Archive for month: April, 2022

Chris Vermeulen of The Technical Traders talks with David Lin, anchor for Kitco News, about the recent price action of gold and the stock market. Looking at the daily charts of Gold, we can see gold has this big run-up when the news of war initially hit. Next, we saw gold pullback and sell-off. Since then, gold has stabilized and has flirted with both the resistance area of $2000 and the support area of $1890 indicating that it’s been trying to build a base and recover. The quarterly chart of gold remains very bullish.

Overall, we are in a bearish or distribution phase in the stock markets. Though some sectors are doing well, most stocks are going down creating a major divergence. We are in this phase where the market doesn’t know what it wants to do. The S&P 500 is below the 50-day moving average and crossing down below the 200-day moving average which is not a great sign. It is in this phase that the stock market is excellent at shaking people out. As panic rises, people get spooked, sell their positions, and the downtrend continues.

With all of this going on, The Technical Traders is in a full cash position. After an upside run of over a year, the long-term investment strategy, based on technical indicators, moved to cash about 6-7 weeks ago. The short-term swing trading strategy followed suit and closed out six winning trades in mid-April. Should we flip into a bear market, we will look into inverse ETFs to profit from the fall.

TO LEARN MORE ABOUT GOLD PRICE ACTION -WATCH THE VIDEO

TO EXPLORE THE strategies in the Total ETF Portfolio, PLEASE VISIT US AT The technical traders. You have MORE TO GAIN THAN TO LOSE WHEN SEEKING INFORMATION!

Disclaimer: None of this material is meant to be construed as investment advice. It is for education and entertainment purposes only. The video is accurate as of the posting date but may not be accurate in the future.

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Introduction: 00:00           
Welcome to the Technical Traders Podcast, the show that brings you technically proven strategies and trade ideas from experts around the world. We’re going to help you make more money with less risk so that you can take your trading to the next level. Now here’s your home host Jim Goddard.

Jim Goddard: 00:43           
My guest is Mike Swanson, editor of WallStreetWindow.com. Mike, welcome to the Technical Traders Podcast.

Mike Swanson: 00:50           
Oh, it’s great to talk with you. Thanks for having me on the show today.

Jim Goddard: 00:53          
Mike, can you tell us just a little bit about WallStreetWindow.com?

Mike Swanson: 00:59           
Yeah, sure. It’s a financial website. And typically, if you go to it, you’ll see a couple of blog posts. They’re not all written by me, but the real heart of it is the email list. There’s a subscribe button at the top, and every morning before the opening, I’ll send out an email with a link to my market thoughts and then also links to the top news stories of the day that I believe people need to know about if they want to watch their investments or trade the stock market. And I’ve been doing it for over 20 years now and trading and investing for well over 30. I’m starting to lose count.

Jim Goddard: 01:43           
How did you get started in trading or investing?

Mike Swanson: 01:47           
Well, I was a college student in graduate school for History, and I wasn’t sure if I wanted to continue in that as a career. And I just started this was in the late nineties when internet stocks were really hot, and there was an internet bubble, and everything was going up. I started to trade the internet stocks with $15,000 that I inherited actually. I didn’t know what I was doing and turned that into 60 and thought, I’ve to get out of college, and well, I’ll try to just trade for a year. And then I lost most of that money. It turned in about 15,000. From then, I had to learn what I was doing if I was going to keep doing it. I ran that up to about a hundred in 1999. So it was an interesting time, to say the least.

Jim Goddard: 02:48           
Is there anybody you really admire or influenced you to become involved in the financial markets?

Mike Swanson: 02:55           
Well, I would say that the experience I had starting out were I lost, you know, running up to 60 on just, I would say just luck and then over 12 months or so turned that 60 into 15,000. At that time, I knew I needed to learn what I was about how to do this. There was a book called market wizard by Jack Schwager, and I think it was written in the eighties, but it profiled several hedge fund managers and just winning traders investors that were famous at the time. I recall Jim Rogers was one of the people in there, and they all told a story that I was just living through. Where they started out, they got lucky, and then they lost most of their money or all of it. And they had to take it seriously and figure out a way to win.

