Trading Education Articles

Set Profit Targets and Define Risk Using ATR

John Seguin, Market Taker Mentoring

Around the end of every year, I like to do statistical analysis to prepare for the first quarter of the coming year. The most important spreadsheet I generate consists of recent average ranges and benchmark or long-term ranges for stocks, ETFs and commodities. Most charting platforms have the ATR (Average True Range) indicator. ATRs are valuable because they improve our ability to set profit targets and define risk over various time frames. Furthermore, a comparison of near-term ranges against long-term benchmarks can be used to determine if volatility is rich or cheap. In addition, ATR can be used to gauge if a market is ready to begin a trend or identify when a market is overbought/oversold. [more]

Don’t Forget to Add Up Option Greeks

John Kmiecik, Market Taker Mentoring

Understanding the option greeks is completely critical to an option trader. Knowing what greeks are, positive or negative, and how changes will affect your position is essential. That said, many option traders I talk to (just this past week, in fact), forget that the greeks do add up the bigger the contract size is. [more]

Understanding the Secret to Stochastics

John Seguin, Market Taker Mentoring

There is a myth that Stochastics and RSI (Relative Strength Index) are both used to determine whether a market has reached overbought/oversold status, thus indicating when a trend is near an end or likely to reverse direction. However, RSI is more appropriate for gauging strength of trend. An RSI reading above 50 indicates bullish momentum, and a reading below typically favors short positions. While Stochastics are suited for timing market turns or reversals, the secret is to use them with divergence. [more]

How Straddles and Strangles Work

John Kmiecik, Market Taker Mentoring

Straddles and strangles are strategies option traders can use when they think a move in the underlying is imminent, but the direction is uncertain. Sounds like a can’t-lose plan, right? Well, obviously, if it were that easy, we would all be trading them, all the time. Let’s take a closer look. [more]

Check Your List Before Entering a Trade

John Seguin, Market Taker Mentoring

To be competitive back when I was a broker, I had to adapt to different conditions and client requests. This inspired me to develop a set of rules for trading equities, treasuries, precious metals, energies, currencies and grains. These categories are often connected either directly or inversely. Early in my career I researched many technical tools and indicators. However, I soon realized that fundamentals move markets and technicals are useful when event risk is low. [more]

Option Trading and Life Are Not Perfect

John Kmiecik, Market Taker Mentoring

When it comes to trading, we try to put the odds on our side to create a better opportunity to extract money from the market. Many traders do this by using technical analysis to gain an edge. Here is a brief reminder that you need to keep trying to put the odds on your side even though it may not always work out. [more]

Identifying Price Patterns

John Seguin, Market Taker Mentoring

Before computers were used for charting on the CBOT trading floor, books were published weekly with day and week bar charts for all the futures markets. On the exchange trading floor, many traders used handmade graphs to track short-term price action with intraday bars using open, high, low and close (OHLC). Some used the point & figure technique and eventually candlesticks became popular. Charting or technical analysis involves mapping and organizing prices to identify patterns.  [more]

Hard Profit Taking Option Orders

John Kmiecik, Market Taker Mentoring

Here is a topic I cover daily when it comes to options trading. It is so important that I cannot go a day without bringing it up several times in MTM’s Group Coaching class or with students in a one-on-one environment. The topic is always having a hard profit taking target when you have a position on. [more]

Define Support and Resistance Zones

John Seguin, Market Taker Mentoring

All traders strive to buy when prices are cheap and sell when they are rich. Bulls or buyers prefer the long side and search for support areas, while bears or sellers favor the short side and seek out resistance areas. The choice to be a bull or bear varies for all traders. To determine support and resistance zones traders use charts that reveal the history of price action. An ideal trade occurs when we enter a trend early and exit when it is exhausted. Buy low, sell high. Traders endeavor to sell as a trend is peaking and buy when prices are cheap. Ideal entry and exit are desired, but perfect timing is illusive. [more]

Theta Can Be Friends with Delta

John Kmiecik, Market Taker Mentoring

Long calendars happen to be my favorite time spread. For the most part, I like to sell the current week’s expiration and buy the following week’s expiration. If you are not familiar with them, long calendars consist of selling a call or put and buying another call or put with the same strike but a longer expiration. I like to initiate them early in the week, say, Monday or Tuesday. Positive theta is the main source of potential income for this position, but I like to look at it a little differently. [more]

How to Handle Low-Volume Pockets

John Seguin, Market Taker Mentoring

As a futures broker, I had many clients who used automated or algorithmic systems for trading management. These trading systems are mainly developed to capture vertical moves. When a buy/sell signal is triggered it frequently has a domino effect that causes prices to move rapidly. The most common bullish breakouts occur when the top of a channel (flag) or pennant (triangle) is violated. A bearish trend often begins when the bottom of a flag or pennant is breached. The type of candlestick at the onset of a breakout can be revealing as well. Candles with full bodies and small wicks are an indication of dominance. Thus, a full-bodied candle passing through a trendline is often the catalyst for an above average vertical move. When a market breaks into a trend it is often fast and furious leaving behind gaps or low-volume pockets known as volume voids. [more]

Focus on the Appropriate Moving Averages

John Seguin, Market Taker Mentoring

In my experience futures traders tend to be short-term oriented, opting to hold trades for hours to a few days. Equity market traders tend to trade for longer time frames. One reason futures traders are more speculative may be due to margin requirements, which are often a drain on smaller trading accounts. As a result, they often flatten all positions before the close each day. Most of my trades in the futures market are intended to be speculative, meaning I will be out of the position within 24 hours or even by the end of a trading session. Generally, stock market traders and investors plan to hang onto trades for days and often weeks or more. Thus, it is important to choose technical indicators that are appropriate to your time frame. [more]

The Market Is Resilient

John Kmiecik, Market Taker Mentoring

At the time of this writing, the Federal Reserve had cut interest rates by half a point just a couple of hours ago. As usual, the market whipped higher and lower before settling lower on the session. But aside from that day’s activity, the S&P 500 has been on quite the move higher since last November. And if it can break some current resistance, it may continue to thrive. [more]

Avoid Poor Trade Location

John Seguin, Market Taker Mentoring

All traders endeavor to catch a trend early and ride it late. To accomplish that requires incredible timing on both entry and exit. Some trends end slowly after shifting to neutral. Others end abruptly after moving too far, too fast, otherwise known as reaching overbought/oversold (OB/OS) status. Lately, volatility has been quite high as there have been big swings in many markets. Getting long when a market is overbought or short when it is oversold usually does not pay. It is known as poor trade location. [more]

It’s All About Experience as an Option Trader

John Kmiecik, Market Taker Mentoring

Learning how to trade options effectively takes time. And let’s face it, for many option traders real, ongoing success never comes to fruition. Most traders cannot extract money from the market on a consistent basis because, well, it’s hard to do so. So why do we try? We try because it is rewarding to be a successful option trader either part time or full time. Keep in mind, though, that the one thing that cannot be rushed in your education process is the experience you receive from trading. [more]

The Shift in Fundamental Focus: Inflation vs. Recession

John Seguin, Market Taker Mentoring

I make it a point during every MTM Monday Morning Meeting to highlight the connection between the financial and energy markets. Central banks set interest rate policies, which have a direct impact on bond prices and currencies. Foreign exchange rates influence stocks, metals and energy, as well as many other commodities. A mixture of all these markets and earnings completes the chain of major market movements. [more]

Option Trades Near the Close

John Kmiecik, Market Taker Mentoring

There’s no denying that this market is extremely volatile. It’s a difficult environment for swing traders and may be more suited to day traders. There is never a guarantee when the market closes that it will open higher or lower the next session, even if it’s a bullish or bearish close. We can, however, observe how the market closes to put the odds on our side, especially if we’re looking for a directional opportunity. [more]

Fundamental Shift and Volume Voids

John Seguin, Market Taker Mentoring

Recently there was a fundamental shift in markets. For a couple of years positive economic news was bearish for both stocks and bonds. Weak data was bullish for those sectors because it might make the Fed more likely to lower interest rates. Recently the Fed shifted from focusing on inflation to paying more attention to employment data. This is a fundamental shift from price pressures to job reports. [more]

Be Patient When Markets Are Volatile

John Kmiecik, Market Taker Mentoring

The markets have remained very volatile over the past several weeks. At the time of this writing, the S&P 500 had fallen over 2.3% in a day. It has been a bumpy road over the past few months for sure, and most likely it will continue to be for several more. Even though the markets have been uncertain, there is something you should be certain about and that is to be patient and wait for opportunities. [more]

Look to the Pros for a Trading Edge

John Seguin, Market Taker Mentoring

Spend time with a broker or pit trader from the era when all trades were executed in a trading pit at an exchange, and you will learn how to decipher information provided in an open outcry environment. Pits were created to facilitate trade. To an untrained eye a trading pit looks like a mess of angry, aggressive people wearing crazy-colored jackets. [more]

Your Option Trading Day in a Nutshell

John Kmiecik, Market Taker Mentoring

Every so often, I like to remind option traders about things they need to think about before, during and after their trading day. Clearly, there are a lot of moving parts in making that decision, but there are also more than a few constants. Here are some factors I consider each trading day. [more]

Best Uses of Bollinger Bands

John Seguin, Market Taker Mentoring

I knew little about markets or economics when I began my career at the Chicago Board of Trade almost 40 years ago. Early in my career I started a journal that contains a multitude of lessons learned from colleagues, books and empirical research from the trading pits at the CBOT and CME. I also recorded my many mistakes because I learn the most from them. My “trading toolbox” is packed with the best parts of many disciplines. Bollinger Bands can be used for trend and counter trading strategies. Here are some of my favorite Bollinger Band tips. [more]

Take Advantage of a Bullish Base

John Kmiecik, Market Taker Mentoring

We frequently talk about bullish bases in MTM’s Group Coaching class, especially with the market moving higher for much of the year so far. But what does a bullish base look like and how can we use it for a potential bullish entry? Here’s a brief explanation of what a bullish base is and what to look for. [more]

Use Chart Techniques to Trade Like a Pro

John Seguin, Market Taker Mentoring

As an educator I have made assumptions that new traders already have a good understanding of technicals and fundamentals. The more I teach the more I realize most traders have not experienced trading pits and the valuable lessons we were privy to in that environment. In addition, I learned many lessons in fundamentals by watching the impact economic reports had on price action.

