The following article is a compilation of charts from the chat room by OneOptions founder, Pete Stolcers. We hope this series helps highlight key lessons in price action and trading Relative Strength and Weakness.
Aug 16, 2022
You hear us say, don’t chase… buy dips. The same applies to selling OTM bullish put spreads. You need to have them ready to go. In a market with a strong bid, the drop might last a day or two. You do not want to start looking for them when the market is dropping. 1. You will miss day trading opportunities on the way down. 2. You will be scrambling to find good set-ups and you are not likely to find the best ones “on the fly”. When the market drop comes we won’t know how deep it will be or how long it will last. The price action will help us identify support and when the time comes you want to get these trades off. We also don’t know how far the stock will drop. Ideally it retains its rel str and just pulls back a little. A nice tool I added to the order entry is the Staged function. You can see it in the screen shot below. You can configure the spreads and instead of clicking Submit you click Staged. Then you can see them in the Staged tab. Instead of scrambling around, you will be able to see the bid/ask for the spread. The order has already been configured and you can submit it from that screen.
Yes, very important that the spreads expire BEFORE an earnings announcement. This is not a factor yet because we are trying to stay inside of 4 weeks, but it will be. The next FOMC is Sept 21 and I believe we could see some nervous jitters ahead of that FOMC meeting so I would be careful not to go past Sept 16 exp
…Look at why AMZN might not be a great play.
I am dating myself by referencing Barry Sanders, but he was the best RB ever in my opinion. If he did not retire early and if he played for anyone other than the Lions he would have shattered every record. If you have never heard of him, click that link.
I hope all of you are starting to feel the ebb and flow of the market. What seemed random before starts to make sense. During each cycle you have expectations of what the market will do based on previous price action. When that does not pan out we might be close to a reversal. There are “windows” of opportunity all day. If you understand the cycles you will not have to ask why your entry was not good or why your exits are poor.
I have provided you with a play-by-play and called out every wiggle and jiggle. It is not a fluke, I do this daily and so can you. 1OP is the best indicator you will ever find. If you add a little price action knowledge to it you will be unstoppable. Yes, use it for the stock as well.
What did I expect from the last bearish 1OP cycle? A small round of profit taking and a brief and shallow drop. Why? Because the market has strong upward momentum D1 and because it proved to me that the move today was strong when it stacked green candles. That tells me a bullish flag is likely. What if I was wrong and the bearish cycle produced a big drop? No harm, I am on the sidelines at that point. When I see the price action I know that I need to adjust my market bias. If the drop is deep with stacked red candles, I might join the move if the D1 trend were not so strong. In this market, I would wait for a benign bullish cycle and a lower high double top. Then I would short the next bearish cross.
If only there was an indicator that was predictive and that told you when you might want to take gains. You really need to start using 1OP. Look at BBBY on M5 and put that indicator up
If by chance you bought the bullish cross, you had a chance to make money and plenty of reasons to take gains before the big drop.
Aug 15, 2022
Comments posted during the day in real-time.
It is very important to get a feel for the way a stock moves. Before you enter a trade, take a look at other time frames. It takes a few seconds. Get to know it. DIS makes big opening moves and then it does nothing. You should expect that type of price action.
You were buying the hod (except for that spike which could have been a bad print). The candle bodies at the hod were tiny. That is a sign of resistance. Click, click, click look at them all. It only takes seconds.
BTW, I love the DIS D1 chart. Given what I just posted about DIS, if you were long an overnight swing and you get a big move up on the open, what should you do? Based on its price action – take gains!
WMT, DIS, F are all stodgy stocks. They are mega caps that do not move much. They are not working on space travel or a cure for cancer. Consequently, they do not make monster sustained moves. There is very little reason to buy these names on the high of the day unless the sector is super hot or if there is a major market move or some material news that is going to impact the company. You MUST be extra patient with these stocks and you must buy dips. You can throw CSCO, ORCL, T, and many others into this category as well
If the daily chart looks great… fantastic. Set downside alerts so that you know when the stock is dipping.
Here are some general things I look for when I select BPS. I want strength in the stock. Ideally it keeps grinding higher and the put spread benefits from the momentum. The stock should have relative strength and it should be through major resistance levels. We want to sell OTM put spreads that expire in a month or less and we want the credit/margin req to be 25%. The short strike price of the spread should be below technical support. That support gives us another layer of protection because we know buyers will be interested at that price and it will keep the stock above the short strike price. Even if you find one that is close, we can set alerts below the current stock price so that we know when the spread might be in range.