Mike Swanson: 04:02           
So that was really a message I needed to hear. And I would say the number one thing that inspired me to take this seriously and eventually do well at it, but actually a good documentary right now, I’d recommend people watch on HBO. I think it’s called Icon. But it’s about Carl Icon and profiles him. And interestingly enough, he tells a similar story in there where he started trying to trade in the early 1960s and wiped out and said; I’ve got to have an edge. I just can’t be doing everyone else is doing, you know, and he developed one for himself. And it’s not so much that there’s one certain thing you have to learn or one technique or secret or something. It’s more that you just have to take it seriously and realize it does take effort and work, and you have to develop some sort of strategy that works for you. And that’s going to take, you know, reading books about different investment techniques and getting a blend of it all and then figuring out what is going to fit for you. And that might change over the years. So when I started early, I was really a day trader, and now I’m more of an investor who tries to hold positions for several years if the market will let me do it.

Jim Goddard: 05:42           
So what is your trading philosophy? What set of principles, beliefs, or experiences drive your decisions?

Mike Swanson: 05:49           
Well, I’ll go quickly back to the books that really inspire me because they’ll help me answer your question. But there is one by someone named Stan Weinstein, Secrets to Profiting in Bull and Bear Market. The One up on Wall Street by Peter Lynch. How to make money in stocks by William O’Neill and the Stan Weinstein book it’s probably the best book about charting and technical analysis I’ve ever read. And again, it’s written in the eighties, and you can get it on Amazon, but it’s out of print. But I’d recommend people buy these three books. And what it really focused on was the trend in the market. You know, you’re in a bull market or a bear market. And if you’re in a bear market, you can short stocks, and bet against them. If you’re in a bull market, you obviously want to go along. But he shows in this book the best times to buy. And he actually lays out a strategy of when to buy that he thinks is the best.

Mike Swanson: 07:05           
So learning all that was really useful to me. And then the, William O’Neil book, he was the founder of Investor’s Business daily. And in his book, “How to make money in stocks,” he says that there are three things that determine that, you know, drive a stock higher. One is the individual characteristics of the stock, its fundamentals, does it have earnings growth. What’s the chart on the stock. And he also talks a little bit about charts, and then the stock market, you know, what’s the overall market condition. But then he has a third factor: the sector that the stock is in. And, you know, he claims in the book, and I believe it from my own experience, that he analyzed thousands and thousands of historical stock prices. And the number one determining factor of whether the stock goes up or down is what the stocks and its group are doing in its sector. So that, combined with the Stein Weinstein thing, that’s the primary way I figure out what I want to buy. It’s; what’s the chart of the stock and the sector, and what’s the sector doing relative to the stock market. So the stocks that tend to go up the most are the stocks that lead their sector, and that sector is outperforming the stock market.

Mike Swanson: 08:50           
So as we’re speaking right now, gold stocks in 2022 in the first three months are among the top sectors of the market. So, energy stocks, if you look at gold stocks, Nuance is one of the top-performing stocks in the entire S&P 500 because it’s in that sector. Whereas a lot of stocks in the S&P 500 are down year to date at the moment. And Exxon is one of the top-performing stocks in the Dow 30, and, no coincidence, it’s in the energy sector. So to me, that’s the key, what is really closely following what the sectors are doing, and that’s something really hammered home in that William O’Neil book. So I think that that’s probably one of the most important things I really believe in.

Jim Goddard: 09:49           
What’s your favorite type of analysis or indicator you find helps you with your trades or investments?

