The stock market is looking to close green for a third straight session. However, it still remains a traders market.
Stocks are still jumpy… and still reacting to trade news.
That said, whenever market conditions change, you need to look at your inventory and see what’s still working and what has stopped.
You see, not all strategies work in every market condition.
Now, I’ve been able to average over $1M in trading profits for four straight years… and it’s not because I take on big positions…
…it’s because I have several strategies that I can go to and make money.
There are really two ways to grow as a trader:
1.Trade more shares (or option contracts)
2.Keep your size relatively the same but increase the number of winning strategies.
As for me, I’ve chosen option number 2, and despite my success as a trader ( $6M in career trading profits before the age of 30), I’m always trying to learn new strategies and grow as a trader.
So what’s been working for me in this tough market?
Biotechs for one…
(I’m up over $10K this week in a crappy market. Gotta love biotechs! Want to start receiving my FDA Insider Alerts? I don’t blame ya. Click here to join now.)
Now, in terms of setups… one that I’m seeing work well in this market is the Fibonacci retracement trade. It’s one that I learned from Jason Bond and one I’m hearing that Nathan Bear is crushing it in.
That said, I’d like to walk you through the mechanics of the Fibonacci retracement trade, how I use the setup to trade stocks and options, as well as, show you a real money case study.
Table of Contents
Review Your Trades to Find Your Best Setups
The markets have been pretty shaky lately… one day we’re down… the next two days… we’re rallying on a potential rate cut.
When there’s so much noise in the market, I block it out and focus on what’s working for me. For example, I’m still sticking with my FDA plays
You see, I know that’s one of my best trade setups, so I’ll always take those plays. However, I know to become a better trader… you need to go back and look for other strategies or chart patterns that you might’ve missed.
Now, one thing that I do to improve as a trade is consistently review my trades and try to find a pattern in what’s been working for me.
I was going back to some of the trading plans that I sent to my clients… and I stumbled upon a gem. I realized there was one chart pattern that has worked for me in the past, that I haven’t gone over with you before…
… the Fibonacci retracement.
I’m going to explain to you what that is with a case study.
Fibonacci Retracement Case Study
If you don’t know, the Fibonacci retracement tool helps us identify support and resistance levels. In other words, it lets us know when to buy and sell.
Now, when you pair the Fibonacci retracement with strong earnings growth, an upbeat conference call, and options… it’s not too difficult to generate 50%+ winners… and sometimes, triple-digit winners.
Those are some of the things I already look for with my I.G.N.I.T.E. trading system, which you can read more about here.
With the Fibonacci retracement setup, we’re looking for a large move in the stock.
Here’s what I’m talking about.
With pretty much any charting software, you can draw the Fibonacci retracement and see these lines.
Fibonacci Retracement Works With Options
Basically, when the stock pulls back, we’re looking for it to get to a key level (38.2%, 50%, or 61.8%). With Twitter Inc. (TWTR), I was actually looking to buy it.
Well, TWTR reported earnings, and they were phenomenal. There was strong growth in their users and revenue was moving in the right direction.
I knew I wanted to get into the stock, and I noticed TWTR had bounced right off a Fibonacci retracement level right around $38…
You see, that 38.2% retracement level allowed me to identify that as support.
… and traders could come in and start buying the stock.
Here’s how I figured that, the stock failed to break below that level twice, as you can see from the chart above… also, don’t forget about the strong fundamentals.
Well, I actually wanted to be long the options…
(Think real-time options alerts could benefit your trading? If so, click here to learn more.)
Now, you might be wondering, Kyle, why didn’t you just buy stock outright?
Well, at around $40 a share… I couldn’t get as many shares as I’d like to.
With options, I have a lot of leverage, so I don’t need to lay out a lot of capital to control thousands of shares.
You see, I bought 50 contracts, that meant I controlled 5,000 shares of TWTR (1 option contract controls 100 shares). If I had bought 5,000 shares of TWTR at the time… it would’ve cost me nearly $200K…
… but with options, I only had to pay a fraction of that to express my bullish opinion on the stock.
Not only that, the returns on an options could be a lot better than stock.
For example, with this TWTR trade, I was able to lock in a 60% winner… in just a few hours (check the timestamps of the email alerts that I sent to my clients).
(50%+ returns in just a few hours are real… if you know what you’re looking for. Click here to learn how I’m able to generate profits like these)
Now, the day after I sold half of my position for a 60% winner… TWTR broke above $40 (where I thought the stock could potentially go at the time).
With just over a 2 point move in the stock… the options I had more than doubled… and I took my profits off the table.
(Triple-digit returns are possible when you trade options… if you want to receive real-time text and email alerts about trades like these, click here to get started)
The reason I’m bringing this up is the fact that the markets have been volatile, and if you’re sitting on the sidelines… or just struggling to find an edge in this market… review your trades…then you’ll be able to find out which trades work best for you.
Right now, FDA and catalyst plays have been working well for me… as well as options trading (as you can see from the TWTR trade)… so I’m going to be focused on those and letting my clients know about my best ideas.[Ed.note: Kyle Dennis runs BiotechBreakouts.com. He is an event-based trader, who prefers low-priced and small-cap biotech stocks.
Source: BiotechBreakouts.com | Original Link