TC + Stocks/Options

November 12, 2012

Stocks and Options Trading Using Trade Charting

Background:

I have used my Trade Charting system for the directional trading of Stocks and Options and with good success. I use the same template for trading Stocks and Options as I do for trading Forex. I assess stocks and indices on my ‘Profit Source’ trading platform. This is available from Hubb Financial. I will provide some snap shots and insight into what I do and how I apply TC to trading these instruments.

Trading Methods:

  • Directional Trading: LONG:  I like to to see TC ‘LONG’ signals trigger with a trend line breakout  when selecting stocks for the following strategies.
  1. I will sometimes do this by purchasing the stock outright. More so for stocks under $30.
  2. For more expensive stocks, my preference is to trade the stocks using Options. I will sometime buy a CALL option as this give a similar gain on any increase in stock price but for a much lower initial outlay.
  3. My preference though is to SELL a PUT option on the stock. This is like selling insurance on the stock or buying stocks at a discount. I receive a premium for stating the price I will happily buy the stock. This will be at a lower level than the current stock price. AMD is a current candidate for this type of trading:
  4. I also do OTM Covered Calls at times, or Buy-Writes as they are sometime referred to. My preference is to use this type of trading instrument when my preferred stocks are either ranging or trending up. I will also sell OTM Calls when I have been assigned a stock through Put selling.

 

 

 

  • Directional Trading: SHORT: I like to to see TC ‘SHORT’ signals trigger with a trend line breakout when selecting stocks for the following strategies.
  1. I will trade down-trends in the market at times as well. I will do this by purchasing Put options. Best Buy was a candidate for Put purchase that I noted a few sessions ago. The TC signal to ‘SHORT’ came with the added confluence of a trend line break as well:

 

It is not my intention to try teach people about Stocks and Options trading within this forum. This is a huge discipline and one that would be best covered by interested traders elsewhere. My purpose here is to simply show you how I use my TC system to capture price movement in the trading of Stocks or their Options.

Daily Routine:

Essentially, I update my stocks ‘Profit Source’ software at the end of each trading day. I trade mostly US stocks so, for me, that is at about 9 or 10 am Sydney time. I then scroll through the charts and assess each stock and determine whether a TC signal has been generated. This process takes only a few minutes each day. I will then place a forward order on my Interactive Brokers (IB) trading platform to either buy the stock, buy a CALL or sell/buy a PUT option (with at least 3 months to expiry and a suitable ‘delta’ value: another book here too!). This is not very labour, or time, intensive at all which is another reason why this type of trading has huge appeal for me.