Looking back, it was a privilege to participate in the auction process in its most basic form, a trading pit. Professional traders tend to execute large trades during the highest volume periods. Generally, liquidity is highest near the open and close of a trading day. Thus, the strongest directional signals come in the first hour and the last 30 minutes of the trading session. The direction the market moves during those times reveals which direction the professional traders favor.  [more]

Look For Pullbacks in NVDA

John Kmiecik, Market Taker Mentoring

Not sure if you have heard about a little, old stock called NVDIA (NVDA). It has been the talk of the market for several weeks now. The stock has moved vigorously higher for quite some time, especially since the beginning of this year. Then the company announced a 10 for 1 stock split, which pushed its stock even higher before and again after the split. But as we know, stocks do not go higher forever, and recently the stock pulled back. As an option trader, this is a chance to take advantage of. [more]

Versatility of Average True Range

John Seguin, Market Taker Mentoring

For decades I have published futures updates for treasuries, forex, metals, energies, equities indexes and grains. To do this daily task I have a routine for each sector. Aside from examining fundamental data, I use a few technical indicators. The most practical indicator I employ is Average True Range (ATR). This versatile gauge can be used to set support/resistance areas, profit targets and risk. By comparing ATR from the near term against a long-term benchmark this tool may also be used to determine if a market is overbought/oversold or wound too tight. [more]

Interpreting Technical Nuances and Market Reactions

John Seguin, Market Taker Mentoring

I spent nearly two decades on trading floors in Chicago. After the markets closed many traders and brokers unwound from stressful days in local pubs and restaurants. In these post-market “meetings” we talked about family, sports and other non-trading topics, but mostly we discussed the day’s events and market movement. My friends and colleagues shared knowledge that shaped their trading style. Our discussions frequently included favorite patterns, technical nuances and reactions to fundamental data. One friend liked to countertrade a market if it moved 50% of an average day from the opening price. Another trader always bought or sold the 30-year bond every time it hit the number 10, because for some reason the market often reversed when that price traded. [more]

Smart Traders Record Their Trades

John Kmiecik, Market Taker Mentoring

Option trading is like the game of golf. You can never be perfect at it, but you can always get better. As I like to say, “the one thing I cannot teach as an option trader is experience.” The obvious question, then, is how does one gain that experience. There are two ways, and one is obvious: by trading. The other is by reviewing your trades, and the best way to do that is to record them. [more]

Trade With Passion and a Plan

John Seguin, Market Taker Mentoring

Since I was a kid, I have been passionate about sports; baseball and golf are my favorites. I learned that devotion to practice and preparation returned rewards. Any endeavor you choose, make it your passion. A trader should embrace the same approach. Obsess to be the best. I have taken my passion and competitive nature for sports and applied it to markets. If you want to compete with professionals, practice like one. [more]

Watch How a Stock Closes

John Kmiecik, Market Taker Mentoring

Getting an edge using technical analysis is crucial when it comes to trading. If you hold a position overnight, there is never a guarantee how the market will open the next session. If only we knew, right? Trading would be a whole lot easier and less nerve-racking. There is something I have found, however, that helps tremendously and that is watching how a stock closes on the day. [more]

Finding the Ideal Trade Location

John Seguin, Market Taker Mentoring

Perfect timing when entering and exiting trades is every trader’s dream. Early recognition of a breakout or onset of a trend is key to attaining the ideal trade location. Early entry not only increases profit potential, but it also reduces risk. It is vital to employ short-term or intraday direction indicators that will enhance the timing of a trade. [more]

Delta Is Lead Dog for Vertical Credits

John Kmiecik, Market Taker Mentoring

I model out several vertical credit spreads every day in MTM’s Group Coaching class. And every day I talk about delta being the most important greek, in my opinion, for vertical credits. Most option traders associate credit spreads as mostly a positive theta trade. I am going to show you why I believe delta is usually the bigger factor. [more]

Dealing With Market Pace Problems

John Seguin, Market Taker Mentoring

Given the recent extraordinary moves in interest rates and equity markets I figure it is time to introduce my favorite velocity indicators.

A trader’s goal is to catch trends early and squeeze as much profit as possible out of them. To accomplish this requires incredible timing on both entry and exit. Some trends end slowly after shifting to neutral. Others end abruptly after moving too far, too fast, otherwise known as reaching overbought/oversold (OB/OS) status. Therefore, traders need to choose a market speedometer to deal with pace problems. [more]

Option Trading Is ‘Almost’ Always a Trade-Off

John Kmiecik, Market Taker Mentoring

When I talk about options, which is quite often, I like to say that everything in options is a trade-off. As I tell my students, if you give up this, you get that in return and vice versa. If you have a better risk/reward trade, the probability of a profit is lessened and vice versa. But lately I have found an exception or two, especially when it comes to time spreads. [more]

What Has a Better Chance of Happening?

John Kmiecik, Market Taker Mentoring

I ask traders this all the time when I am teaching technical analysis: “When you look at a chart, what has a better chance of happening?” In fact, we should ask ourselves this question in many situations that do not involve trading, but that is a discussion for another time. As option traders, we try to put the odds on our side through various means to gain an edge, and one of the most important is technical analysis.[more]

Returning to the Proverbial Option Trading Well

John Kmiecik, Martket Taker Mentoring

I am often asked, “When I have a profitable trade and the setup still looks good, should I take the trade again?” The answer is, “Absolutely! Why not?” If the setup is still there and you feel the same about the trade and market, it totally makes sense. [more]

How to Use Daily Pivot Prices

John Seguin, Market Taker Mentoring

Pivotal prices are used in various ways. Some traders use them to identify support and resistance areas or entry and exit zones, or they may be used to define momentum. There are more than a few ways to determine daily pivot points. The most popular requires some basic math using the average of the high, low and close, and sometimes the open price is included in the equation. On the ensuing day, trading above the pivot point is considered bullish, while trading below the pivot point implies bearish sentiment. [more]

Time to Tighten Up Your Option Management

John Kmiecik, Market Taker Mentoring

Volatility in the market has become the norm…this first week of March 2024 in particular as Federal Reserve Chair Jerome Powell testifies in front of Congress for two days. There have been some sizable market swings. Should you manage your option trades differently in a market like this? You have to decide that for yourself, but it might be a good idea to explore your options (no pun intended). [more]

Improve Trade Entry with Timing Tools

John Seguin, Market Taker Mentoring

Late entry for a position can be costly in that it increases risk and decreases profit potential. In previous articles I introduced some of the tools from my “trader toolbox.” Here I’ll share some of my favorite indicators for improving entry with timing tools. [more]

The Market Does Not Always Go Up

John Kmiecik, Market Taker Mentoring

The market has been on a pretty big bullish run over the past couple of months. As a trader, how do you not focus on more bullish than bearish trades, right? The market is due to pull back at some point, of course. Still, there will always be traders who focus only on bullish trades (yes, even when the market is heading south). Let’s look at why that may be the case. [more]

Let’s Chat About Option Vega

John Kmiecik, Market Taker Mentoring

Implied volatility or the lack of it has been a hot topic for option traders over the past several months. If you are unfamiliar with IV and/or option vega, here is a brief explanation to get you up to speed.

Option Vega

Vega measures the impact implied volatility (IV) has on option premiums. Keeping it simple, for every 1% change in IV, vega will change the premium by that amount. If IV rises 1%, option premium will rise by the amount of vega. [more]

Note Patterns to Identify Market Trend Changes

John Seguin, Market Taker Mentoring

Markets tend to shift to neutral at the end of trends. Furthermore, there are often subtle changes in momentum before reversing direction. Good traders have a knack for identifying the start of a trend or the end of one. There are a few patterns that are common at the end of a move. [more]

Theta Can Help Your Unwanted Delta

John Kmiecik, Market Taker Mentoring

If you have attended MTM’s Group Coaching class, you probably know how much I love time spreads. In fact, I even have a T-shirt I like to wear that says so. Calendars happen to be my favorite time spread, usually of the short-term variety. If you are not familiar with them, long calendars consist of selling a call or put and buying another call or put with the same strike but a longer expiration. For me that usually means selling the current week’s expiration and buying the next if there are weekly options available. I like to initiate them early in the week. Positive theta is the main source of potential income for this position, but I like to look at it a little differently. [more]

Partner Stochastics with Divergence

John Seguin, Market Taker Mentoring

The myth is that Stochastics and RSI (Relative Strength Index) are both used to determine whether a market has reached overbought/oversold status, thus indicating when a trend is near an end or likely to reverse direction. However, RSI is more appropriate for gauging strength of trend. An RSI reading above 50 indicates bullish momentum and a reading below typically favors short positions. Meanwhile, a Stochastic is a more reliable indicator for identifying market turns, especially when partnered with divergence. [more]

Option Greed Is Not Good

John Kmiecik, Market Taker Mentoring

Although “greed is good” is a famous line from a movie, in real life as an option trader greed is not good. One of the biggest regrets and mistakes I hear from option traders is that they are going for profit targets that are too big, especially for debit positions. Consider this a quick reminder to decrease your overly high expectations. [more]

Choosing the Right Trading Tools

John Seguin, Market Taker Mentoring

No matter which career you choose, they all require tools to be successful. Most tools are tangible, while others are psychological, mathematical and even spiritual. As a trader my tangible tool is a chart. There is math in my favorite market indicators, and the indicators illustrate psychological and sociological behavior. As for the spiritual part, it is the euphoric feeling a trader gets when all the hard work and analysis pay off as a lucrative trade that involves minimal risk. [more]

A Top Tool for Traders

John Seguin, Market Taker Mentoring

Typically, markets are quiet during the last two weeks of the year with below average ranges and volume. It allows me the time to do research in preparation for the upcoming new year. I enjoy statistical analysis because each clue is a piece of the puzzle traders try to solve every day. Range length is one of my top tools for creating strategies. [more]

How to Improve Entry and Exit Prices

John Seguin, Market Taker Mentoring

Traders strive to sell at extreme highs and buy near the low of a trend. Setting precise entry and exit levels is a difficult task, yet a skill that can be honed. In this business a long position or buy level is recognized as support and a short position or selling price is known as resistance. One of the ways to improve entry and exit is to look left on your charts to get a history lesson. [more]

Take Some Time Off for the Holidays

John Kmiecik, Market Taker Mentoring

It’s time for my annual holiday reminder (although you’ll hear me say it at other times of the year as well) about the importance of taking time off as a trader and even as an investor. It is just healthy to do so. The holidays are crazy for most people, and many would say the market has been crazy too. But even if things are not so crazy market or holiday-wise, time off for a trader is imperative. [more]

An Alternative to Selling Option Premium

John Kmiecik, Market Taker Mentoring

We have talked many times about the draw of selling out-of-the-money (OTM) vertical credit spreads for an option trader. Putting it bluntly, the odds are on your side to make money. But guess what? The risk/reward is not so sweet. If you have looked at implied volatility (IV) levels and option prices recently, you know they have been very low. And some would consider option prices cheap. I’m not trying to talk you out of taking credit spreads. Instead, I’m suggesting you consider vertical debits when there is a directional bias and option prices are low. [more]

How to Use Indicators in Your Trades

John Seguin, Market Taker Mentoring

There are no trading tools, indicators or patterns that pay off every time. However, they all have their moments. Good traders know when probabilities have shifted to favor a trend-style trading strategy or a neutral (countertrade) approach. There are two essential technical indicators that traders utilize to create strategy. The vertical indicator measures range (height) over various time frames. This indicator measures the speed of a trend. The horizontal indicator measures width during consolidation phases. Width or time at price reveal fair value areas. Using logic and these two dimensions is vital when choosing to employ directional or neutral option strategies. [more]

Avoiding Stress as an Options Trader

John Kmiecik, Market Taker Mentoring

It is impossible to avoid all stress. Unfortunately, it is just a part of life. Obviously, as any doctor or health professional will tell you, you should avoid stress and stressful situations as much as you can. Naturally, that is easier said than done for most. So, what can we do to avoid stress? I have a few thoughts for option traders that can apply to everyday life too. [more]

Reversals and Overbought/Oversold Markets

John Seguin, Market Taker Mentoring

Over the past two weeks we have seen far above average vertical moves in stocks, bonds, forex, precious metals and crude oil. So, to be pertinent, I thought it best to introduce several ways to identify change in trend after a market has moved too far, too fast. This is otherwise known as reaching overbought/oversold (OB/OS) status.   [more]

Are You Making Time for Theta?

