Increase Your Profit Margins - Adjust Your Trading Strategies To Match Market Conditions
When I first began trading back during the '90's, I was very fortunate. I had started trading during a period when the market was headed practically straight up. My first strategy was writing covered calls which blended with a rising market in such a way that I practically never lost.
The perspective of time has allowed me to discover that no market, good or bad lasts forever. The only real constant is change. Under such circumstances, I learned to 'go with the flow', adjusting my strategies to match market conditions.
Medium Term Trades
As I explained earlier, my favored medium term strategy has long been the covered call. This technique enabled me to manage my fiscal affairs. By setting up trades created specifically to 'mature' on a predetermined date thirty, 60 or 90 days out into the future, it gave me cash I could count on to help eliminate any slow periods of daily cash flow.
When the premium began to dry up, I found writing covered calls increasingly more challenging. I began to look particularly for those stocks which were volatile, which could be employed to temporarily replace covered calls as my medium term strategy of choice.
Stock Movement
Let's look for a stock which moves frequently. 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 then look only at the stocks which have at least a dollar and fifty cents or more movement every day.
You have to have some concept of WHICH way they're most likely to move. We additionally narrow this search of high volatility stock to merely those stocks which move in a somewhat predictable range, much like a 'channeling' stock.
Given these facts, let's look for a few more characteristics. For starters, notice that the stock has remained close to or within this range for a number of months. Additionally, each 'oscillation takes upto a month, moving from the top of the channel towards the bottom.
Bottom line, this stock is moving considerably, but going basically sideways. Now, let's trade this one medium term. If we can do that regularly, then maybe we can stop worrying regarding the availability of covered call trades!
The Trade
Before you trade a stock, it is usually an excellent idea to know which way it's going. That's the challenge! Trade it BOTH up AND down. These are the only two ways it's likely to go (keep in mind the high daily movement).
We know we can't purchase the stock As well as short the stock (at least not inside the same account), so why not buy a put And a call?! In this case we might think about buying the thirty five dollar put as well as the thirty five dollar call. Typically referred to as a 'long straddle', the position permits 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 a little hesitant or perplexed in any way, employ the help of an investment professional. They can be quickly located online by doing a search for: reverse mergers, company going public, or reverse merger shell. At some point, it'll grow to be easier for you to 'go with the flow' as well.
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