Following Trends — April 28 Trade Log
Yesterday’s trading session was cut early due to a STOP order placed on the limit we had set, at -2.5% below the price at which the contract was bought, we had to learn by the hard way that this was too short of a STOP for something as volatile as options. The team and I discussed and we agreed that for future trades we would rely solely on indicators, mostly on the MA Crossover, to buy and sell contracts. We also made the following observations.
For the mean while, our day trades are limited, we can only properly day trade twice a week and when we do so we can only buy and sell once for the day, so if by any reason the indicators we follow give a false signal and we buy the contract we will be forced to sell in order to cut losses and that would be it for the day, no other tries. When we trade using a short term graph with 1 min. candles for example we get a lot of signals as seen in the graph below, some which may turn into high yielding trades but most of them won’t.
For a trader that can place many trades in the same day, this is not a problem, he can enter and exit positions as he likes, hopefully profiting even from the slightest movement, for traders like us that have a limited amount of trades we can’t afford to do this. We need a stronger signal, some indicators can help us make this decision, but by simply changing the chart’s time frame, even on a single day, can make this decision easier, as we can see below.
Just by using 3 min. candles instead of 1 min. we get less signals, making it less exhausting to place trades, also, the longer the time period in which the indicators give a buy or sell signal the stronger or the more consistent the trend will be. In the first graph there are many signals, most of them have low returns, instead, by following the smoother 3 min. graph, the arrows indicate a major change in the days trend that will for sure translate into greater returns.
Knowing this, we were excited to place trades paying attention to the long term trends but on even longer periods. Intel caught our attention for a trade like this, before the market dip, it was close to reaching $70.
From the March lows the stock began appreciating in a consistent upward trend which hasn’t stopped, our trustworthy indicator hasn’t signaled any change in direction. We bought a Jan 21 2022 85 CALL at $2.62. Our plan is to leave it there and let it run, if we see any quick appreciation we will lock in profits or in any case if there is a significant depreciation or a sell signal from the indicators we will follow the plan and sell to cut losses, at the end of the day, we are still trying to find the most profitable strategy to grow our account.
This was not the end of the day, after market close and some further discussion we agreed to place another trade, we could not execute it at the moment but the order was placed and it will transmit on the next market open because of the Pattern Day Trading regulations. We placed the order for a June 19 2020 SPY 292 CALL at $8.50, we will be up early ready to place other bids on this contract and try to get a better price for the contract.
We are feeling confident with this trade, in my case even more confident than the Intel contract, there is a clear ascending pattern on the ETF, the indicators are on our favor and the EMA’s have a good distance between each other, meaning that they are not likely to change trend.
Something important to note as well and another important observation we made was the profitability of long trades in comparison to short trades. Apart from the February plunge, since hitting the March lows and beginning an upward trend the long trades have yielded a lot more than the short trades. Swimming with the current is a lot more profitable at the time, the trades run longer and allow for greater appreciation in the assets we have been following lately (AMD, INTC and SPY ), so for these swing trades or long holding positions we are focusing on CALLS. Day trades are another story, we follow the intraday trend and buy whatever seems to be the day’s direction.
