Finding the right signals will give me all the confidence in the world, and simultaneously, it will define my risk before I enter a trade.
I always look for signs that the market may collapse, but also signs that it may recover. Having an open mind is what helps improve returns and prevent major biases that hurts risk management.
Last week I started looking at TLT, for example. This week, I’m still looking TLT. I want to see a move back above the 20-Day Moving Average to signal a potential for a trade there:
It’s just not quite getting there. But today, I’m looking at that move in TLT as a signal for a potential reversal in the market that could cause a bounce, particularly in tech. The reason behind this is that I’m seeing another defined risk trade that is often an early indicator of a tech move, and that’s in semiconductors. Looking at SMH, we can see why:
The risk is well-defined here by the 200-Day Moving Average in red. So, I can see a low risk entry with a potential for a leveraged return with options. And that’s a potentially great omen for tech, so let’s look at QQQ:
QQQ is performing a bit better than semiconductors and has a bit more risk since it’s further from the 200-Day Moving Average, but the last few days certainly make it look like we’ve found a level that investors are interested in tech stocks, and that’s potentially exciting.
Of course, for me personally, I’ll now take that input and apply it to my research on many individual names in the tech space. I’ll then look for names to add to my Outlier Watch List that can perform strongly in a bullish market environment, figure out how best to leverage those trades with options, define my risk, and look for some really interesting trading strategies. If you want to learn more, make sure you sign up for my Outlier Watch List now!
As always, please go to http://optionhotline.com to review how I traditionally apply technical signals, volatility analysis, and probability analysis to my options trades. As always, if you have any questions, never hesitate to reach out.
Keith Harwood
Keith@optionhotline.com
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