John Kmiecik, Market Taker Mentoring

When most people think about buying equity options, they think of time and expiration. Of course, options are expiring assets. Of all the option greeks, theta may be the easiest to comprehend on the surface. But truly understanding how it works is another story. Let’s take a look at the definition of option theta and how it may change your thought process when it comes to implementing and managing trades. [more]

Pro Traders Commit to Routines

John Seguin, Market Taker Mentoring

I have always been passionate about sports; baseball was my favorite. Now in my 60s my abilities limit me to playing golf, not running down fly balls. One thing has never changed, however. I love to practice and hone my craft no matter which sport or project I am working on. My desire to be the best motivated me to develop routines. These days I apply passion and competitive nature to trading markets. If you want to compete with pro traders practice like one. Practice builds instinct. [more]

Don’t Roll Your Short Option Too Soon

John Kmiecik, Market Taker Mentoring

There are lots of mistakes you can make as an option trader, let alone as a human being. Let’s be honest, some just can’t be helped. But you can prevent rolling a short option too soon if you practice a little patience. Let’s take a look at what I mean by that. [more]

Taking Profits and Trailing Stops Using Targets

John Seguin, Market Taker Mentoring

A trader’s goal is to enter a position early in a trend and ride that position until an objective or target price is met. Catching a trend is difficult enough; squeezing the last dollar out of a trade is even harder. Stop loss orders are used to set risk. As another option they can also be used to manage profitable trades with an order type known as a “trailing stop.” [more]

Bear Call Trades on SPY

John Kmiecik, Market Taker Mentoring

I have this saying when it comes to technical analysis that goes like this: “What has a better chance of happening”? What I mean is, based on support and/or resistance, what does the underlying have a better chance of doing? Now let’s be clear, there is not always a definitive answer to that question. But many times there is, and an option trader can take advantage of those odds. Let’s start with support and resistance. [more]

Moving Averages vs. Pivot Points

John Seguin, Market Taker Mentoring

Moving averages are the most popular directional gauges. They are typically the first technical indicator in the novice trader’s toolbox. Many professional traders rely on them as well. Typically, the directional signals come when a short-term MA crosses a long-term MA. The problem with this method is that [more]

Are You Guessing Too Much as an Option Trader?

John Kmiecik, Market Taker Mentoring

If we are being honest, there is a lot of guessing when it comes to trading. As technical traders, our goal is to put the odds on our side. We know that if we do, we have a better chance of being successful. That said, there is still some luck involved pertaining to how the market moves and how the underlying position is affected. But sometimes traders can’t control themselves and are biased. [more]

How to Recognize Changes Indicating a Shift in Trend

John Seguin, Market Taker Mentoring

Markets tend to shift to neutral at the end of trends. Furthermore, there are often subtle changes in momentum before reversing direction. Good traders have a knack for identifying the start of a trend or the end of one. There are a few patterns that are common at the end of a move. [more]

That Voice Inside Your Head

John Kmiecik, Market Taker Mentoring

We all have sayings we love to repeat to ourselves. And when we say them out loud, let’s face it, it can be irritating to others. That is actually my goal when I repeat certain sayings to my students. I want them to be annoyed with me and finally listen and adhere to what I am saying. My one-on-one and group coaching students will tell me they hear my voice in their heads. I love it!  [more]

Option Vega Can Be Tricky

John Kmiecik, Market Taker Mentoring

The market can be very volatile, and if you have traded at all over the past several months you know that very well. As an option trader, you probably are and definitely need to be familiar with how implied volatility changes can affect option prices and the way you think about different strategies. Let’s look at something I covered in MTM’s Group Coaching class on one of those volatile days when the market was all over the place. [more]

Use Stochastics for Reversals, RSI for Momentum

John Seguin, Market Taker Mentoring

The myth is that Stochastics and RSI (Relative Strength Index) are both used to determine whether a market has reached overbought/oversold status, thus indicating when a trend is near an end or likely to reverse direction. However, RSI is more appropriate for gauging strength of trend. An RSI reading above 50 indicates bullish momentum and a reading below typically favors short positions, while a Stochastic is a more reliable indicator for identifying market turns. [more]

A Look at Technical Analysis Basics

John Seguin, Market Taker Mentoring

Technical analysis is using history to forecast the onset of a trend or determine when a trend is nearing an end. Technical tools and indicators are also used to improve entry and exit levels. Fundamentals, or the forces of supply and demand, earnings, inflation, weather, etc., move markets. Technicals are most useful when fundamental data are scarce. [more]

My Checklist for Entering Trades

John Seguin, Market Taker Mentoring

When I started my analytic career as a technician, I soon realized a fundamental view of the markets is just as if not more important than charting techniques. This inspired me to develop a set of rules for trading equities, treasuries, precious metals, energies and currencies because these markets are usually connected. [more]

A Look at IV Levels Around Earnings

John Kmiecik, Market Taker Mentoring

If you don’t trade options over earnings announcements, you may have not noticed what happens to implied volatility (IV) levels. Usually an expected volatility event like earnings increases the price of options. In other words, when implied volatility increases, so do option prices. That can give an option trader an edge, but that edge is based on a volatility event. Let’s take a quick look below at a recent example. [more]

Good Timing Reduces Risk and Increases Profit Potential

John Seguin, Market Taker Mentoring

Identifying when the odds are high for a trend to commence reduces risk while increasing profit potential. Timing this phenomenon requires a breakout strategy. Entry at the beginning of a sharp vertical move (trend) is the goal.[more]

Use Market Tendencies to Your Advantage

John Seguin, Market Taker Mentoring

I spent many years on trading floors, which led to many hours in pubs and restaurants talking about markets with professional traders. In these post market “meetings” we talked about family and sports, among other things, but mostly we discussed the day’s events and market tendencies. My friends and colleagues shared knowledge that shaped their trading style. Our discussions frequently included favorite patterns, technical nuances and reactions to fundamental data. [more]

Uncover Clues That End or Reverse Trends

John Seguin, Market Taker Mentoring

Markets many times shift to neutral at the end or reversal of a trend. Furthermore, there are often subtle changes in momentum before reversing direction. Good traders have a knack for identifying the start of a trend or the end of one. There are a few patterns that are common at the end of a move. [more]

Basic Technicals for Choosing Trade Type

John Seguin, Market Taker Mentoring

Technical analysis is using history to forecast the onset of a trend or determine when a trend is nearing an end. Technical tools and indicators are also used to improve entry and exit levels. Fundamentals, or the forces of supply and demand, earnings, inflation, weather, etc., move markets. Technicals are most useful when fundamental data are scarce. [more]

Get Friendly in Your Trading

John Kmiecik, Market Taker Mentoring

Trading can be a very lonely undertaking. As a retail trader, you may sometimes feel like you are on an island because you have to make all the decisions yourself. Obviously, there are good things about that too. You are your own boss…hooray! But this mentality feeds into why extracting money from the market can be so difficult. When you are on your own with trading, and with anything in life actually,  the psychological aspects can rear their ugly head. There is a simple solution that cannot guarantee your success but can definitely help: Find a friend. [more]

The Benefits of Bollinger Bands

John Seguin, Market Taker Mentoring

In previous articles I have referred to my “toolbox.” It is a journal I started writing in the beginning of my career 30-plus years ago. I recorded my many mistakes because I learn the most from them. But it also comprises lessons learned from colleagues, books and empirical research from the trading pits in Chicago. My toolbox is filled with the best parts of many disciplines. In this article I will share my favorite Bollinger Bands tips. Bollinger Bands can be used for trend and counter trading strategies. [more]

Think Like a Pro to Trade Like One

John Seguin, Market Taker Mentoring

Spend time with a broker or pit trader from the era when all trades were executed by brokers in trading pits at exchanges and you will learn about open outcry and the information it provides. Pits were created to facilitate trade. To an untrained eye a trading pit looks like a ring filled with angry, aggressive people wearing badges on various colored jackets. But for a seasoned observer a trading pit reveals incredible amounts of information not available on screens or trading platforms. Professional traders monitor order flow. Pro traders use a combination of market-generated information (technicals) and fundamentals (supply/demand or earnings) to define and refine strategies. [more]

Volatility and Vertical Debit Spreads

John Kmiecik, Market Taker Mentoring

Let’s start with something simple that most option traders know. Long options, such as long calls, have limited risk. The purchase price is the risk on the position. One of the many reasons traders love options so much is that they are usually far cheaper than buying 100 or fewer shares of stock. But sometimes even options can be quite expensive, so a trader may consider a spread, such as a bull call or bear put spread. Besides a potentially cheaper trade with less overall risk, there can be other benefits as well.[more]

Timing Reversals Using Stochastics

John Seguin, Market Taker Mentoring

There is a myth that Stochastics and RSI (Relative Strength Index) are both used to determine whether a market has reached overbought/oversold status, thus indicating when a trend is near an end or likely to reverse direction. However, RSI is more appropriate for gauging strength of trend. An RSI reading above 50 indicates bullish momentum, and a reading below typically favors short positions. A Stochastic, meanwhile, is a more reliable indicator for timing market turns or reversals. [more]

Successful Option Trading Is Not Easy

John Kmiecik, Market Taker Mentoring

As a young retail option trader, one of the first things I did was buy an options program called “Options Made Easy.” Some of you may remember it from back in the day. It had three sets of red, yellow and green lights to guide you as an option trader. On the surface, it seemed easy. But in reality, option trading is far from easy. [more]

A Pragmatic Approach to Trading

John Seguin, Market Taker Mentoring

I practice and preach a “pragmatic approach” to trading. A technical trader gathers data, extracts facts and through back testing and empirical study applies the optimal trading strategy. The facts are extracted from price action. Traders and analysts mainly use open, high, low, close to determine momentum (direction), value, risk and profit targets. [more]

Covered Calls Can Work Wonders

John Kmiecik, Market Taker Mentoring

There is almost nothing more frustrating for an investor than to see an investment trade sideways. Granted, it is better than the stock moving lower, but it can still be disappointing. As an investor with no knowledge of options, you have two options: hold or sell. Take a look at the example of Boeing Co. (BA) below. Essentially, the stock has traded pretty much sideways since the beginning of 2023. [more]

Use ATR to Project Profit and Manage Risk

John Seguin, Market Taker Mentoring

Professional traders rely on a mix of mathematics, fundamentals and logic to design strategies, and they have research departments and economists to guide them as well. Fundamentals move markets, but when the fundamentals are lacking traders rely on their technical tools. [more]

Have You Written Your Trading Plan?

John Kmiecik, Market Taker Mentoring

On a recent Saturday morning, I did a webinar on the psychological aspects of trading. Without a doubt, trading psychology is my favorite topic to discuss, and in my opinion it’s the most important by a mile. It is a topic most traders realize needs to be addressed but usually do not want to think about. That’s because during the conversation the importance of a trading plan will be stressed. [more]

Technical Tools to Fit Your Trading Style

John Seguin, Market Taker Mentoring

All technical tools and indicators perform at times, but none pay off all the time. The secret to technical analysis is to identify which indicator is appropriate given current market conditions. I have researched many charting techniques, indicators and technical tools in my 30-plus years in the commodity and stock markets. Whenever I come across a setup or pattern that consistently leads to profitable trades, I place it in my journal. This “toolbox” is a collection of my favorite and most reliable indicators from many disciplines. Trial and error facilitated my journey to creating a personal technical style. I categorize the signals into three types of setups: directional, consolidation (neutral) and breakout. The combination of candlesticks and average true range (ATR) as a speed gauge is the most logical tool to begin creating strategies. [more]

Trading Options After Gaps Can Be Difficult

John Kmiecik, Market Taker Mentoring

This market remains a volatile beast, gapping higher or lower practically every session. We are also almost through another round of quarterly earnings, which always seem to create potential for large gaps. I think many of us can agree that the first 30 minutes of the market can be very volatile because of a volatility event or from an earnings report. If you have been watching the market over the past couple of months, you might say the entire sessions have been volatile. But by being patient, and many times sitting out early market action, you can improve your chances for success later in the session. [more]

Panic Adds Pace to Market Movement

John Seguin, Market Taker Mentoring

Raging inflation and more recently bank failures have added considerable volatility to many markets. There have been big swings in interest rates, which have a direct influence on equity indexes, currencies, precious metals and many commodities. Surprise events often bring on panic, which adds pace to market movement. [more]

A Good Old-Fashioned Bull Call

John Kmiecik, Market Taker Mentoring

No one likes a good old fashioned more than me, but cocktails are not what we are talking about here. Sometimes as option traders we try to get too fancy, and we get caught up in high-probability trade scenarios like out-of-the-money credit spreads. But many times, a bullish or bearish setup warrants a vertical debit spread. Let’s look at a recent example from MTM’s Group Coaching class. [more]

How to Trade Volume Voids

John Seguin, Market Taker Mentoring

As a futures broker, I had many clients who used black boxes for trading signals. These automated trading systems are mainly developed to capture vertical moves. When a buy/sell signal triggers it frequently has a domino effect, which causes prices to move rapidly. The most common bullish breakouts occur when the top of a channel (flag) or pennant (triangle) is violated. A bearish trend often begins when the bottom of a flag or pennant is breached. The type of candlestick at the onset of a breakout can be revealing as well. Candles with full bodies and small wicks indicate power. Thus, a full-bodied [more]

Improve Results with Profit Taking Orders

John Kmiecik, Market Taker Mentoring

There is a lot of subjectivity in life and in options trading. In both, there are lots of choices with many potential scenarios. As any trader knows, there are also lots of judgment calls and not a lot of certainty when it comes to options. There is, however, one move that can 100% improve your trading results. [more]

Which Trade Indicators Pair the Best?

