The Daily Market Forecast... a better credit spread

Monday’s Blog Results: Price moved plenty, but the levels were wide apart. No trades were triggered for the Volume Profile. strategy. Team Members took up the slack trading oil, gold & S&P using Volatility Reversal and credit spreads on the SPXW using Volume Profile.

Today’s Trading Tip: Better credit spreads.

Same-day expiration credit spreads are extremely popular trades for income generation. As in all trading there are many ways to find edge.

If you’re not familiar with the trade here’s a brief explanation: You select a price level on the chart that you believe price will NOT touch today. For the Bear Call spread that level would be way above current price. For the Bull Put spread that level would be way below current price.

The trade is entered by selling a call/put for a credit and buying a protective call/put for a debit. You will net the difference. Your maximum risk on the trade is the difference between the strikes less what you were...

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The Daily Market Forecast... your "risk number"

Friday’s Blog Results: You CRUSHED it! While the suggested long level stopped out, the suggested short level ran a WHOPPING 81.75 points to the next level where Team Members could buy the 4494.25 level and catch the bounce of 42 points to the close.

Today’s Trading Tip: The danger of losing too little.

Proper risk management is critical to your success as a trader. There are many aspects to this topic and AFTER you read this blog you should watch a recording of a class I did a while back called 7 Top Risk Management Rules.

This blog is about a new rule I’m adding to the class.

A popular formula for determining your risk on any given trade is the Fixed Percentage rule. You pick a percentage, usually 2% or less, and that is the most you can risk per trade of your trading account. It works great because as you increase your account your risk can larger giving you the opportunity for greater reward. Conversely, if you’re in a drawdown you will be risking less.


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The Daily Market Forecast... ART of exits

Thursday’s Blog Results: The high-volume price levels were far apart and neither were triggered. Team Members saw several opportunities trading our Volatility Reversal strategy which netted a modest winning day.

Today’s Trading Tip: The ART of exits.

The great debate among traders is whether to use “lagging” technical indicators or simply trade real-time price action. This debate is a waste of time. Dozens of different methods of trading can be profitable. If you doubt this statement you need to read any of Jack Schwager’s “Market Wizards” books.

In each book he interviews top traders from around the world. Dozens of them. What you’ll find is that almost every trader has a different take on how to trade. Some use technical indicators successfully. Others focus on algorithms. Still others use fundamentals and macroeconomics. Some are systems traders. Others are discretionary. The list of differences between them is long.

What they ALL...

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The Daily Market Forecast... entry edge.

Wednesday’s Blog Results: You did well! The suggested long level ran 18 points on the first touch and 18.25 on the second (see chart). Team Members saw the breakout afterward that ran for 24.25 points to the next volume level (see chart).

Today’s Trading Tip: Entry “edge.”  

The chart above has a few good trading tips. The strategy followed is called Volume Profile. Signals for entry both long and short, reversal and breakout, come from high volume price levels.

The entry rules are simple (follow on the chart):

  1. Reversal: Always enter at the first or “inside” line of the price level. Price reverses from within 1 point of that entry 31% of the time. If you’re waiting for a late entry to minimize risk you’re missing plenty of winning trades. Either accept the risk or lower your position size.
  2. Reversal: The second touch worked fine. Notice that price went deeper into the level. Second touches are fine but less effective. After a...
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The Daily Market Forecast... real good reversals

Tuesday’s Blog Results: You did well! The suggested long level ran 17.25 points to the next level. Team Members saw the breakdown just prior which also ran for 17.25 points (see chart).

Today’s Trading Tip: Real good reversals.

Yesterday was about finding your style. Trading trends and finding reversals were used as examples.

You might be thinking that trading the trend sounds safer than picking a turning point. Not necessarily. Your initial priority is making sure your rule set has “edge,” meaning over time it’s profitable. After you find that the idea of “safe” becomes irrelevant. Just trade the strategy that appeals to you psychologically.

Finding high quality reversals is easier than you may think. There are many clues on a price chart where the impulse will turn into a correction. Here’s one you should study to get comfortable with trading reversals. After all, confidence in your strategy is paramount and the smart way to get...

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The Daily Market Forecast... trend or reversal?

