Boost Your Profit Margins - Altering Your Trading Strategies To Match Market Conditions
When I first began trading back in the '90's, I was very fortunate. I had begun trading during a period when the market was headed practically straight up. My initial technique was writing covered calls which blended with a rising market in such a way that I almost never lost.
The perspective of time has allowed me to learn that no market, good or bad lasts forever. The only constant is change. Under such circumstances, I learned to 'go with the flow', adjusting my methods to complement market conditions.
Medium Term Trades
As I explained earlier, my favorite medium term strategy has long been the covered call. This strategy enabled me to manage my fiscal affairs. By setting up trades designed specifically to 'mature' on a predetermined date thirty, 60 or ninety days out into the future, it gave me cash I could count on to help overcome any slow periods of daily cash flow.
As the premium began to dry up, I found writing covered calls more and more challenging. I began to look particularly for those stocks which were volatile, that could be used to temporarily replace covered calls as my medium term technique of choice.
Stock Movement
Let's look for a stock which moves a lot. I have my Chart Navigator system supply this by quickly calculating the average daily range of stock for the last 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 to have some idea of WHICH way they're most likely to move. We further narrow this search of high volatility stock to merely those stocks which move in a somewhat predictable range, a lot like a 'channeling' stock.
Given this information, let's look for a few more characteristics. First, notice that the stock has remained close to or within this range for several months. Additionally, each 'oscillation takes about a month, moving from the top of the channel towards the bottom.
Bottom line, this stock is moving considerably, but going basically sideways. So now, let's trade this one medium term. If we can do this regularly, then perhaps we can stop worrying about the availability of covered call trades!
The Trade
Before you trade a stock, it's usually an excellent idea to know which way it's going. This is the challenge! Trade it BOTH up AND down. Those are the only two ways it's likely to go (remember the high daily movement).
We know we can't buy the stock As well as short the stock (at least not inside the same account), so why wouldn't you buy a put And a call?! In this case we might consider buying the thirty five dollar put and the thirty five dollar call. Typically referred to as a 'long straddle', the position allows us to profit no matter WHICH direction the stock moves.
Now, isn't it time to adjust your strategy to match market conditions? If you're just a little hesitant or perplexed in any way, employ the assistance of an investment professional. They can be easily located online by doing a search for: reverse mergers, company going public, or reverse merger shell. Eventually, it'll grow to be easier for you to 'go with the flow' as well.
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