John Seguin, Market Taker Mentoring

There are many tools and indicators for traders. None are infallible, yet they all have strengths under certain conditions. One indicator may give a reliable directional signal, but that signal becomes stronger if the strategy has a partner indicator that confirms the buy/sell or neutral signal. [more]

Some Bearish Setups Are Bullish

John Kmiecik, Market Taker Mentoring

I often remind traders that not every bullish setup that fails is bearish and not every bearish setup that fails is bullish. Then again, sometimes they are. Here are a couple of recent patterns we looked at in MTM’s Group Coaching class with one proving this theory. The jury was still out on the other one at the time of this writing. [more]

Tools of the Trade

John Seguin, Market Taker Mentoring

No matter which career you choose, they all require tools to be successful. Most tools are tangible, but others are psychological, mathematical and even spiritual. As a trader my tangible tool is a chart. There is math in my favorite market indicators, and the indicators illustrate psychological and sociological behavior. [more]

Meet Your New Best Friend

John Kmiecik, Market Taker Mentoring

If you follow me in MTM’s Group Coaching class, you know I start almost every session by explaining what I do when there are higher highs and higher lows and vice versa. I say it for a couple of reasons. One is that you need sayings drilled into your head, and the other is to remind you to follow the trend more times than not. [more]

Recession Fears Take Center Stage

John Seguin, Market Taker Mentoring

I make it a point during every MTM Monday Morning Meeting to highlight the connection between the markets that move money. Central banks set interest rates that have a direct impact on bond prices and currencies. Foreign exchange rates influence stocks, metals and energy, as well as many other commodities. A mixture of all these markets and earnings completes the chain of major market movements. For the past couple of years, prices or inflation figures have had the most impact on direction. However, there may have been a fundamental shift this past week. [more]

History Helps Determine Support and Resistance

John Seguin, Market Taker Mentoring

All traders strive to buy when prices are cheap and sell when they are rich. Bulls/buyers play the long side and search for support areas; bears/shorts favor the sell side and seek resistance areas. The choice to be a bull or bear varies for all traders. To determine support and resistance zones history helps. An ideal trade occurs when we catch a trend early and exit when it is exhausted. Traders endeavor to sell at a premium and buy when prices are cheap. Perfect entry and exit are desired, however rarely reality.  [more]

Using ATRs to Set Profit Targets and Define Risk

John Seguin, Market Taker Mentoring

Around year’s end when the markets are generally quiet, I do some statistical analysis to prepare for the New Year. There is one spreadsheet of vital statistics I generate and use daily. It consists of recent average ranges and benchmark ranges for stocks, ETFs and commodities. Most charting platforms have the ATR (Average True Range) indicator. ATRs are valuable because they improve our ability to set profit targets and define risk over various time frames. Furthermore, a comparison of near- and long-term benchmarks can be used to determine if volatility is rich or cheap. [more]

Take a Trading Break for the Holidays

John Kmiecik, Market Taker Mentoring

The holidays are crazy for most people, and some might say the market is crazy right now as well. Whether or not you think the latter is true, the one thing that is for sure is you sometimes need to take a break trading. The holidays are a perfect time. [more]

Improve Your Trade Location

John Seguin, Market Taker Mentoring

One of the more difficult issues traders face is choosing the best prices for entry and exit. Good trade location simply means buying near the low of a move or selling when a rally reaches exhaustion. Identifying the onset of a trend and entering early in the cycle is another form of good location. The earlier you catch a trend risk is mitigated while profit potential increases. Pinpointing daily entry and exit levels, also known as support and resistance areas, requires some technical and fundamental history of the market you are trading. [more]

Don’t Forget About Iron Condors

John Kmiecik, Market Taker Mentoring

A short iron condor is a market-neutral strategy that combines two credit spreads. A call credit spread is implemented above the current stock price, and a put credit spread is implemented below. The objective of any credit spread is to profit from the short options’ time decay while protecting the position with further out-of-the-money long options.

It’s a Theta Trade

The option greek that makes the biggest impact on a short iron condor is theta. The iron condor is simply combining both the call and put credit spreads into one trade. The trade has two forms of  [more]

Option IV Levels Are Important But ...

John Kmiecik, Market Taker Mentoring

Let’s get this out in the open right away. Implied volatility is very important for an option trader. Let me repeat that. IV levels are important. However, many option traders will place the importance of IV levels above that of the expected move or non-move of the underlying. To me, this is a big mistake.

Changing Your Thought Process

I have so many students who get caught up in this thought process. When IV is elevated, they think the only option position  to consider is selling premium. Of course, when IV levels are lower, it’s time to buy options. Now don’t get me wrong, I am not saying to go out of your way to sell cheap premium and buy expensive premium. But what matters more? For example, if I am selling a call credit ... [ more ]

Set Your Rules for the Tools of Trading

John Seguin, Market Mentor Mentoring

Over the past 30 years, I have researched and tested many strategies using the seemingly countless tools and indicators available to traders. My goal has always been to understand the logic of each technical tool, as well as to learn the fundamentals that affect any futures market including indexes. Each tool has a purpose, but they all have weaknesses as well.

Generally, the tools of trading are designed to reveal trend strength, change in trend, timing entry, and risk and profit targets. One of my rules for tools is to have one indicator for each type of market condition or situation. There are short-term indicators for timing breakouts or reversals. And, of course, there are 50- and 200-day moving averages... [more]

Trust Resistance Over Your Gut

John Kmiecik, Market Taker Mentoring

One recent morning in MTM’s group coaching class, we observed the S&P 500 ETF (SPY) gapping up to a previous resistance level. As I often remind traders who follow technical analysis, resistance like support has a much better chance of not letting the underlying through that level. I like to say there is about a 70% chance it will hold. So, I asked the traders in group coaching class, what has a better chance of happening after the gap higher? [more]

Choosing Moving Averages Based on Trading Time Frame

John Seguin, Market Taker Mentoring

Futures traders tend to be more short-term oriented than stock and ETF traders. Most of my trades in the futures market are intended to be speculative, meaning I will be out the position within 24 hours or even by the end of the trading session. Generally, stock market traders and investors plan to hang onto trades for more than a day and often for weeks or longer. Thus, it is important to choose technical indicators that are pertinent to your time frame. [more]

Stop Always Thinking Bullish Trades

John Kmiecik, Market Taker Mentoring

Here is a quick but important post about remembering what type of market we are facing and why many traders always think about bullish trades…even when the market is heading south. Let’s face it, it has been a less than stellar bullish year thus far. That said, many traders are still primarily looking for bullish trades. Let’s consider why this may be the case.

Ingrained to Be Bullish

One of the first things I always ask traders when talking about trades, especially in a bullish...[more] 

Define Risk and Lock in Profits with Stops

John Seguin, Market Taker Mentoring

A trader’s goal is to enter a position early in a trend and ride that position until an objective or target price is met. Catching a trend is difficult enough; squeezing the last dollar out of a trade is even harder. Stop loss orders are used to set risk. As another option they can be used to manage profitable trades with an order type known as a “trailing stop.”

Setting a Stop Loss

Once a position is taken, the next step is to set a stop loss price. When a stop loss order is triggered, it becomes a market order. [more]

SPY Double-Bottom Was No Surprise

John Kmiecik, Market Taker Mentoring

The S&P 500 ETF (SPY) as well as the index itself moved higher last week, surprising more than a few traders and investors. But if you were watching the technical analysis closely, it should not have come as a shock to you. Lat’s take a look.

SPY at Support 

In the chart of SPY below, you can see the ETF had previously come down to around the $362 level in mid-June. On Friday, Sept. 30, the ETF closed below that level. But what happened the following Monday should not have been a surprise. [ more ]

How to Think Like a Trading Pro

John Seguin, Market Taker Mentoring

I spent almost 20 years at the trading exchanges in Chicago and another 20 years writing newsletters, building trading systems and educating traders. As a broker I serviced numerous professional traders. Some used only fundamental data, economic reports or order flow to make decisions. Some used charts and technical indicators, while others entered trades because an automated system or “black box” gave the signal to buy or sell. Some traders incorporated many disciplines into their decision making. But they all were seeking answers to the right questions. [ more ]

An Options Trading Routine Is Smart

John Kmiecik, Market Taker Mentoring

I often harp on traders to have a written trading plan. Without one, in my opinion, they won’t have much chance of being successful in the long run. One of the many reasons to consider a trading plan is to formulate a routine for yourself. Following a routine you are comfortable and successful with is imperative to your potential success.[more]

Prepare for Panic and Learn

John Seguin, Market Taker Mentoring

The U.S Department of Labor releases the employment report on the first Friday of each month. For many years it was the most critical and scrutinized of all the monthly economic reports. If the actual results varied from the consensus estimates panic often ensued. The impact of this report frequently set the direction for weeks and sometimes an entire month.  [more]

Use Positive Theta to Offset Delta Risk

John Kmiecik, Market Taker Mentoring

If you know anything about me, it’s probably my profound love for time spreads, particularly long calendars. Long calendars consist of selling a call or put and buying another call or put with the same strike but a longer expiration. For me that usually means selling the current week’s expiration and buying the next if there are weekly options available. Positive theta is the main source of potential income for the position, but I like to look at it maybe a little differently. Let me explain. [more]

Make Publishing Your Game Plan a Priority

John Seguin, Market Taker Mentoring

A few decades back I began publishing daily newsletters for traders both on and off the trading floor of the CBOT. When I started this practice, I focused on interest rate markets because I was a broker in the 30-year bond arena. I prioritized and listed all the elements a trader requires to make sound trading decisions. I was fortunate enough to start my career in a sector that affected many other financial markets such as foreign exchange, precious metal, equity index, energy and even agriculture.  [more]

Support and Resistance Are Your Edge

John Kmiecik, Market Taker Mentoring

Over the past several months, this market has been tough to navigate as a swing trader, in my opinion and based on discussions with other traders. But despite so-called difficult market conditions, traders can always look for an edge, and that edge can be support and resistance. [more]

How to Identify Market Extremes

John Seguin, Market Taker Mentoring

One of the more difficult tasks traders face is choosing areas where extremes (high or low) are likely to form.  Pinpointing ideal entry and exit levels is possibly the most difficult and desired task we face. In the industry, buy areas are known as support and sell zones are called resistance areas. To enhance your ability to identify... [more]

Option Management Is Key

John Kmiecik, Market Taker Mentoring

Consider this a friendly reminder about managing your option trades. With the craziness and the volatility of the market over the past few months, I have gotten multiple questions during MTM’s group coaching class and especially through email about managing trades. For the most part, the trades in question are losing ones. I always tell these traders the same thing: Know exactly what you will do, no matter what happens, before entering any trade. [more]

Technical Overload: Keep It Simple

John Seguin, Market Mentor Mentoring

No tool or indicator performs well in all market conditions. The plethora of indicators/tools have merit, yet they all have faults. Thus, it is imperative that each of your indicators have a purpose. They should reveal solutions for a variety of market conditions. Necessary indicators: bull, bear, neutral, reversal, speed and resistance/support.