Monday’s Results: The suggested short level stopped for a loss of 4.75 (per contract). Team members saw a smooth breakout south at the open run for 25+ points (see chart).

Today’s Trading Tip: Find your style.

There are many winning strategies. You need to trade only those that resonate with your personality. Otherwise, your confidence and performance will wane.

Here’s an example comparing two very popular styles of trading. Trend Following versus Reversal Trading. Regardless of the tools/indicators you use to enter and exit your trades…

  1. Trend Following will generally result in many small losing trades and fewer larger winning trades. The net result might look like this: 30% winning trades of $500 and 70% losing trades of $100 = $80 per trade profit.
  2. Reversal Trading will likely result in more winning trades that are somewhat larger than the losing trades. The net result might look like this: 60% winning trades of $200 and 40% losing trades of $100 = $80...
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The Daily Market Forecast... Trader or CEO?

Wednesday’s Blog Results: The suggested long level failed in both the Globex and Day session for a 4.25-point loss (per contract). Team members saw an afternoon breakout good for 17.75-points at the close (see chart).

Today’s Trading Tip: Think like a CEO.

You should manage your trading like a business. Even if you’re employed, think of it as a side business. You’re unlikely to have employees and that means you need to wear different “hats” to be successful. You’re the CEO, CFO, and Trader.

The CEO creates the vision then ensures it becomes a reality. She is the author of the trading plan, documentation and review processes. She is not mired in day-to-day performance. Her focus is on long term growth and goal attainment. Spend some time developing a written vision statement and goals (within your trade plan). Read them frequently when you’re wearing your CEO “hat” and especially when you’re facing performance...

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The Daily Market Forecast... confidence

New feature: Daily S&P turning points

Tuesday’s Free Edition Results: You bought the bottom! The suggested long at 4650.75 was good for 37.25 at the close of the session.

Today’s Lesson: Confidence is key.

Let’s use the chart above to learn about confidence.

Context: Most world markets were bearish, ours is selling off fast for the past 60 minutes. Down 45+ points from the session-opening rally. You’re supposed to BUY. The old saying “don’t try to catch a falling knife” is repeating in your head. You lack confidence and you’re fearful of a loss so you “pass” on the trade.

Outcome: The strategy picked the bottom and ran for a healthy gain. Only 1.50 points of adverse move.

The Fix: You need to understand WHY a strategy has edge. It’s not enough to listen to a successful trader tell you THIS is the way it works. Until you OWN the confidence in the rules you won’t follow them.

Evidence: You can own confidence...

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The Daily Market Forecast... Hat Trick

New feature: Daily S&P turning points

Monday’s Results: The suggested long 4700.50 was good for up to 28.50 points during the day session (after soaring 40 points in the Globex). The suggested short on the breakout below 4693.25 was good for 12 points at the close... 6 minutes later.

Today’s Lesson: Range, Tick & Volume charts.

Time-based candles are used most often and are sufficient for swing and position trading. When day trading, you can benefit from monitoring multiple chart types… range, tick and volume bars. Why? They frequently display a different “picture” of what price is doing. This information that is “hidden” in a time-based chart can be very helpful for honing your entries and exits.

The suggested short yesterday required price to trade below 4793.25 and then retrace back to that price for the short entry. The chart above is a 2-point range chart, meaning price paints a new candle after 2 points of movement. It’s...

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The Daily Market Forecast... stocks long term

Today’s Lesson: Stocks… long term.

One great feature of the futures, options and FX markets is the leverage. You can start with a modest account relative to stock trading. You get better capital utilization. More bang for your buck.

It’s hard to NOT trade stocks, though. The selection is second to none. The returns over time can be incredible. The 10-year returns for NFLX +2100%, AMZN +1930%, MSFT +1112%, the list goes on. The capital efficiency is not great though. You can do better with options.

I’m surprised by how many people I talk to don’t realize that you can buy options on stocks with long term expiration dates. One year, 18 months, two years. They’re called LEAPS (Long-Term Equity Anticipation Securities). You’ll give up the dividend benefit (if any) but you’ll get great leverage and capital utilization.

Here's an example. My long-term viewpoint on Ford Motors is bullish. Their commitment to the Electric Vehicle space, solid...

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