Mike Swanson: 09:57           
The road is a strength indicator – what that is doing is dividing the price of a stock or fund with another stock or fund. So the way I use it to divide, I’ll just talk about the gold stocks. The GDX is a gold-stock ETF. You take GDX divided by SPY, it’ll create a ratio, a number, and you plot that out. And what that does is it will show you how GDX is performing relative to the S&P 500; which price is going up more than the other, not going down as much as the other. So that helps me visualize how a sector is performing relative to the stock market. And after that, this is a simple 200-day moving average. I would say it is the most important price indicator.

Mike Swanson: 11:06           
And, you know, if something is in a bull market, it will trade above the two-day moving average. And that will act as price support on a long-term basis. And typically, the stock market, when it’s in a bull market, will touch that two moving average once or twice a year, giving you a good buy point for the broad market. But if you’re in a bear market, what’ll happen is prices will go below that. And then you’ll get bear market rallies up to that two-day moving average where things stall out, and that can last for months. After 2000, it lasted for about two and a half years. In 2007, it was close to two years. Right now, you know, we’re in a situation where the NASDAQ fell below that several months ago. So did the Russell 2000 and rallied into it and stalled out. So it says a lot about what the market really is. And you know, at the moment, this would all suggest the statistics with something like gold stocks, energy stocks, and avoid most of the NASDAQ a hundred. So all this can tell you where’s the best way to make money or where should I be investing. Or if the gold stocks eventually go below that through moving average, then I would want to get out of possibly.

Jim Goddard: 12:46           
What’s something you wish you would’ve known before you started trading and investing

Mike Swanson: 12:52           
Well, one of the biggest things I had to learn, and it took me the longest to learn, is to really hone down a money management strategy. And I knew I always needed that. I actually always suspected that if you just had a good money management strategy and were flipping coins, you might be able to make money on your trade, but there really isn’t any mapped out in a single book. In fact, I don’t know about one book that is about just the money management strategy, and it’s the topic that’s least interesting to people that could be why it’s more exciting to think about what you can buy and have it go up. But, the very first thing I ever heard about it just starting out was like, oh, if you can just risk $3 on a trade for every dollar, you’ll just make a killing, but that’s easier said than done. I mean, to find opportunities, we’re going to triple your money; that’s pretty hard to do on a consistent basis, much less on a short-term basis.

Mike Swanson: 14:18           
So when I started, the main way I tried to manage risk was through using stop-loss orders on my position. And typically, I would put it right on the low or right below the low of the previous months. Some might advocate, oh, put it on a certain moving average. And if it goes below that, you can use that as a risk loss point and then figure out, okay, where would that potential loss be, how big would it be? And use that to define how much you’re willing to lose. And that’s sort of more or less what I did for several years. But around 2014, I learned of another strategy, which is what I do now. And that’s just a rebalanced position on a periodic basis.

Mike Swanson: 15:27           
So those investors even, you know, they’ll say have 50% of their money in stocks and 50% in bonds. I wouldn’t do this now, but historically it had been a good strategy to do this, to rebalance a 50/50 bond stock account because when the stocks would go down, usually bonds would go up, and then you could rebalance it. And that would be a way to manage risk and boost returns by, in effect, selling something when it goes up, buying something when it goes down. But what I do is apply that to not investing like half the money in stocks, half the money bonds, but in a mix of sectors and different asset classes. So the problem is today, the bond market is really in a bear market, and bonds themselves don’t pay, as which is the rate of inflation. So they’re very difficult to use as a safety portion of a portfolio. So I have to do that with, say, gold or silver in a mix of different asset classes and be more, a little bit tactical, a part of my account, flexible meaning. So I think what I’m saying may sound complicated, but it just amounts to figuring out how you’re allocated and try to be in a mix of different things and just rebalance them periodically.

Jim Goddard: 17:14           
We’ll have more with my Swanson right after this.

TheTechnicalTraders.com: 17:17           
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Jim Goddard: 17:43           
Welcome back. I am speaking with Mike Swanson. Mike, do you think inflation is spiking, and how will we know when inflation is actually topping out? And are there any indicators or signals that we should be watching for?