An overload of indicators leads to conflict, and confidence is lost when conflict reigns. Trading is challenging enough, so we must utilize tools that serve a specific purpose.   ... [more]

Understanding the Nuances of Option Delta

John Kmiecik, Market Taker Mentoring

There are so many facets to options trading compared with stock and futures trading. Getting a good grip on the option greeks is mandatory to truly understanding how options function. For option traders both new and experienced, knowing what option delta is and what it means for your option position can be the difference between a profitable and not so profitable position. Before we go further, let’s look at the definition of option delta. 

Different Definitions of Option Delta

Here are four definitions... [more]

Essential Technical Tools for Trading

John Seguin, Market Taker Mentoring

When I purchased my first house, I had no tools to repair or build anything. I was far from a handyman and my father knew it. After we settled in, my dad showed up with gifts that every homeowner should have. Those essential tools were duct tape, WD40, a couple of screwdrivers, plyers, electric drill and a hammer. He said I could fix most problems and build shelves with these essential tools. As time passed my toolbox grew, but after 30-plus years of home ownership I still use those original tools more than any others.

Every trader I worked with or for had a “toolbox.” The tools of the trade are either fundamental (forces of supply and demand) or technical (charts and indicators). [more]

The Basics of Implied Volatility and Options

John Kmiecik, Market Taker Mentoring

Implied volatility (IV) represents the expected volatility of the underlying (usually stock) over the life of an option. As the expectations of the underlying changes, so does the option premium. This is influenced by the basics of supply and demand. Naturally, other factors can change the premium, like the underlying’s movement and time, but here we will focus solely on IV. [more]

How to Read Big Player Trader Patterns

John Seguin, Market Taker Mentoring

As an educator I have made assumptions that new traders already have a good understanding of market fundamentals. The more I teach the more I realize most traders have not experienced trading pits and the valuable lessons we were privy to in that environment. Looking back, it was a privilege to watch the auction process in its most basic form: a trading pit. [more]

Tighten the Leash on Your Option Trades

John Kmiecik, Market Taker Mentoring

It’s been difficult to profit with swing trades (generally 2- to 5-day trades) as of late because of the extreme market volatility. The market swings have been big and many times very unpredictable on a day-to-day basis. Under these circumstances, , it might be prudent for option traders to take profits and cut losses quicker than normal. This includes moving up hard and mental stops. [more]

Gauging a Trend Too Far, Too Fast

John Seguin, Market Taker Mentoring

All traders endeavor to catch a trend early and ride it to the end. To accomplish that requires incredible timing on both entry and exit. Some trends end slowly after shifting to neutral. Others end abruptly after moving too far, too fast, otherwise known as reaching overbought/oversold (OB/OS) status. [more]

Long Puts Are a Viable Option

John Kmiecik, Market Taker Mentoring

Let this be a reminder to all option traders who have abandoned buying calls and puts: Don’t forget to consider them an option. Long calls and puts were the first trading strategies I learned as a brand-new retail option trader, but most option traders I’ve encountered over the years tend to forget about them. In a market like the one we have experienced over the past several months, however, wouldn’t a long put be a more than viable option? [more]

Practical Uses for Average True Range

John Seguin, Market Taker Mentoring

Average True Range (ATR) is one of the most practical indicators and can be used in many ways. Some of the ways I employ ATR is to compare recent ranges with longer-term or benchmark averages. In this way I can judge whether current volatility is high or low. Spreads tend to pay off when current ATRs are lower than the long-term ones. [more]

Don't Be a Cocky Trader

John Kmiecik, Market Taker Mentoring

It has been a crazy couple of years if you have not noticed. The world we live in is not the same anymore nor will it ever be for better or for worse. More than ever, we as humans need to take a break and try to get away and get our minds off stressful aspects of our lives, which includes options trading.

Taking a break can be one of the best things that you can ever do to help improve your trading. Writing a trading plan will always be the most important in my eyes, but taking a break from time to time is up there as well. The stress that can be caused from trading can really affect other aspects of your life that do not involve trading. I remember having several awful days of trading when I was still [more]

What Do You Know About Option Theta?

John Kmiecik, Market Taker Mentoring

What do you know about option theta? For many, it can be the easiest option greek to understand, but for many others it is the most difficult. Let’s take a quick look below and, let’s hope, clear up some confusion.

Theta measures the rate of decline in the value of an option due to time passing. Keeping it simple, for every day that passes, theta should decrease the option’s premium by the amount of theta. Long options, both calls and puts, have negative theta. Short options, both calls and puts, have positive theta. How can we use this as part of our option trading? Theta is also highest at-the-money (ATM) and smaller out-of-the-money (OTM) and in-the-money (ITM). [more]

Improve Timing When Entering a Position 

John Seguin, Market Taker Mentoring

Late entry for a position can be costly in that it increases risk and decreases profit potential. In previous articles I introduced some of the tools from my “trader toolbox.” In this piece I will introduce some of my favorite indicators for initiating a bullish or bearish position in a timely fashion.

To improve timing when entering a position, I prefer using 60-minute bar or candlestick charts. Liquidity (volume) peaks during the opening 60 minutes of the trading day and the last 30 minutes of the session. Professional traders tend to be most active during those times because they can execute large orders without hurting their positions. Fundamentals move markets and pro traders [more]

Understanding Risk and How to Reduce It

John Kmiecik, Market Taker Mentoring

There is no sure thing as an option trader when it comes to risk and profits. Heck, there are not many things in life in general that are a sure bet either, no matter how much the odds may be on your side. All trading is speculative, but as traders we do our best to improve the odds. But what if there is not a setup that matches our criteria for entry?

I like to call it the “ducks in a row” theory. As a quick example, what if you have a bullish setup, a bullish trigger and a bullish market? That could be considered a ducks-in-a-row trade. But what if your ducks are not in a row? The simple answer is, do not take the trade. But what if your gut is telling you something else? [more]

Organizing Prices to Identify Patterns

John Seguin, Market Taker Mentoring

Before computers were used for charting on the CBOT trading floor, books were published weekly that had day and week bar charts for all the futures markets. On the exchange trading floor, many traders used handmade graphs to track short-term price action with intraday bars using open, high, low, close (OHLC). Some used the point & figure technique and eventually candlesticks became popular. Charting or technical analysis is mapping and organizing prices to identify patterns.  

Numerous books have been written on seemingly countless patterns. There is terminology to describe popular patterns using the bar or point & figure style, such as flags and pennants, trendlines, head & shoulders, gaps, island reversals, and triangles to name a few. [more]

Most Option Traders Roll Strikes Too Soon

John Kmiecik, Market Taker Mentoring

There is a common issue I see all the time with traders who use options with their investments, particularly when covered calls and time spreads are involved. The problem is they tend roll the short position too soon when the short strike is being threatened. I talk about this frequently in MTM’s Group Coaching class and show many examples. Let’s look at one below.

Selling Premium

Selling a call option against a stock position is commonly done by investors (covered call). The call option’s strike is generally sold where the investor thinks the stock [more]

A Warning About Selling Naked Puts

John Kmiecik, Market Taker Mentoring

With another wave of earnings right around the corner, I feel the need to caution option traders and investors about selling “naked” or cash-secured puts over an earnings announcement. Whether you refer to it as writing or selling naked options, many option traders do not understand the risk. Selling a put option without having a position in the underlying stock or being long any options on the stock is considered a naked position. For example, if a trader is writing naked calls, he is selling calls without owning the stock. If the trader did own the stock, the position would be considered covered.
 

Your Checklist Before Entering a Trade

John Seguin, Market Taker Mentoring

Growing up I was passionate about sports; baseball was my favorite. I loved the game and practice. I never had enough ground balls, fly balls, pitching and batting. My obsession to be the best was not a chore, it was fun. I have taken that passion and applied it to markets. If you want to be a pro, practice like one. Practice builds instinct.

Aside from being a Market Taker mentor, I publish daily newsletters to guide traders in the futures markets. I started doing this in the late ’80s as a broker, and to be competitive I had to adapt to different conditions and client requests. It forced me to develop strategies for equities, treasuries, precious metals, energies, currencies and even grains. I started my analytic career as a technician and soon [more]

How to Trade Low Volume Pockets

John Seguin, Market Taker Mentoring

Most trading systems are developed to capture vertical moves. The most common bullish breakouts occur when the top of a channel (flag) or pennant (triangle) is violated. A bearish trend often begins when the bottom of a flag or pennant is breached. The type of candlestick at the onset of a breakout can be revealing as well. Candles with full bodies and small wicks are an indication of power. Thus, a full-bodied candle passing through a trendline is a great indicator for an upcoming above average vertical move. When a market breaks into a trend it is often fast and furious leaving behind low volume pockets. [more]

Using Candlesticks to Catch Trends

John Seguin, Market Taker Mentoring

All technical tools and indicators have strengths, but it may be more important to understand their weaknesses. The trick to using technical tools is to identify a pattern or indicator that commonly precedes a high percentage trade. I have studied many charting techniques and tools in my 30-plus years in the commodity markets. Whenever I come across a pattern that has consistently led to a payoff, I enter it in my toolbox or journal. I have a section called “candle confidence,” which are patterns that fit my personal technical style. I categorized the signals into three types of setups: directional, consolidation and breakout. [more]

2 Crucial Option Trading Mantras

John Kmiecik, Market Taker Mentoring

Are you a person who likes to repeat yourself? If you are, this lesson will be an easy one. If you are in my group coaching class or a one-on-one student, you have heard me repeat some of my favorite phrases that have helped me become successful. Why do I repeat them so frequently? I want my students to know how important these mantras are, and I want them to hear my voice when the situation arises and think about what they need to do or consider.

Let’s be clear, I don’t get a thrill out of haunting your thoughts, but I do get a thrill out of you knowing what I feel is very important to your potential success. I am just going to cover two mantras here, and I will explain briefly the meaning behind them. [more]

Enhance Trade Timing with Intraday Direction Indicators

John Seguin, Market Taker Mentoring

Perfect timing for entering and exiting trades is high on the wish list of every good trader. Early identification of a breakout or trend is known as good trade location. Ideal entry not only increases profit potential, but it also reduces risk. It is important to have short-term or intraday direction indicators that will enhance the timing of a trade.

Pre-trend Phases

There are certain patterns that frequently occur before a trend begins and when one is near exhaustion. Maybe the most prevalent pre-breakout pattern is known as a consolidation phase. Trend potential is high when day ranges and volume dip below average for [more]

Trading Lower Highs and Lower Lows

John Kmiecik, Market Taker Mentoring

The market has made some big moves lower as of late and at some point, if not by the time this article is published, it will move higher again. I assume you have heard the saying “the trend is your friend.”  Probably too many times, right? Well, there are several sayings and reminders when it comes to trading that stand the test of time and this is absolutely one of them. I like to start out MTM’s Group Coaching sessions by reminding traders to consider the trend that will put the odds on their side for a potentially successful trade.

