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Increase Your Profits - Adjust Your Trading Techniques To Match Market Conditions
When I initially began trading back during the '90's, I was extremely fortunate. I had started trading at a time when the market was headed almost straight up. My primary technique was writing covered calls which blended with a rising market in such a way that I almost never lost.
The perspective of time allowed me to understand that no market, good or bad lasts forever. The one constant is change. Under such conditions, I learned to 'roll with the flow', adjusting my techniques to complement market conditions.
Medium Term Trades
As I explained earlier, my favorite medium term technique has long been the covered call. This technique enabled me to manage my fiscal affairs. By setting up trades created specifically to 'mature' at a predetermined date 30, sixty or ninety days out into the future, it gave me cash I could count on to help overcome any slow periods of day-to-day cash flow.
While the premium began to dry up, I found writing covered calls a lot more difficult. I began to look specifically for those stocks which had been volatile, that could be used to temporarily take the place of covered calls as my medium term strategy of choice.
Stock Movement
Let's look for a stock which moves frequently. I have my Chart Navigator system provide this by automatically calculating the average daily range of stock for the past month or so. I will take a look only at the stocks which have at least a dollar and fifty cents or more movement each day.
You have got to have some concept of WHICH way they're most likely to move. We also narrow this search of high volatility stock to only those stocks which move within a somewhat predictable range, very much like a 'channeling' stock.
Given this information, let's look for a few more characteristics. First, notice that the stock has stayed close to or within this range for quite a few months. Additionally, each 'oscillation takes upto a month, moving from the top of the channel to the bottom.
Bottom line, this stock is moving a lot, but going basically sideways. Next, let's trade this one medium term. If we can do this regularly, then perhaps we can stop being concerned regarding the availability of covered call trades!
The Trade
Before you trade a stock, it is generally a good idea to know which way it is going. This is the challenge! Trade it BOTH up AND down. Those are the only two ways it is likely to go (bear in mind the high daily movement).
We know we can't acquire the stock And short the stock (at least not in the exact same account), so why wouldn't you buy a put And a call?! In this case we might consider acquiring the thirty five dollar put along with the thirty five dollar call. Typically referred to as a 'long straddle', the position enables us to profit no matter WHICH way the stock moves.
Now, are you ready to adjust your technique to match market conditions? If you're just a little hesitant or perplexed in any way, employ the assistance of an investment professional. They may be conveniently located online by doing a search for: reverse mergers, company going public, or reverse merger shell. At some point, it will become easier for you to 'go with the flow' too.
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