short this morning… I was peeling off positions and locking in gains.

That said, it’s Monday and we’re just getting started.

Citigroup was the first stock to kick-off earnings season. It beat on EPS, but missed on revenue. The stock dropped after the headline numbers were released. However, it recovered during the earnings conference call, and is now trading higher.

As I mentioned to you yesterday, I don’t trade earnings events because it’s too much of a wild card. Instead, I like to wait for proven setups, boiling it down to a number’s game. 

For example, this Amazon trade I put on Friday, wasn’t me throwing darts at a board. It was well thought out.

Options Trading – Using Patterns

If you’re still wondering how the “money pattern” lets me know when to buy puts or calls, allow me to show you.

Check out this hourly chart on Amazon.com Inc. (AMZN).

If you notice there are four encircled areas. These are examples of signals that would’ve let you know where to buy puts or calls. Over the past few months, we’ve seen the money pattern work time and time again.

Notice the most recent pattern?

When the blue line (shorter-term simple moving average, or SMA) crosses above the red line (longer-term SMA), it signals a stock or exchange-traded fund (ETF) could run higher. On the other hand, when the blue line crosses below the red line, it lets me know the stock could reverse its current uptrend… and potentially pull back to the green line.

Pretty simple, right?

Well, it takes a little more than just looking at these patterns. It’ll require some intuition about the markets. But don’t let that discourage you. I teach all this stuff and more in Weekly Money Multiplier (WMM). 

Now, even before I anticipated a fall in AMZN, I was honed in on the overall market.

You see, I noticed SPDR S&P 500 ETF (SPY) had a textbook “topping” process, indicating the market could be headed for a turn.

If you look at the hourly chart on SPY, you’ll notice it tried to break above the $259 area (the red horizontal line)… but no cigar there.

Right now, it looks like the blue line (the 13-hourly SMA) could cross below the red line (30-hourly SMA). What’s that tell us? The market could head lower.

Well, what happens if you’re anticipating a market pullback? Stocks like AMZN, Apple Inc. (AAPL), Microsoft (MSFT), and many other correlated stocks could be dragged down with the market.

You see, even the market was powering through and catching a bid the last few weeks, it was having a hard time at those levels. Consequently, I started building short positions early last week in anticipation of a pullback.

Well, I got what I asked for. The market gapped down today, and I was locking in profits, while others were scrambling, trying to figure out what to do. Well, had they got the memo about the upcoming catalysts this week, they might not have been so confused this morning… Take note, I send an email to Weekly Money Multiplier members every weekend, outlining exactly what I’m watching for.

Now, combining these factors together, I meticulously entered into put options in stocks like AMZN.

Keep in mind, we’re talking about technicals here… and there is no guarantee it will work 100% of the time. However, I still have confidence in my patterns, and trade with stops – which helps to minimize my overall risk.

I need you to stay with me this week because I’m expecting some fireworks. There are so many catalysts that can grab headlines: earnings, brexit, trade wars, the gov’t shutdown… and a whole lot more.

If you want to unveil the curtain of profits – join me here.

To your success!

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Jeff Bishop

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