Closing out the Week with Two More Solid Trades

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Closing out the Week with Two More Solid Trades

Another day of trading the GBP/JPY. The EUR/USD is my standby as I’ve mentioned, but changing things up a bit from time to time (as in trading a different, but not totally different, asset) can be okay. Monotony is trading is actually a good thing to some degree in that repeating the same thing over and over again successfully helps to establish consistency. And monotony itself also helps to tame trading emotions that can prove to be so ruinous to one’s account and personal self-confidence.

1. I first had the pivot level of 170.985 targeted for call options as the market went into a downtrend to begin the morning. This level also had the 171.000 whole number going for it. I take an approach toward trading that believes in the importance of confluence when it comes to trade set-ups. That is, the more you have going in your favor in a trade the better. If a price level involves a pivot point in addition to a whole number, that will likely be a more robust support or resistance level than just the pivot point alone.

However, 170.985 never came into play and the market reversed just before the whole number. It was at 171.250 where price ran into resistance. Wicks started forming in the area and after the fourth wick at this price, I drew in a resistance level (but adjusted it a couple tenths of a pip higher on the next candle) and began considering 171.250 for put options.

The 5:25 candle formed a doji for the sixth rejection of that level in the past seven five-minute candles. When the 5:30 candle did the same and moved down from 171.250 by a few pips, I was fully confident in this level as a trade set-up. The move down on the 5:30 helped show that selling had some strength at this level. Once 171.250 was re-touched on the 5:35 candle, I got into the put option.

This trade did go against me on the 5:40 candle, closing above 171.250 and moving over three pips out of favor at one point. By I was fortunate enough to get a nice red closing candle that moved down seven pips, below my entry point, and closed out in-the-money by about four pips.

2. Following this, a level of resistance was established at 171.278 and a level of support formed below at 171.177. No pivot points were used in these determinations, of course; just the price history. It’s almost a habit in my trading to keep track of daily highs and lows and also any support or resistance of note that has recently occurred. Oftentimes I never use them, but I simply find it helpful to mark them off with lines.

Upon the re-test of 171.278, I was looking for more of a clearer rejection of that level. The market closed at the level and promptly began falling on the following candle. So no trade taken here.

3. 171.177 was tested shortly after the 171.278 trade failed to materialize according to my personal trading preferences. The 7:45 candle bounced sharply off 171.177. Obviously, this is the result that I want in order to support the notion of 171.177 holding and having a level of robustness to support a trade set-up.

When price came down to re-touch 171.177 on the 7:50 candle, I took a call option on the touch of the level for an 8AM expiry.

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This trade was five pips in favor at one point. But like any binary options trade, it’s never over until it actually is. It never went out of favor, but by the end I won by just a mere half of one pip.

This turned into an exceptional week, and one of the very few weeks during the years in which I trade all five days consecutively. Overall, I had 10/11 ITM, which of course isn’t sustainable by any means and is a statistical blip in much the same way a 5/11 ITM week might be for me. But with good set-ups, good things will happen.

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1925, in the meaning defined at sense 1

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When Day Traders Don’t Close Positions at the End of the Day

By definition, day traders only hold their investment positions for a single day. Closing out at the end of the day is important for a few reasons:

Closing out daily reduces your risk of something happening overnight.

Margin rates — the interest rates paid on money borrowed for trading — are low and in some cases zero for day traders, but the rates go up on overnight balances.

It’s good trade discipline that can keep you from making expensive mistakes.

But like all rules, the single-day rule can be broken and probably should be broken sometimes.

When day traders become swing traders

Swing trading involves holding a position for several days. Some swing traders hold overnight, while others hold for days or even months. The longer time period gives more time for a position to work out, which is especially important if the position is based on news events or if it requires taking a position contrary to the current market sentiment.

Although swing trading gives traders more options for making a profit, it carries some risks because the position can turn against you while you are away from the markets.

A tradeoff always exists between risk and return. When you take more risk, you do so in the hopes of getting a greater return. But when you look for a way to increase return, remember that you have to take on more risk to do it.