This is a spread I would consider selling. It is currently $.10 x $.18 credit. If the alert is triggered that spread should be in range and I can evaluate the market and the stock at that time. I like this spread because AAPL has been one of the stronger stocks. You can see that in the trendline and tight price action. The 200-day MA will provide support and the stock blew through that level after earnings. There will be buyers who would welcome another shot at it if it drops to that level and those buyers should keep the stock > $160
Here’s the thing. You want to be looking for these trades now. I am expecting a weak market day in here somewhere. It might only last a day or two so it is important to have your stocks lined up. You do not want to be doing this analysis when the market is dropping because you could miss the trade. Know the stocks you like, the support you want to lean on and the price you think the stock might need to get to and set the alert (this is a guess. you can use models, but the price will change over time).
Aug 14, 2022
Review of prior week:
Aug 5, 2022
Notice the big retracements after the gap fill. Also notice that there is a nice opportunity to catch the next move higher. The final thing to notice is that we should NOT assume this is going to be a bullish trend day. Aug 1 and Aug 2 saw late day selling. This is the benefit of studying price patterns after hours.
You can show up game day and try to beat your opponent, but Tom Brady studies film to see if his opponents have tendencies. Bill Belichick studies the officiating crew to see what their tendencies are and which penalties they can get away with. There is no substitute for preparation and long term success does not happen by mistake.
Now you can draw the M5 wedge. The middle of it is VWAP. The next drop should go below it and then we converge on it
Aug 4, 2022
Aug 3, 2022
Aug 2, 2022
We have a bullish 1OP cross out of a deep trough and support forming. Too early to buy, but the bleeding has stopped quickly and that leads me to believe that this will set up a good buy. If the news were truly news the selling pressure would have continued without this pause. This is the lod from Mon so there is some support here
We have been talking about HSY so want to use it as an example for trade entry. Some of you will suffer from paralysis by analysis and some of you will suffer from FOMO. This is for those of you who suffer from FOMO. You are watching HSY during the day and waiting for an entry point. First of all the M5 candles the last few days (even after earnings) tell you that this is a choppy stock. You do not have to chase it… ever. Then you see these two long candles on heavy volume. Companies like this are boring. They did not discover a new chocolate that cures cancer. Remember what the company does and temper your excitement. There are other companies like MRNA or tech companies that do actually have products that can change the macro backdrop for the company. HSY is not one of those. Cool your jets and remember that it is HSY. A fund had a buy order and they just wanted to get it filled. They will probably hold it for years. It was only 80K shares. At that time the market had peaked and 1OP had spiked and rolled over. Your mind should tell you to wait a bit. See if HSY continues to grind higher and wait to see if the market rolls over.
There are some stocks that you can and should chase. Some of the cloud computing companies, EV, biotech, cryto… These were not stodgy old companies with boring products. They are cutting edge and often they don’t even make money. Investors and traders start foaming at the mouth and when some of these take off, sure you can buy those breakouts. The difference is that you know the nature of the company and you can see sustained price action on M5 with stacked candles and heavy volume. Those are the “tells”.
I should provide some clarity. I am not saying you should chase the stocks I referenced now. There was a time when the sky was the limit on them and they were “HOT”. They made their run and they were bought up like they were the next AAPL. COIN, UPST, ZM, AFRM, LCID, QS… the list is long. If you see a flier, take a look at the StockER and find out what they do. It will help you gain some perspective
Aug 1, 2022
This is a double top formation. We are likely to see more selling. There have been long red candles earlier in the day and that is a sign that there is some profit taking. I would use caution with longs. The high for the day is probably in. The best set up is a small rally on this 1OP bullish cross that stalls before getting back to the hod. That lower high would be a good entry for shorts. If you are sticking with long only trading here, that is fine, but ou have to buy dips like this when 1OP has a bullish cross. Picking the right stock important and use passive targets because you are not going to get big market runs from this point on.
July 31, 2022
These are some examples from the last two weeks. It all comes down to checkboxes. Each day has its own personality. Wait for your windows to set up and know the patterns you are looking for. If you get nice runs with stacked candles and volume, those will always be your higher odds days. Nice clean (not a bunch of mini crosses) bullish and bearish 1OP cycles are also a good sign that you will have good price movement
July 29, 2022
I still prefer to trade from the long side, but I will take a look for a short or two. With earn season there are always plenty of stocks on both sides. CALM nice short D1. It is a wild one so do not chase.
This is a good entry point for CAT. If we get some market lift here CAT should go.
Show me that stock that is up on heavy volume today, through an algo line D1, above the prior day high, on a buy signal M5 and that has good option liq. Here is the kicker, it is also in M5 compression
July 28, 2022
When you have no volume and choppy price action 1OP will have lots of mini crosses and it will float around the zero line. No indicator works well in that setting. As soon as you add a little volume and pace it is spot on.
Does 1OP work for stocks? Yes, but stocks have stronger and more frequent trends than SPY so you need to know your divs.
I just picked a few of the stocks you are trading. This indicator is great for confirmation and you should be using it to guide you on when to enter and when to take gains. I don’t want to clutter the chat room, but I could do this all day.