Mike Swanson: 17:57           
Yeah, as we’re spiking, I don’t think it’s peaking at all. And I believe inflation is driven by rising commodity prices. I mean, they have the CPI index that, you know, factors in rent and energy and all the different things in it, various consumer items, but energy’s a big component of it. And energy is obviously, is what dominates the commodity market. The energy market is, I think, close to 50% of the commodity research bureau index. So when commodities go up, I think that’s what really causes inflation. Now, why they go up, that’s a whole other topic, but just to make it simple, commodity prices are continuing to go up.

Mike Swanson: 18:58           
We just saw the CPI come out at 8.5% a few days ago. And they’re people that are saying, you know, it’s peaking, it’s peaking. And just in the days after that report, a lot of commodities made new highs. So I see no evidence that it’s really peeking out. And the big problem is that the price of oil in most commodities in general really made secular loads. In 2020, they had been in bear markets that were going on for years and made major bottoms. And then by the bear market, I mean, they were trading below their two-day moving average per year. Especially things like food, corn, and wheat, they were below their two-day moving average for almost ten years, some of them 12 years.

Mike Swanson: 19:59           
And then, in 2020, there was a final low when oil prices even went negative in the futures market for a few days; that was a secular bot. And then, within weeks, all these different commodities were above their two-day moving average. So what that says to me is that event was the start of a secular bull market, and secular cycles tend to last a decade. So I think this inflation thing is going to go on and continue for quite some time. And if you want to compare it to the past, if it’s like we’re in 1972, if you want to think about the 1970s as being an inflationary decade.

Jim Goddard: 20:52           
Oh, time to get out the bell-bottoms and the tie-dyed t-shirts.

Mike Swanson: 20:57           
That would mean more fun than going into the metaverse.

Jim Goddard: 21:02           
Growth stocks and sectors of 2020 had a terrible 2021 but have been starting to bounce back recently is a recent move up a time to buy more or sell the laggards.

Mike Swanson: 21:14           
Well, I think one should sell the lagging positions. That’s how I navigate the markets. If there’s a sector and stocks in it that are lagging and people have hundreds, I think you want to sell the bounces or even short them. So, you know, stocks like Facebook, for example, they might be things actually short, and a lot of these things aren’t even growth stocks anymore. I mean, they’re not growing their Facebook, at least, and I don’t have a position on it, just using it as an example. It fell over 20% in one day. In January, when it came out and said that its earnings were shrinking because of the growth and peak of usage of Facebook, the website, they said, we’re going to make a shift to this metaverse and spend all this money to try to develop that.

Jim Goddard: 22:19           
What sector or asset do you think would hold up well if we enter into a bear market in 2021/22?

Mike Swanson: 22:27           
Well, I would say gold and silver at this point because even though I’m bullish on commodities and I do own energy stocks, I do think that at some point, there will be a recession, and likely some sort of pullback in commodities doesn’t mean the end of a bull market. I mean, they can just pull back to the two-day moving average, and they’ve been going up so much that that would feel like a big correction for people if it were to have. And at some point, it will, but gold and silver, they tend to trade together. That’s why I mentioned both of them. Still, I think at this point, if these stocks have been trading opposite to the stock market for the past couple of months, so actually, if a stock market pullback would help them, it would draw more money into them. And a pullback in the stock market in a recession would make the Fed have to say, well, we’re going to slow down on the rate hike. And that would just throw even more buying fuel for gold and silver. 

Jim Goddard: 23:56           
What’s the best advice you ever received?

Mike Swanson: 24:01           
I would just say, take trading and investing seriously, that it’s easy when you start out just to get all excited about a stock pick or an idea. So I would say, like, Bitcoin is an idea, and crypto is an idea, and there’s a lot of people now that’s being excited about them. But I was excited about internet stocks in 1998, 99. You know, they were supposed to change the entire world. And they did have a huge impact that obviously changed our lives; we all use it all the time. But a lot of these stocks were just junk, and they went under, the companies went bankrupt, and so forth. And I know, in that cycle, many people bought into a lot of these stocks and just rode them on down to nothing and then got out of the market forever. They just gave up, and people thought, well, I can’t make money in this, but the problem was they didn’t have any sort of strategy at all. So that’s the advice. You got to have a strategy. You can’t just get excited about something and just, you know, buy it, and that’s it. You have to be on top of what’s going on, and it takes work. It’s not like you’re just going to the casino and playing a slot machine or something.