As technical analysts and traders, we are always looking for an edge and to put the odds on our side. Finding an opportunity like a trend fits these criteria. An uptrend is an underlying that is setting higher pivot highs and higher pivot lows as seen below. [more]

Using Average True Range to Identify Trade Type

John Seguin, Market Taker Mentoring

At least once a quarter I make it a point to collect statistical data that will be used for choosing trade type as well as setting targets and risk. This vital information is stored in a spreadsheet, and one of the features consists of recent average true ranges (ATR) compared with benchmark or long-term ATRs for stocks, ETFs and commodities.

Use ATR to Determine Markets Phases

All charting platforms have an indicator that tracks average ranges. ATRs are valuable because they improve our ability to set profit targets and define risk over various time frames. Furthermore, a comparison of near- and long-term benchmarks can be used to [more]

Option Traders Need to Consider Spreads

John Kmiecik, Market Taker Mentoring

If you learned about options the way I did, you started with long calls and puts. I was fascinated that I could have a directional bias for the underlying and make money with options with considerably less risk than buying or selling shares. But as you progress as an option trader, you learn there may be different and better ways to do so than just buying a call or put. As always with options, there are trade-offs too.

For example, let’s say an option trader believes XYZ stock will rally over the next few weeks. The stock is currently trading at $59.50. He could buy the February 60 call for 3.50. But what if XYZ traded sideways or dropped in price over the next several weeks or the [more]

Identify Neutrality for Trend Reversals

John Seguin, Market Taker Mentoring

Markets tend to shift to neutral at the end of trends. Furthermore, there are often subtle changes in momentum before reversing direction. Good traders have a knack for identifying the start of a trend or the end of one. There are a few patterns that are common at the end of a move.

Subtle Changes Reveal a Shift in Bias

During a bullish trend it is common to see the low of the day within the first hour of the session. And in a bear market the daily high is often made in the first 60 minutes. When opposite activity occurs, it signals a subtle shift in bias. When a trend higher swings to [more]

What Does a Bullish Base Look Like?

John Kmiecik, Market Taker Mentoring

I talk about bullish bases in MTM’s Group Coaching class practically every day, especially with the market generally moving higher for most of 2021. Yes, the market has been predominantly bullish. But what does a bullish base look like and how can we use it for a potential bullish entry? Let’s take a look.

What I consider to be a bullish base is when a stock moves considerably higher, usually over a short period of time, and then begins to trade sideways. To me, the question becomes what is sideways? If the stock does not pull back more than two-thirds of the move higher, it is a bullish base. [more]

Confirm Market Turns Using Stochastics

John Seguin, Market Taker Mentoring

The myth is that Stochastics and RSI (Relative Strength Index) are both used to determine whether a market has reached overbought/oversold status, thus indicating when a trend is near an end or likely to reverse direction. However, RSI is more appropriate for gauging strength of trend. An RSI reading above 50 indicates bullish momentum and a reading below typically favors short positions, while a Stochastic is a more reliable indicator for identifying market turns.

The Stochastic oscillator comprises the first line known as %K. The second line known as %D is a simple moving average of the %K. The most common setting for the Stochastic oscillator is 14 periods for %K along with a 3-period SMA (simple moving average) of %K, [more]

Sometimes Doing Nothing Is a Trader’s Most Profitable Move

John Kmiecik, Market Taker Mentoring

I assume if you are reading this you have an interest in the market, whether you are a trader, investor or both. I also assume you have seen how volatile the market has been, particularly over the past several weeks. Not only has there choppy and sloppy action from session to session, but also many moves that have been extended both ways. In addition, the closes have been erratic at best. The intraday action has been just as unpredictable with early buyers’ enthusiasm slowly surrendering to sellers to end the day and vice versa. Just take a look at Monday, Jan. 10, for an example of volatility that bled into the following day. [more]

Identify Trend Potential and Entry Levels

John Seguin, Market Taker Mentoring

To identify the onset of a trend, go to the root and search for patterns that frequently precede one. By doing so we improve the odds of entering a trend early.

Pre-trend Setups

Above average vertical moves often occur after a market has gone through a period of choppy trendless trade, also known as a consolidation phase. Think of the trendless period as the time it takes to build up energy, like a pressure cooker. When that pent-up energy is released, the move is often directional and rapid. The more time spent consolidating, the bigger the breakout is apt [more]

Long Calls Are a Solid Option

John Kmiecik, Market Taker Mentoring

Every so often I need to remind option traders that long calls are a great way to profit with a bullish outlook. So many option traders get caught up in the notion of selling premium that they end up abandoning all strategies that are directional especially long calls. Here is a quick reminder to all option traders who have abandoned buying calls: Please don’t forget to consider them an option.

The first thing I learned as a brand-new option trader was a long call. I considered it a great strategy when I expected to profit from a move higher in the stock for significantly less money than buying shares. Of course, as time goes by and an option trader becomes more knowledgeable, spreads usually become another choice to consider and for good reason. Many option traders seem to forget a [more]

Use Dimensions for Timing Breakouts and Setting Targets

John Seguin, Market Taker Mentoring

A couple of times a month I update a spreadsheet filled with dimension data. The most useful spreadsheet I generate consists of recent average ranges and benchmark ranges for stocks, ETFs and commodities. Most charting platforms have the ATR (Average True Range) indicator. Average ranges are vertical measurements and are valuable because they improve our ability to set profit targets and define risk over various time frames. Furthermore, a comparison of near- and long-term benchmarks can be used to determine if volatility is rich or cheap. The horizontal dimension is calculated by measuring time at price. Time at price is a proxy for volume and is used to identify trend potential. Above average time at price frequently precedes acute vertical moves or trends. [more]

Keep Your Trading Watchlist Fluid

John Kmiecik, Market Taker Mentoring

In my daily group coaching class and one-on-one coaching sessions, I frequently talk about the need for a trading watchlist. I have two active watchlists: one for underlyings I always look at (which I am talking about here) and another to actually know when to take the trade. Without either one, I believe many traders are just searching aimlessly for opportunities. So many option traders I work with ask me how to find the best opportunities. Having a watchlist that is fluid gives you the best chance to do so, in my opinion.

There are so many different scans and services at a trader’s disposal it could make your head spin. The thought of having the best candidates at your fingertips can be quite exciting, but it can be a little overwhelming too. Now by no means do I mean you should [more]

Pandemic Panic and How to Adjust Your Trading

John Seguin, Market Taker Mentoring

Pandemic panic plays a huge role in the way markets move. Logic gets lost and price is frequently determined by fear. Herd mentality is widespread and unpredictable. Technicians recognize these phases as roller coaster rides and must adjust. Trend strategies often fail when panic is prevalent; thus, countertrade tactics usually prevail.

Market Phases

Markets trend, consolidate, trend and consolidate again. These phases are constant in all markets. A trader needs to identify which phase a market is in and apply the best strategy. Markets were created to facilitate trade. When a market moves in a direction and [more]

Your Regular Reminder to Review Your Option Trades

John Kmiecik, Market Taker Mentoring

As a constant reminder to traders everywhere, please review your trades regularly. I tell this to traders as often as I can because it is that important. Simply said, there is no better way to see what you are doing wrong and doing right. To me, it has always been an eye-opening experience to go back and review my trades. The reason to do this is to get better. But there is another reason that will give you a chance to profit as a trader sooner rather than later and that is to learn about options from your screenshots.

In both group and one-on-one coaching, I tell traders to take screenshots all the time. You will learn from me and other sources, but I promise you will learn more from yourself through the screenshots. I tell my students to take screenshots if they are paper trading [more]

How to Use Bollinger Bands

John Seguin, Market Taker Mentoring

In previous articles I have referred to my “toolbox.” It is a journal I started writing in the beginning of my career 30-plus years ago. I recorded my many mistakes because I learn the most from them. But it also comprises lessons learned from colleagues, books and empirical research from the trading pits in Chicago. My toolbox is filled with the best parts every new discipline I investigate. In this article I will share my favorite Bollinger Bands tips. Bollinger Bands can be used for trend and counter trading strategies.

They are plotted above and below a simple moving average. The recommended moving average is 20 periods, which represents an intermediate trend. The bands above and below the moving average are moving standard deviations (lower case sigma or σ). [more]

Have You Checked Your Option Vega?

John Kmiecik, Market Taker Mentoring

Implied volatility (IV) can be a huge influence on your option trades especially on single-leg trades. Keeping it simple, IV is used to determine the current price of option contracts together with other factors like time to expiration and the strike price. In general, when IV rises, so do option prices and when IV falls, so do option prices.

Implied volatility levels generally increase when the market is bearish and decrease when the market is neutral or bullish as we have seen. Long options, both calls and puts, have positive vega because a rise in IV would increase the premium, which is good for a debit position. Short options, both calls and puts, have negative vega because a drop in IV would lower the premium, which is good for [more]

Top Techniques for Defining Support and Resistance Areas

John Seguin, Market Taker Mentoring

All traders strive to buy when prices are cheap and sell when they are rich. Bulls/buyers play the long side and search for support areas; bears/shorts favor the sell side and seek resistance areas. The choice to be a bull or bear varies for all traders. History helps to determine support and resistance zones. An ideal trade occurs when we catch a trend early and exit when it is exhausted. Traders endeavor to sell at a premium and buy when prices are cheap. Perfect entry and exit are the dream but rarely the reality.

Finding ideal trade location is one of the most difficult tasks for traders. To hone your ability to pick off extreme highs and lows of a trend, refer to recent history. Chart patterns repeat in all markets and time frames. Markets tend to stall and reverse after retesting [more]

Do You Guess Too Much as an Option Trader?

John Kmiecik, Market Taker Mentoring

Do you guess too much as an option trader? What I mean is, do you force your opinion on a stock or the market believing it should do something based on your thoughts, and are you surprised when it does not? If you have traded you have had an opinion about a stock, the market or both. But what I see far too often is the disappointment when a stock does not perform as the individual predicted. Well, guess what, stocks and the market have a mind of their own.

Like all of us who are option traders, we have free will (for the most part) to buy or sell whatever we choose. The market and stocks have their own free will too. You cannot force your opinion on something because the market sets the price no matter what you may [more]

Options Arbitrage and Valuation

Dan Passarelli, Market Taker Mentoring

I LOST $400?!? That’s IMPOSSIBLE!

We’ve all felt this way at some time on a trade. But in this case, it was actually true. Let me provide some background…

We had our annual MTM Mastermind event in Chicago a couple of weeks ago. In that event, our more elite student traders and John and I trade together live and in person. We trade everything. I like to say at that event, “Give me an EKG chart; I’ll trade it!”

One trade that popped up was an OptionsRaider trade—a short squeeze on CLOV stock. I traded it following our rules and bought the corresponding calls. It worked out nicely. But as I further studied the options chain in CLOV, I noticed some of the far-out-of-the- [more]

An Option Spread Can Relieve Some Doubt

John Kmiecik, Market Taker Mentoring

I have this conversation with every options trading student I teach and in fact had it twice last week. I tell them that continually extracting money from the market is not easy. I always like to say there are three difficult phases when learning how to trade options. The first, and second most difficult in my opinion, is learning about options including the strategies and the greeks. The second is the easiest but by no means is it easy, and that is learning when and what strategies to use based on the charts, time and volatility. The last is no doubt in my opinion the hardest: managing the trade. [more]

Cures for a Trader’s Optimistic Bias

Joe Leska, Market Taker Mentoring

Over the past week, I’ve spoken to a number of new traders who’ve been having a rough time. Some have not experienced the level of volatility we’ve seen in the markets lately, and this has shaken them to the core. Many folks are baffled as to why their bulletproof strategies are now fallible. Anxiety has been running rampant, and I’m no longer hearing talk of this market going to the moon. Rather, there’s been much gnashing of teeth and fear of a different destination.