July 26, 2022
I like UNH , but it has to get through hod. It is also a choppy stock. I will post a chart of why I like it.
UNH not anything I would go nuts over, but we are in a mode now where we are looking for anything with a pulse. It has some nice qualities.
We have a downward sloping trading channel that is forming M5. Very gradual drift lower. These can be pretty stubborn and there is a good chance we will drift down to the $391 area. That is horizontal support and the market has spent a lot of time there in the last two months. That is the 50-day MA and it seems like a logical resting point into the FOMC.
“Pete do always ignore the last 15 minutes of trading when drawing these channels?” No, but those last minutes are noise filled and if I take those out the trend has a nice orderly pattern to it. I do look for close to parallel lines when I draw them.
Now we have breached the low end of the trading channel and that is usually a sign that a selling climax is close. It also puts us on the 50-day MA so I will be watching for support here.
Bullish hammer, tails under body, bullish engulf… That does not mean buy. It means we need to watch for support. If we have short positions, a good place to take some gains. Those are the candlestick patterns to watch for.
Usually on a selling climax of this sort you will see a bounce in the next 4-5 bars so we should not have to wait long
Price action can seem random and that is very frustrating to traders. If you put the time in you will learn to recognize them and they lend clarity to what is happening. I did not read about them in a book and I don’t know that such a resource exists. I have studies charts after the close (for years). The good news is that there is rhyme and reason and you can make sense of it all.
The key to this pattern was to recognize it as it was unfolding. You did not have to extend the upper line thru the data points, but it seemed to conform (with the exception of the closing noise from Mon). We did find support after that climax and it coincided with the 50-day MA. The tails under body were a clue. Sometimes it will be a bullish hammer or a bullish endulf. We are testing the upper trend line. There is a good chance we will trade in a range for an hour of two.
July 25, 2022
“Pete, you say to buy dips on CALM. How do I do that?” Use your alert tool. Set alerts at levels where the stock would still look attractive, but that are below the current level. Lean on prior candles. You could also lean on EMA (8) or VWAP… what ever technique you want to use. If you are not alerted, no trade. If you get the alert, monitor the price action and see if buyers are still interested. You can set upside alerts after that as well. Pick the top of a recent candle .
On days like this you should spend MUCH more time setting alerts than trading. Alerts do not have to be managed like a position and they will help you enter at attractive price levels. While you are waiting for alerts to be triggered, market conditions could change and you might not want to take the trade. The character of the stock could change and you might not want to enter
MOS has a little strength today along with other basic mat. D1 down trendline breach also. Nothing super strong, just some nice rotation into the group. It could be setting up on M5 so here is what you want to do
You can tell from that chart that there is not much to lean on technically. They try one side and when they run out of steam they try the other.
There is a difference between being bearish and not being bullish. There were some Reddit comments asking about how the lack of volume makes me bearish. It doesn’t. The lack of volume recently makes me question the recent market bounce. That lack of volume tells me that there is a low level of conviction and while the price action looks good, there is no substance behind it. These low volume moves can easily be reversed (but it does not mean they will be reversed). If the market rallies on heavy volume from here, we are all good and we can get behind it. My point was that without that volume, it is too early to be loading up on bullish positions. I wanted to make this clear to all of you in case there was similar confusion.
There were a couple of really good entry points for shorts on that stock. It was rel weak the entire day with no major bounces.
When you see consecutive stacked red candles like that the stock is going down. That is one of the most reliable patterns you can trade. I advise you not to trade the first 45 min so in that spirit, you would evaluate the market and the stock and trade the compression breakdown. You could also have avoided shorts since the market was going up. That would be wise as well (the market rally was not very strong today so it would not have spooked me). Once you had the SPY bearish cross at 1:15 and the M5 broken uptrend for SPY you would start considering shorts. Then you would have looked at the NEM compression breakdown later in the day. There were a number of you who took that trade.
July 22, 2022
I don’t want to make it seem like this was an easy day. It was not any time you have really low volume, it is going to be tough and you should go into defensive mode (not trade). I mentioned that early in the day.
If you were playing it “close to the vest”, most of the day was spent evaluating. Even when we made a new lod early, you did not know if that was to shake out stops or if it was real. When we got follow through you had a nice little window, but that closed in an hour.
If you scoped out some nice shorts early in the day you could have played off of that weak price action and the fact that the SPY was making lower highs. There was not much else to go off of. The 11:20 bar was more of a tell because it took out the lod. The 12:35 bar was also a good tell because it erased most of the long green candle telling you that it was a “solo”.
July 21, 2022
GS very nice D1. It can be choppy so buy dips.
NUE. right out of the gate a post earn gap and it went above the 200-day MA and never fell below it when the market probed for support. That was your first clue.