Jim Goddard: 25:42           
Mike, is there a financial or business practice topic you’re really passionate about?

Mike Swanson: 25:52           
Well, I’ve been doing this for so long that it’s hard to say, you know, and I’ve started businesses too or been involved in businesses. So it’s different when you first start out. I do think you can be more excited, and you’re in a learning-type mode. And you still have to learn different things as the years go by. I had a friend of mine, still a good friend, who told me that when it comes to business, it takes like five years to figure it all out and to really know totally what you’re doing. And that was my experience too, with businesses I started, with trading, you know, it took a couple of years, perhaps it took longer than that. When I first started trading, I remember hearing people say, well, it takes like a year. It took me a year to figure out I needed a strategy. And then it took me perhaps 14 years to really have a money management technique. So I’m kind of passionate about sharing my views, what I’ve learned, and trying to help people in that way, and more so than when I started out, it’s like a brand-new thing. So I guess that’s how I feel about it now.

Jim Goddard: 27:29           
Mike, thank you so much for being on the Technical Traders Podcast.

Mike Swanson: 27:33           
Thank you. Great to talk with you.

Jim Goddard: 27:35           
Our guest has been Mike Swanson, editor of WallStreetWindow.com. I’m Goddard. Thanks for joining us this week on The Technical Trader Podcast. If you found value in our show, subscribe and give us a rating or share it with a friend that would be greatly appreciated as well.

Thetechnicaltraders.com is your store for technically proven strategies to make more money with less risk so you can take your trading to the next level. Comments made on the Technical Traders Podcast are an expression of opinion only, and should not be construed as investment advice or recommendations to buy or sell any financial instrument. This information is for general information and educational purposes only. Guests on the show are not compensated for their participation. To view our full disclaimer. Please visit our website at www.thetechnicaltraders.com.

MIKE SWANSON PODCAST VIDEO

Investors have been processing high inflation reports, rising interest rates, surging energy, commodity, and real estate prices. So, what is the market saying about which markets investors have favored the last couple of years vs where are they putting their money right now?

A way to determine this is to simply plot the indices and then see how they stack up against each other. Price data should also be viewed and analyzed in a multi-timeframe environment: short-term, medium-term, and long-term.

As a trader or investor, we know it’s important to determine if a market is in a bull, bear, accumulation, or distribution phase. Additionally, we want to know how the market we’re trading is performing compared to its peers.

The following charts provide snapshots of how the SPY ETF (US S&P 500) is doing compared to the other US and global stock indices.

The year-to-date chart is showing us a maximum volatility spread of 15.73%. This is simply the difference between the highest stock index, Australia 200 +1.18% vs the lowest stock index US Nasdaq 100 -14.55%. Australia’s market has recently done well due to its strong energy and commodity interests which in turn has contributed to the strengthening Australian dollar.

SPY YEAR-TO-DATE DAILY: MAX VOLATILITY 15.73%

     www.TheTechnicalTraders.com – TradingView

The volatility spread at first doesn’t seem that significant but over time it can be substantial. This is one of the reasons why our team continually tracks global money flow according to each country’s stock index but additionally other types of markets and asset classes. Our quantitative trading research is crucial in determining which markets to trade and how to efficiently employ trading capital.

This maximum volatility spread during 2021-2022 is 44.42%. The highest stock index, India 50 +23.75% vs the lowest stock index Hong Kong 33 -20.67%. The Hong Kong and China stock markets have been plagued with numerous Covid issues in 2020, 2021, and now recently again in 2022.