Swing trading requires paying attention to some basic fundamentals and news flow. It’s also a good choice for people who have the discipline to go to bed at night instead of waiting up and watching their position in hopes that nothing goes wrong.

Day trading becomes week trading

A position trader holds a stake in a stock or a commodity for several weeks and possibly even for months. This person is attracted to the short-term price opportunities, but he also believes that he can make more money holding the stake for a long enough period of time to see business fundamentals play out. Position trading increases the risk and the potential return because a lot more can happen over months than minutes.

Day traders also invest

An investor is not a trader. Investors do careful research and buy a stake in an asset in the hopes of building a profit over the long term. It’s not unusual for investors to hold assets for decades, although good ones sell quickly if they realize that they’ve made a mistake or if the story changes. (They want to cut their losses early, just as any good trader should.)

Investors are concerned about the prospects of the underlying business. Will it make money? Will it pay off its debts? Will it hold its value? They view short-term price fluctuations as noise rather than as profit opportunities.

Many traders pull out some of their profits to invest for the long term (or to give to someone else, such as a mutual fund manager or hedge fund, to invest). Doing so is a way of building financial security in the pursuit of longer goals. This money is usually kept separate from the trading account.

3 of This Week’s Best Trades on the Street

Two breakouts and one pullback are waiting for you in the options trading pits

With stocks continuing to skirt the stratosphere, finding lucrative opportunities is as easy as falling out of bed. Particularly for those engaged in options trading. If anything, earnings season provides more chances to discover actionable setups due to the elevated volatility.

Companies pleasing the street with their quarterly numbers are often gifted with monster overnight gains. Just look at the tech titans that rallied on Friday.

My weekend market perusal revealed two such recent earnings winners that appear poised for more upside. Today’s other selection recently broke out of a four-year base and is providing an attractive pullback setup.

Behold three of the best trades on the street.

Options Trading: Cabot Oil & Gas Corporation (COG)

Cabot Oil & Gas Corporation (NYSE: COG ) shares certainly haven’t established the cleanest trend, but an attractive breakout is looming nonetheless. As is so often the case, its recent strength was born of a solid earnings announcement that delivered a monster rally on Friday.

Heading into the event, COG stock was 11% off its recent highs as profit-takers decided to head for the hills before earnings.

It turns out their exit was premature. With last week’s surge, COG has returned to overhead resistance and looks primed to pop. The significance of the $27 level can’t be overstated. It’s kept a lid on the stock for two years now, so a break above it will spell a sea change. Those with a penchant for options trading should consider the following trade.

Buy the Jan 26 calls for around $1.80. You could pull the trigger now in anticipation of the breakout or wait for COG stock to rise above $27.30 first.

Options Trading: First Solar (FSLR)

We continue our look at quality post-earnings plays with First Solar, Inc. (NASDAQ: FSLR ). The popular solar stock scored a ridiculous breakout candle on Friday amid monster volume.

The one-day pop carried FSLR shares 20% higher by the closing bell. Aside from the fact that the rally was “ginormous,” it also completed a three-month base that had the stock digesting the gains from earlier in the year.

Traders waiting for a breakout from the base were buying with both hands and feet on Friday. While we may see some giveback in the days ahead, any and all dips are a buy here. The positive earnings momentum should continue to propel the stock higher during the coming quarter.

Due to its elevated volatility, option contracts are offering satisfying premiums for those willing to sell them. If you’re ready to bet FSLR sits above $47.50 for the next six weeks then sell the Dec $47.50 puts for 85 cents or better.

3 of the Best Trades on the Street: General Motors (GM)

General Motors Company (NYSE: GM ) rounds out today’s trio with a solid setup for options trading. The auto giant recently broke out of a four-year base amid heavy accumulation.

The groundswell in participation suggests the range departure is the real deal and the new uptrend will go the distance. And that has us interested in buying any and all dips.

And what do you know — GM stock is gapping lower this morning to provide just such an opportunity. With its implied volatility remaining elevated this strikes me as a perfect opportunity to sell puts.

If you’re willing to wager GM sits above $40 at December expiration, then sell the Dec $40 puts for 47 cents or better.

As of this writing, Tyler Craig held bullish positions in GM and FSLR. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.

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