Even if you did not have an NUE calendar spread on, the stock set up nicely for a long. That is the mentality you need if you are going to do calendar spreads. This is not a strategy where they are all going to work out. There will be times when the stock moves out of the expected range. The good news is that when it does move out of the expected range, it is likely to continue in that direction. It surprised everyone
July 20, 2022
Following up on compressions. I hope all of you are aware that Option Stalker Pro measures these. We can display them and we can search for them. Here is an example of Dave’s STNE trade late yesterday. Market first: Market had been strong and 1OP bullish cross pending and D1 > 50-day MA. No major pullbacks all day. Favor the long side. At the time of the trade you had that strong market tailwind. STNE had a bunch of checkboxes marked. Nice upward trend, no big pull backs, D1 breakout, 1OP preparing to cross M5 for the stock, on a buy signal, 1OSI > 0, Compression out, > prior day high, new hod….
High probability trades mean you have lots of checkboxes marked.
If you are looking to buy, you do not have to wait for a green dot. That just means it is a big breakout. A gray dot after a yellow dot can be more effective because the stock is coming out of a compression, but it has NOT jumped higher
These are damn good search variables right now. Use them and bring up the charts. You can see the breakout D1 and it is just happening now.
Run that search during the day and add Compression (In) as a variable. Hey, wouldn’t it be nice to catch one of those babies when they are coming out of the compression? YES! If only there was a way to get a pop-up alert. Drop those dang alert lines at the top of a horizontal compression or if possible drop a downward sloping one if it is dipping so you can catch a bull flag.
You can keep pounding thru the same canned searches or you can use one of the most powerful search engines. Nothing wrong with the canned searches, but you can create better. Instead of pounding thru my lists, you can be pounding My Searches with your own custom search variables.
Keep running those searches and looking for new stocks that are popping up. Keep dropping alert lines. After a while it will be like popcorn. The alerts will be coming in left and right.
The worst thing you can do is to just camp out on a favorite stock hoping and waiting that AAPL will do something magical. Actually, the worst thing you can do is to camp out on a loser and lament about it. You are doing psych damage by reminding yourself of the mistake, you are consumed with hopium and you are letting opportunity slip by every minute.
Given the recent show of strength I believe that once support is established today you will have a nice opportunity on the long side. The flat open will give us time to find good stocks so there is no rush. After a big market rally like we saw yesterday, it is going to take time for the market to digest those gains. The news is fairly light. DO NOT EXPECT A REPEAT PERFORMANCE TODAY
July 19, 2022
The context is that the long term market trend is down. We can’t get back to that down trendline. Last week we had two down gap reversals and the market has a bid. Earnings season helped it shoulder negative news. The volume is VERY light. If a move can’t gain traction in one direction… it goes the other way.
Yesterday buyers tried to add to the support from last week. The opening gap held nicely for a couple of hours and then it gradually started to slip. There was a nice shorting opportunity once the lod failed and there was follow through. Programs kicked in, the gap filled and then the selling continued.
Earnings season is going to ramp up the next two weeks. Estimates have been lowered so the bar should be easy to clear. Stocks have been pounded so there is a chance for a nice little bounce into the FOMC. A week from Wed the FOMC statement will be released. That coincides with mega cap tech earnings. These will be the final catalysts for a while and then we are going to go into the annual August news vacuum.
July 16, 2022
Custom Search will find ANYTHING. You just have to know what you are looking for and you have to learn the variables. DaveW gave you the pattern. 1. Look for a stock that is moving higher. If it is > prior day high, it is moving higher. 2. You want institutional participation. Heavy volume is a sign of that. 3. You want a compression. If you want to find stocks before they breakout, use Compression (In) M5. Drop alert lines above the compression since you are looking to trade in the direction of the trend. If you are looking for something that has broken out, use Compression (Out). 5. You want HA candles that are just starting you can use HA ContII. 6. Strong vs SPY M5 will give you stocks with rel str
This is a starting point. If you want a stock with liquid options, add that. If you want a stock that has D1 momentum, add the algo breakout, ADX or more time frames for Strong vs SPY. You can apply your question to any of the variables in Custom Search. should I use Trade Signal or Trade signal (new). Should I use HA II or HA Cont II+, Should I use Compression In or Out? If you are using the variable to find a trade that is just forming it has higher risk and reward. You would want to use (new) to catch the move early. If you want to make sure that the stock has established momentum for a while you would use Algo Lines as a confirming variable. For all of you it is super important to visualize what exactly you are looking for. If you do that you will know exactly which variables and time frames to look for.
Custom Search is a supermarket. You can go in and start filling your shopping cart with things that you like to eat. It is not very efficient and you will spend a lot of time staring at the fridge wondering what you should eat (flipping through charts). There is nothing wrong with this, just not as efficient. An alternative approach is to go to the supermarket (Custom Search) with a meal plan (patterns) and a very specific list of ingredients (variables) you will need.
July 15, 2022
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