SPY 2021-2022 DAILY: MAX VOLATILITY 44.42%

     www.TheTechnicalTraders.com – TradingView

Now we can take a longer-term view of the past 2+ years covering Covid before and after. We notice that the Nasdaq 100 is the overall leader despite its recent negative performance in 2022.

This maximum volatility for 2020-2022 is 89.70%. The highest stock index, US Nasdaq 100 +69.70% vs the lowest stock index Hong Kong 33 -20.00%.

SPY 2020-2022 DAILY: MAX VOLATILITY 89.70%

     www.TheTechnicalTraders.com – TradingView

KNOWLEDGE, WISDOM, AND APPLICATION ARE NEEDED

It is important to understand that we are not saying the market has topped and is headed lower. This article is to shed light on some interesting analyses of which you should be aware. As technical traders, we follow price only, and when a new trend has been confirmed, we will change our positions accordingly. We provide our ETF trades to our subscribers, and in the last six trades we entered in March, all have now been closed at a profit! Our models continually track price action in a multitude of markets, asset classes, and global money flow. As our models generate new information about trends or a change in trends, we will communicate these signals expeditiously to our subscribers and to those on our trading newsletter email list.

Sign up for my free trading newsletter so you don’t miss the next opportunity!

Successful trading is not limited to when to buy or sell stocks or commodities. Money and risk management play a critical role in becoming a consistently profitable trader. Correct position sizing utilizing stop-loss orders helps preserve your investment capital and allows traders to manage their portfolios according to their desired risk parameters. Additionally, scaling out of positions by taking profits and moving stop-loss orders to breakeven can complement ones’ success.

WHAT STRATEGIES CAN HELP YOU NAVIGATE The CURRENT MARKET TRENDS?

Learn how we use specific tools to help us understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, we expect very large price swings in the US stock market and other asset classes across the globe. We believe the markets have begun to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern begin to drive traders/investors into Metals and other safe-havens.

Historically, bonds have served as one of these safe-havens, but that is not proving to be the case this time around. So if bonds are off the table, what bond alternatives are there and how can they be deployed in a bond replacement strategy?

We invite you to join our group of active traders and investors to learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

There are many benefits to utilizing multiple time frame analysis in your trading. Some of the standard time frames are monthly, daily, weekly, 4-hour, 1-hour, etc. Longer-term traders may also monitor quarterly and annual charts for clues in market price action.

Some traders use this process to hedge their position using options or an inverse ETF. Others use multi-time frame analysis to enter new positions by exploiting counter-trend moves within a trending market.

Longer time frames tend to be more reliable but shorter time frames can reduce risk. Experienced traders who utilize multi-time frames seem to be able to extract the best from all time frames to improve their overall trading efficiency.

Using the SPY ETF (S&P 500) we will look at a simple example of this type of time frame analysis utilizing the daily and a 4-hour chart:

In early January 2022, the SPY reacted at 2.618% of its Covid 2020 price drop.

The -14.55% price drop lasted approximately 50 days until the SPY found buying support at 1.618%.

This price drop took out the 4^th quarter 2021 SPY low and the drop was also greater than any other drop that had occurred during the 2020-2021 bull rally.

SPY – SPDR S&P 500 ETF TRUST – DAILY CHART

     www.TheTechnicalTraders.com – TradingView

SPY PRICE DROP OF -14.55% VIOLATED ITS 4^TH QUARTER 2021 LOW

The SPY 4-hour chart shows us the exact same price information as the SPY daily chart. However, in viewing the 4-hour chart we have 6 times as many bars (1-day equals 24 hours and 24-hours equals 6 4-hour bars).

One example of how this might benefit us is when using a 72-period Bollinger Band on a daily chart this would represent a calendar quarter. While a 72-period Bollinger Band on a 4-hour chart is equal to 12- days or one-half of a month.

As we shorten the timeframe of our chart it is like we are looking through a magnifying glass which allows us to see our price data in greater detail.