Being the heavily grizzled (and graying) veteran I am, I can’t help but chuckle a bit at the “sky is falling” perception of some. I try to assure them that history shows markets can get a heck of a lot more volatile than the recent price action we’ve seen and remain [more]

Waiting for a Move Through Resistance

John Kmiecik, Market Taker Mentoring

The market has been in a bullish trend lately, continually setting all-time highs. Until some major support levels, like the 50-day moving averages on the three major indexes, traders should be careful hunting for bearish directional trades. Below we will look at a couple of trade ideas that came up in my daily group coaching class recently and my thoughts on why I am fanatical (some might say) about resistance.

Resistance is a level that an underlying has trouble moving above. It can be horizontal, at an angle, a recent high or low or a moving average, just to name a few potential resistance levels. I always like to say that with resistance, and support for that matter, [more]

Shedding Some Light on SPACs

Joe Leska, Market Taker Mentoring

One of the hottest “new” investment and trading products over the past couple of years has been the SPAC. Short for special purpose acquisition company, SPACs have actually been around for decades. Due to several high-profile deals and a massive increase in interest from Wall Street, it is understandable why retail traders have also become curious. I have been approached by several folks recently, asking me what I thought about investing in and/or trading in these types of securities. Let’s take a brief look behind the curtain to see what these special purpose investment vehicles are all about. [more]

Removing Risk as an Option Trader

John Kmiecik, Market Taker Mentoring

A couple of weeks ago, I talked about risk and reward. This week, I am staying on the same subject and letting you in on a little secret. There is something you can do as a trader that can improve your trading dramatically and the best part about it is that it’s really easy. I am talking about saying to yourself, either out loud or in your head, that you are going to remove risk first when closing out any position for a profit or a loss.

I always like to tell my students that you need to think of yourself as a risk manager more than just an option trader. To me, that makes you cognizant of risk at all times. So, when you say to yourself that you are taking a profit or taking a loss, you may not realize [more]

Don’t Trade While Inattentive

Joe Leska, Market Taker Mentoring

Chew on this. You spend months attending group coaching sessions, going to webinars and poring over stock charts. Most of your valuable free time goes toward studying options theory, and along the way you learn to speak “greek,” too. After paper trading for a while, you decide to put your newly acquired knowledge into practice officially. Stumbling through the first weeks and months of trading with real money, it’s quite common to experience dozens of creative ways to lose money when trading options. Yet, you learn from your mistakes and persist. Showing true grit, you turn the corner, bringing your account out of the red and into a net positive position for the first time. You’re feeling pretty good as your win rate continues to improve and your P&L goes higher and higher. Maybe all this hard work is [more]

Do You Have Time for Theta?

John Kmiecik, Market Taker Mentoring

Of all the option greeks, option theta may be the easiest to comprehend. That being said, truly understanding how it works is another story. Let’s take a quick look at the definition of theta and how it may change your thought process when it comes to managing trades.

Theta measures the rate of decline in the value of an option due to time passing. Keeping it simple, for every day that passes, theta should decrease the option’s premium by the amount of theta. All options both long and short decay due to time. Long options, both calls and puts, have negative theta. Short options, both calls and puts, have positive theta. How can we use this as part of our option [more]

Understanding the Seasonality of Implied Volatility

Joe Leska, Market Taker Mentoring

When you think about trading all day, every day as I do, everything seems to come back to puts and calls in some way, shape or form. We all just celebrated National Dog Day, whereupon I, of course, immediately made a connection to options. Specifically, I recognized how this holiday fit into my understanding of the seasonality of options implied volatility. Let me explain some of what I know about this phenomenon, and then I'll share how this knowledge might help shape your trading decisions.

Seasonality refers to measurably predictable patterns and changes occurring over a calendar year, which is split into four quarters (seasons). Seasonality can be used to help analyze stocks and economic trends and can be another tool used for predicting [more]

Is Option Risk Worth the Reward?

John Kmiecik, Market Taker Mentoring

Read the title of this article before you go any further. Smart traders should consider asking themselves this when entering a trade and, in my opinion, it should be documented in your trading plan. In addition, option traders should consider repeating this mantra in the first part, middle of and toward the end of each trade.

When I am talking to option traders, I always point out that they should consider multiple exits for profit and loss. I cannot tell you how much this has improved my own option trading. There is not a perfect management plan out there, I promise. Having several exits just makes sense. [more]

Meme Stock Phenomenon Sparks FINRA Crackdown

Joe Leska, Market Taker Mentoring

As option traders, we of course must pay close attention to the rules of the game. Most of the time, trading regulations are clearly spelled out and identifiable. With new technology and an influx of thousands of retail options traders, a number of issues have come up that have caught the attention of the SEC. Right on schedule, the regulatory fallout from the GameStop saga of earlier this year is beginning to have an impact on market participants. The Financial Industry Regulatory Authority (FINRA) recently announced that it will be conducting a focused review of broker-dealer “practices and controls” with regards to supervising options account trading of their retail clients. Let’s take a look at how the process works and how this news will likely impact options traders. [more]

Earnings Season Is Not Time for Naked Puts

John Kmiecik, Market Taker Mentoring

Many option traders like the sound of selling naked puts and for good reason. Generally, the potential premium is nice and depending on the strike that is sold, the odds are on the option trader’s side. Add an expected earnings announcement with elevated premium and it seems like you cannot miss, right? Let’s take a look.

‘This Trade Cannot Lose’ 

Traders often think selling naked puts is low-risk strategy that can offer consistent profits, and indeed it very well can be. The strategy is to sell a put without having a long position, generally with the same expiration. If assigned, the option trader takes control of 100 [more]

Impact of Increased Retail Trading Volume

Joe Leska, Market Taker Mentoring

I popped over to The Options Clearing Corp.’s website and took note of the size and scope of the impact retail traders have had on the option market. It’s amazing how all those one-, five- and 10-lot orders have made a difference. I determined that single stock options daily trading dollar value exceeded $500 billion for the first time ever. This "notional" number had been flat for years, hovering around $120 billion. It began to ramp up in April 2020, which coincided with the start of the pandemic, and ushered in huge numbers of new retail traders.

What’s the big deal and why am I writing about it? Because this volume is changing the complexion of the underlying company’s share price and therefore the corresponding options prices. Developing traders should be able to determine how and why this [more]

Varying Contract Size to Manage Risk

John Kmiecik, Market Taker Mentoring

How many option contracts do you trade? I just had this discussion with one of my students the other day. I was a little shocked to hear that he trades the same number of contracts (10 in case you were wondering) every single time. It did not matter what the strategy was or what the market conditions were; he always did 10. As you have probably noticed, the market has been fairly volatile and unpredictable with Covid and inflation concerns running a bit rampant.

To me, using varied contract sizes for different strategies and market conditions makes sense. As you probably know, option trading has various risk/reward and probability scenarios. For example, I may not want to do as many contracts on a higher risk and lower [more]

Understanding Dividends and Options Trading

Joe Leska, Market Taker Mentoring

As an MTM one-on-one coach, I field a variety of questions from my students on a day-to-day basis. One consistent line of questioning derives from dividends and options trading. If you trade options on stocks that pay cash dividends, you need to understand the mechanics of how dividends affect options prices, options exercise and assignment, and other factors in the life cycle of an option.

Some questions my students have asked: What happens to my calls if a company suspends the dividend like Ford did last year? When should I exercise calls if there is an upcoming dividend? A stock I own is beyond the payable date, why don’t I see the dividend hitting my account? [more]

A Brief Lesson on Pairs Trading

Joe Leska, Market Taker Mentoring

Last month I gave a presentation where I shared several of the best options trading strategies I ever learned from my years on the Nasdaq-PHLX floor. There was considerable interest among those in attendance that day in details about executing pairs trading strategies. Accordingly, in this article I’ll share some key terms one must know to truly understand how to win. Also, I’ll give some personal insight into this relatively simple to execute (but often butchered) options trading strategy.

A brief lesson on pairs trading and a discussion of some key related terms is in order for those hearing about the strategy for the first time. One must understand correlation to know how to trade a pairs strategy. Correlation is a mathematically [more]

Making Option Delta Easy to Understand

John Kmiecik, Market Taker Mentoring

Option vega and gamma are the option greeks many option traders feel are the most difficult to understand. Of course, that is debatable, but generally option delta is not high on that list. Just because many option traders feel they have a better handle on delta than other greeks, does not mean they have a good grasp of it. Let’s take a closer look at option delta.

There are several different definitions of delta that option traders can use. The one I think is mandatory to know for most option traders is that delta is the rate of change of an option based on the underlying. To keep it simple, for every $1 the underlying moves, the option premium should change by the amount of delta. Essentially there are only four things you can do with options: buy a call, sell a more]

Trading Software and Hardware Optimization Improves Your Win Rate

Joe Leska, Market Taker Mentoring

I learned early on in my trading career that to stay competitive and relevant in modern electronic markets, most large and small options trading firms regularly seek to upgrade, modify, supplement and/or fortify their existing trading systems. This includes the software they utilize, the hardware it operates on and the network through which vitally important data flows. Retail traders should take note and seek to emulate these professionals. They know what they’re doing.

Sophisticated trading firms feel staying on the cutting edge is so important that they have created a trading technology arms race, so to speak. Futures market prices sent to New York’s equities markets from Chicago used to be measured in dozens of milliseconds. [more]

Improve Your Odds for Trading on the Close

John Kmiecik, Market Taker Mentoring

When the market closes, there is never a guarantee it will open higher or lower the next session. Just take a look at the volatile action we have been witnessing as of late. If one could predict that with any accuracy, trading would be a whole lot easier. But there is something I tell my students to look for on a consistent basis that I have found helps me tremendously, especially if I am looking for a directional opportunity. That little tip is to is to see how the stock closes on the day.

If I am looking for a bullish or bearish directional trade, this is vitally important. For example, if I am seeing a potential bullish setup, I like to enter the bullish trade closer to the end of the session if the stock looks like it will close toward the high of the day. Naturally I [more]

How to ‘Safely’ Trade Crypto/Blockchain Assets

Joe Leska, Market Taker Mentoring

One of the hottest topics discussed around the “watercooler” lately has been Bitcoin, blockchain and cryptocurrency related assets (heretofore deemed as “crypto”). Many have asked about how to participate in some of the outsized gains that crypto products have seen as of late. Others have noted a strong desire to take a short position against this industry as they feel it’s akin to the tulip bulb mania of the past markets. 

There are many paths to follow in order to profit from this new and emerging industry, as I’ve come to find out. Most are wrought with considerable risk that does not exist with traditional assets regulated by FINRA, SEC, OCC, FDIC or SIPC. I will share with you [more]

Morning Gaps Can Be a Head Fake

John Kmiecik, Market Taker Mentoring

When the market opens, traders’ blood pressure will often rise in anticipation and many times they will also lose their senses. This is particularly true after a sizable gap higher or lower to start the session on an underlying they may be watching. I think many of us can agree that the first 30 minutes of the market have been very volatile and lately that has extended throughout the whole session. But knowing not to get fooled in early market action can improve your chances for success many times.

Let’s take a look at a recent example of when the market gapped lower and it looked as if it was going to rally higher right after the open. When an underlying has been moving lower and then there is a gap lower, odds are the underlying will recover some, but maybe [more]

The Impact of Inflation on Financial Sectors

John Seguin, Market Taker Mentoring

During the MTM Monday Morning Meeting I discussed the potential impact of Wednesday’s Consumer Price Index (CPI). This price component is not the Federal Reserve’s yardstick for assessing price pressure on Americans. However, it is regarded as a prelude to the measurement the Fed favors. The inflation gauge the Fed prefers to monitor price pressure is called PCE (Personal Consumption Expenditure) Core Price Index. This report is typically released in the third or fourth week of the monthly economic schedule. The impact of inflation data has taken precedence over employment data. [more]

Calendar Spreads Ooze Positive Theta

John Kmiecik, Market Taker Mentoring

Long calls and long puts cannot produce positive theta no matter how hard they try. For other option strategies, positive theta is the key component to a potentially profitable outcome. Long calendar spreads are certainly one of those option strategies. Let’s take a closer look.

