Directional/Spreads techniques Flashcards
What is a signal day?
FIRST day that all of the lines on all four indicators are moving in the same direction with the exception of the two green lines which can be flat or going flat.
What four indicators are used?
MFC, Stochastic, MACDH, and RSI.
When are spread trades enter?
On a signal day when the trend diverges from the signal. Place above/below bollinger band (or recent high/low) or 21day moving average. Place stop when trade of stock is .20 cents above/below strike of short call/put.
What are the two situations when a directional trade is entered?
- share price is trading near the 21 day moving average.
2. Candlesticks are well above or below the 21 day moving average.
Define the directional trade when the share price is near the 21 day moving average.
- Signal day.
- When price breaks in direction of trend, place order 1% above the 21 day moving average.
- Place stop on the high or low of the previous days close (or 1% on the other side of the 21 day moving average.)
In a directional trade, when do you take half the profit.
- First day that trades against the trend. Defined as making a lower high and an lower low or vice versa.
- At chart Resistance/support (21day MA or bollinger band.
In a directional trade, when do you take the remaining profit.
When opposite signal day is flashed or resistance/support is hit again.
What is the two wave pattern.
After a buy signal day that pushes prices higher, most stocks will typically move up for a time then hesitate and move down for a few days before heading up again and finishing the uptrend and starting a new downtrend. Often times a signal day will flash in the opposite direction of your trade during this short correction after the first up or down wave. Don’t take the trade the signal day is indicating.
What are the trading tips?
- Only trade signal days.
- Trade only the first signal day.
- Four things need to be in place before taking a directional trade.
a. Price support or resistance showing on the chart.
b. A buy or sell signal day. Don’t trade without a signal day.
c. Supporting candlestick patterns.
d. Prices breaking through the 21-day moving (moving above the 21-day moving average on a buy signal or moving below the 21-day moving average on a sell signal. - Pay attention to the two wave trend moves. Don’t take a new trade during a “head fake”.
- Always use stops!
What option is used to enter a directional trade?
One two strikes in the money with at least 50 days left.
What is the ideal position size of a directional trade?
2% of account value.
What is the ideal position size of a spread trade?
10% of account value.
Define the directional trade when the share price is near one of the bollinger bands.
On the FIRST day after the signal day, enter the market when the price moves above the high or below the low of the Signal Day by .3%. Can move on SECOND day subject to all other indicators either bullish or bearish.
Place stop just above the most recent high/low.
When in doubt about the two wave pattern, what do you do?
Go back to the previous most identifiable signal day and see if the up or down move has completed at least two waves.