Once the SPY price violated its 4^th quarter 2021 low we were signaled or given a clue that it may be time to liquidate our long positions and consider purchasing an inverse ETF to the SPY like SH.

The 4-hour SPY chart utilizing a 72-period (12-day) Bollinger Band provides us with an excellent opportunity to take profits on our previous long positions by liquidating.

72-period Bollinger Band: 72 4-hour bars equal 288 hours divided by 24 gives us 12-days.

SPY – SPDR S&P 500 ETF TRUST – 4-HOUR CHART

     www.TheTechnicalTraders.com – TradingView

Using A MULTI TIME FRAME STRATEGY TO PURCHASE AN INVERSE ETF   

There are different reasons for utilizing an inverse ETF. A trader may want to hedge their profit in the underlying market, or a trader may want to sell the market short outright. Regardless of the trader’s motive, an inverse ETF can provide additional benefits and flexibility.

As we analyze the SPY and how it violated its previous quarter low, we need to consider that the SPY may be transitioning out of its bull market phase.

An alternative strategy or counter-strategy is to purchase a SPY inverse ETF like SH – ProShares Short S&P 500. A simple explanation of the inverse is that when the S&P 500 loses SH will gain or when the S&P 500 gains SH will lose. The goal of the SH ETF is to be as close as possible to the exact opposite of the S&P500 index (SPY ETF).

Since SH is an inverse ETF we want to look for a place to buy SH using a multi time frame analysis chart such as the 4-hour chart. The 72-period Bollinger Band (12-day) just gave us a ‘Buying Zone’.

SH – PROSHARES SHORT S&P 500 ETF – 4-HOUR CHART

   www.TheTechnicalTraders.com – TradingView

KNOWLEDGE, WISDOM, AND APPLICATION ARE NEEDED

It is important to understand that we are not saying the market has topped and is headed lower. This article is to shed light on some interesting analyses of which you should be aware. As technical traders, we follow price only, and when a new trend has been confirmed, we will change our positions accordingly. We provide our ETF trades to our subscribers, and in the last six trades we entered in March, all have now been closed at a profit! Our models continually track price action in a multitude of markets, asset classes, and global money flow. As our models generate new information about trends or a change in trends, we will communicate these signals expeditiously to our subscribers and to those on our trading newsletter email list.

Sign up for my free trading newsletter so you don’t miss the next opportunity!

Successful trading is not limited to when to buy or sell stocks or commodities. Money and risk management play a critical role in becoming a consistently profitable trader. Correct position sizing utilizing stop-loss orders helps preserve your investment capital and allows traders to manage their portfolios according to their desired risk parameters. Additionally, scaling out of positions by taking profits and moving stop-loss orders to breakeven can complement ones’ success.

WHAT STRATEGIES CAN HELP YOU NAVIGATE The CURRENT MARKET TRENDS?

Learn how we use specific tools to help us understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, we expect very large price swings in the US stock market and other asset classes across the globe. We believe the markets have begun to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern begin to drive traders/investors into Metals and other safe-havens.

Historically, bonds have served as one of these safe-havens, but that is not proving to be the case this time around. So if bonds are off the table, what bond alternatives are there and how can they be deployed in a bond replacement strategy?

We invite you to join our group of active traders and investors to learn and profit from our three ETF Technical Trading Strategies. We can help you protect and grow your wealth in any type of market condition by clicking on the following link: www.TheTechnicalTraders.com

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

In an option chain, the delta for a given option strike price can vary from -1 to +1. Call options have a positive delta for option buyers somewhere between 0 and +1. Calls increase in value when the underlying increases in value. Put options have a negative delta somewhere between 0 and -1 as Put option prices have an inverse correlation to the underlying price.

Note that the signs on these relationships are reversed for option sellers who are short contracts. An option seller that is short a Call will have delta exposure between 0 and -1, while a Put seller will have delta exposure between 0 and +1.

What is Delta?

Option traders already have some familiarity with the set of option Greeks like delta, theta, and gamma. For those unfamiliar, the option Greeks are calculated values that approximate how option price may be expected to change given a change in input such as underlying price move, time decay, and implied volatility.

Perhaps the most popular and versatile of the Greeks is the delta. It tells us how much the price of an option can be expected to change given a $1 move in the underlying stock. For example, if we’re long a Call option with a delta of 0.60, we might expect the option’s price to increase by $0.60 if the underlying share price increases by $1.00.

How is Delta Calculated?

We can think of delta as the ratio of option price change and share price change.

Mathematically it is stated as

               Delta = (O1 – O2) / (S1 – S2) where:

• O1 is the changed price of the option,
• O2 is the initial price of the option,
• S1 is the changed price of the underlying stock, and
• S2 is the initial price of the underlying stock

Fortunately, our option trading platforms can take care of the calculations.  You may have to configure your trading platform to include delta as one of the values shown in the option chain. 

Strike Selection and Probability

Option strike prices can be “in-the-money,” “out-of-the-money,” or “at-the-money.” An option with a strike price close to the underlying price is considered “at-the-money.” An option that is “at-the-money” will have a delta that is very close to 0.50.

Keep in mind that the delta itself changes with a change in the underlying price. We can generally expect the it to increase when an option moves further in-the-money.

One of the more common uses for delta is to help traders select strike prices. If we’re bullish on a stock and would like to buy a Call option rather than the shares, delta can help us select a Call strike price.

Delta can also estimate the probability of a particular share price at expiration. For example, a Call option with a delta of 0.80 suggests that the underlying has an 80% chance of being at or above that strike price at expiration. Or conversely, a 20% chance that the underlying will be below the option strike price at expiration. More rigorous calculations are available for price probability, but delta serves as a handy “back of the envelope” approximation.

We could buy an out-of-the-money Call with a low delta — for example, 0.10. With that low delta, the option’s price would be lower, and we’d have greater leverage. But the tradeoff is a much lower probability of the stock being at the strike price or higher at expiration. We could have a much higher probability trade by buying a deep ITM option with a delta of 0.80. This second alternative would be less speculative as the high delta option will track the underlying much better and be a better proxy for the stock.

Position Delta

Position delta can estimate the profit or loss on an entire option position relative to $1 changes in the stock price.  This can be very helpful in assessing the directional risk of an entire position or even an entire portfolio.

Position delta can be estimated as follows:

Position Delta = Option Delta x Number of Contracts Traded x 100

Position delta can tell us the actual dollar amount that we might expect a position or portfolio to change given a certain change in the underlying’s price.  Again, our trading platforms can be configured to do all these calculations.

Summary

Delta estimates the change in the price of an option based on a change in the underlying stock price. It can give us an approximation for the probability that an option will expire in-the-money.  And lastly, delta can help traders assess directional risk on an entire position or portfolio.

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want To Learn More About Options Trading?

Every day on Options Trading Signals, we do defined risk trades that protect us from black swan events 24/7. Many may think that is what stop losses are for. Well, remember the markets are only open about 1/3 of the hours in a day. Therefore, a stop loss only protects you for 1/3 of each day. Stocks can gap up or down. With options, you are always protected because we do defined risk in a spread. We cover with multiple legs, which are always on once you own.   

Our Options Specialist, Brian Benson, has been on fire. During the last month, of the last 13 trades he has made, 11 of them have finished in the money!

If you are new to trading or have been trading stock but are interested in options, you can find more information at The Technical Traders – Options Trading Signals Service. The head Options Trading Specialist Brian Benson, who has been trading options for almost 20 years, sends out real live trade alerts on actual trades, such as TSLA and NVDA, with real money. Ready to subscribe, click here:  TheTechnicalTraders.com.

Enjoy your day!

Chris Vermeulen
Founder & Chief Market Strategist
TheTechnicalTraders.com