A long calendar involves selling a call or put and buying the same strike call or put with a longer expiration. This position can have a positive, negative or essentially neutral delta depending on where the stock is trading in regard to the short strike. Unless it is a really directional calendar, potential success (profit) comes from positive theta. The short strike will have a bigger theta (which is [more]

Improving the Quality of Your Option Trade Fills

Joe Leska, Market Taker Mentoring

I was talking to the sales manager at the car dealership this past weekend, and he proudly attested to his company’s “relentless pursuit of perfection.” The very next thing he asked was what I do for a living. As I was briefly explaining puts and calls, I began to realize that I, too, am constantly engaged in my own “relentless pursuit” with regards to my trading. I recognize, of course, that as a trader, one can never hope to be perfect. However, successful traders are relentless in their pursuit of improving their trading processes, increasing operational efficiency and, of course, boosting their win rate. One surefire way to do this is to improve the fill quality of your options trade executions. [more]

Keep an Eye on Implied Volatility During Earnings

John Kmiecik, Market Taker Mentoring

The market has been very volatile despite generally moving higher, and now the rush of quarterly earnings may increase volatility for many stocks. Implied volatility levels have been really low, but individual IV levels are expected to rise in front of earnings. The definition of implied volatility that I like best is the estimated volatility of the security in the future that is reflected in the price of the option. In essence, it tells an option trader if options are cheap or expensive at the moment. Historical volatility is the volatility of the security based on the past. It is basically how quiet or volatile the stock has performed previously, which is shown on the underlying’s chart. [more]

How to Create a Pre-Trade Checklist

Joe Leska, Market Taker Mentoring

For whatever reason, I’ve always liked checklists. When I started on the floor as a runner/clerk, my primary role was to support the traders. But in addition to those important tasks, I was constantly being taught about options theory, pricing, how to trade and risk management.

I remember being stressed out because on top of the fast pace and the fractions, the amount of information was totally overwhelming. I discovered that the pocket-sized trading cards everyone used on the trading floor were perfect for jotting down notes and staying organized. I still remember having cards for things like reversals and conversions and P&L diagrams for different spreads like [more]

Remove Risk First, Consider Profits Second

John Kmiecik, Market Taker Mentoring

The market, especially Nasdaq, has been a volatile beast lately. Solid market trends continue to struggle to find bullish and bearish patterns. At times, sitting on your hands may make a lot of sense. I have said over and over the past couple of weeks that I believe it has been difficult in this market for swing traders (generally a 2- to 5-day trade) to make money because of the volatility. Note the hourly chart of Nasdaq from a few weeks ago (in this case the QQQ) below. [more]

Build Your Own Technical Toolbox

John Seguin, Market Taker Mentoring

When I bought my first house, I had no tools to repair or make anything. I was far from a handyman and my father knew it. After we settled in, my dad showed up with gifts that every homeowner should have. Those essential tools were duct tape, WD-40, a couple of screwdrivers, pliers, an electric drill and a hammer. He said I could fix most problems and build shelves with these essential tools. As time passed my toolbox grew, but after 30-plus years of home ownership I still use those original tools more than any others.

Every professional trader I ever worked with or for, has a “toolbox.” The tools of the trade are either fundamental (forces of supply and demand) or technical (charts and indicators). Trading toolboxes are often overloaded with rarely used and unreliable technical [more]

A Look at Bullish Option Strategies in NIO

John Kmiecik, Market Taker Mentoring

I often ask my students, “are the odds on your side?” What I am referring to are the odds of support and resistance holding and not letting the underlying move through that level. In my estimation, and when the market is not trending in a big way higher or lower, potential support and resistance will hold approximately 70% to 80% of the time.

Works on All Time Frames

I look through charts every day for my own trading as well as for MTM’s daily group coaching class. The more you do this yourself, the better you will become at recognizing certain patterns. Here is a recent example for Nio Inc. (NIO), which we have been watching [more]

Gauging Market Speed and Reversals

John Seguin, Market Taker Mentoring

Traders aim to catch trends early and ride them to the end. To accomplish this requires incredible timing on both entry and exit levels. Great traders recognize when a market has moved too far, too fast. When the speed of a rally or decline far exceeds the norm, odds increase for a period consolidation or a reversal of direction. Reversals also occur when a market runs out of steam.

Prices trend, consolidate, trend and consolidate again. These phases are constant and repetitious in all markets. This is the circle of trading and gauging speed is an integral part of developing trade strategy. Markets were created to facilitate trade. When a market moves in a direction and the day ranges and volume decrease it is not facilitating trade. As volume decreases opens and closes [more]

Know the Greeks and Their Potential Impact

John Kmiecik, Market Taker Mentoring

Here is a topic you’d think most option traders would understand. In all honesty, I am surprised how many do not, at least initially. To me, it can be a scary situation if you don’t know how the option greeks function.

Who’s in Control?

As I like to say in my Group Coaching class or to my one-on-one students, the greeks are like the controls on a car. They give you an idea on how the trade should perform based on how the underlying moves, time passes and volatility changes. But one thing about the greeks that is often overlooked is how they multiply based on contract size. [more]

Use Fundamental Data to Set Risk and Profit Targets

John Seguin, Market Taker Mentoring

Trade strategies are largely built using pattern detection. Technical analysis is applied to test and design auto-trade systems using mostly price action. This approach pays when outside influences do not disrupt flow. In other words, technicals work sometimes, but the truth is fundamentals move markets.

Fundamental data, also known as “event risk,” make markets move. Trends frequently start and stop when the status quo changes. Every day brings a new challenge. Professional traders keep a close eye on the economic calendar for events or reports that could alter a trend or start new one. [more]

Make Time to Study Options Trading

John Kmiecik, Market Taker Mentoring

It goes without saying that it is extremely difficult as a trader or investor to consistently extract money from the market. Most do not succeed in the long run. For those who do, it most likely took time and perseverance. Just as a trading plan is essential for success, setting aside some time to study is imperative too.

Treat This as a Business…It is!

I love to dine out at restaurants, although that has been hard to do because of the pandemic. But I like to use the analogy of someone investing in or starting up a restaurant and someone who is trying to be a profitable trader. A person just does not open a [more]

The GameStop Phenomenon: Pro vs. Retail Traders

Dan Passarelli and John Seguin, Market Taker Mentoring

This week the GameStop short squeeze, among others (AMC and BBBY), was addressed on Capitol Hill. Robinhood and Reddit were also players and were grilled by lawmakers as well. This clash of professional vs. retail traders was unprecedented. Professional traders have always been privy to order flow throughout their customer base. Retail traders do not have that benefit and do not typically trade with or against institutional traders. Retail trades are usually executed through market makers. Market makers set bids and offers. When a market is trending upward, their offers tend to be higher than current price and bids are often at the money. In a bear market, bids are usually further below the current price, while offers tend to be at the money or near the current price. The ability to adjust the [more]

Understanding Stop Losses and Options

John Kmiecik, Market Taker Mentoring

Whenever there is a discussion on stop losses, no matter what is being traded, there are several points of view and most times it is subjective. When it comes to options, it can get a little trickier mostly due to generally wider bid/ask spreads than, say, equities. And unless there is a naked option position (selling an option without holding a position in the underlying), many option traders will argue, and rightly so, that there is an inherent stop loss to options because max risk is usually defined.

A hard stop is when a trader puts an actual order out there. I use a market stop, which means the trade becomes a market order to sell or buy once the premium for an option trader reaches a certain level. [more]

What You Can Learn From Liquidity

John Seguin, Market Taker Mentoring

I practice and preach a pragmatic approach to trading. My ambition is to be the “Commodity Columbo.” To be market detectives, we need to gather facts from which we can determine a probable solution. The facts are in the price action. Traders and analysts mainly use open, high, low and close to determine momentum (direction), value, risk and profit targets. Volume is an important component of analysis as well. Markets were created to facilitate trade. If a market is moving in a direction and volume is near average or increasing, it will likely continue in that direction. Trends often fail shortly after volume begins to taper, while ranges often dip below average. Opens and closes tend to be near each other when a trend is running out of gas. [more]

What Does Option Trading Mean to You?

John Kmiecik, Market Taker Mentoring

It might be a funny question to ask an option trader but trust me it is a legitimate one. When I work with option traders, I often ask them why they decided on options. Generally, the answer is a standard one that they want to make more money. But I like to drill down even deeper and find the real motive because in most cases there is a deeper reason.

Just like many things in this world we live in, we do better when there is a motivating factor. Now don’t get me wrong, money is motivation. But if you look deeper, there are probably things that you would like with more money. To me, this can be an integral part of your option trading plan. I think every trader should have a goals section in their trading plan. Some of the motivating factors I [more]

The Power of the ‘King Candle’

John Seguin, Market Taker Mentoring

I am a veteran analyst, strategist, and educator. My trading “mistake” list is long, yet dwindling. From each wrong decision there is a lesson to be learned.  After joining the Market Taker Mentoring team as an educator, I quickly learned a weakness in my lessons and approach. The assumption that students or non-professional traders already had a good understanding of market fundamentals and technicals was wrong. Without a solid foundation we eventually fail. Not gonna happen here!  

Feedback from members incited me to share my experiences at the Chicago exchanges. Good and bad experiences shape us. I prefer to share the scary ones because they teach the best lessons. We expect to win. Bad trades will happen and are tough to swallow, [more]

Call Credit Spreads for a Non-Bullish Environment

John Kmiecik, Market Taker Mentoring

What does an option trader do if he or she thinks an underlying most likely won’t go higher but doesn’t feel confident it will drop much either? It is hard to profit in that scenario, but by using options you have the potential to do so.

Call credit spreads (bear call spreads) can be an effective way to profit when the option trader expects the stock to stay below a certain area. Many times this area is potential resistance in the form of pivot levels or maybe a moving average. In addition, maybe the overall market and/or the underlying looks less bullish. Let’s look at how this trade strategy can be implemented. [more]

The Value of Average True Ranges

John Seguin, Market Taker Mentoring

At the beginning of every year I do a bunch of statistical analysis. The most important spreadsheet I generate consists of recent average ranges and benchmark ranges for stocks, ETFs and commodities. Most charting platforms have the ATR (Average True Range) indicator. ATRs are valuable because they improve our ability to set profit targets and define risk over various time frames. Furthermore, a comparison of near- and long-term benchmarks can be used to determine if volatility is rich or cheap.

One reason for comparing historic and current data is to identify trend potential. When recent day and week ranges are far below the benchmark (long-term average), odds increase for a breakout or onset of a trend. Under these circumstances buying options [more]

Spreads Can Be an Option Trader’s Best Friend

John Kmiecik, Market Taker Mentoring

Can you imagine if option traders only bought and sold options outright? Trust me, there are some who do out there, and I have talked to them. If this is you, don’t worry because there may be a better way to trade options. Without trading spreads, option traders are really ignoring the benefits of using options to create more flexible positions and hedge risks. Options are so multi-faceted that even adding another short position to a long position can lower a trader’s risk. As always with options, there are trade-offs too.

Also, options traders should have a full understanding and be able to compare vega (option’s price change given a change in volatility), theta (option’s price change given a change in time decay) and delta (option’s price change given a change in the underlying) [more]    

Track Seasonal Trading to Gain an Edge

John Seguin, Market Taker Mentoring

An astute trader is always looking for an edge. Over the years I have heard some interesting approaches to getting that advantage. Fundamentals move markets, but when there is no new information to influence prices traders often use technical tools and indicators to make trading decisions. The list of trading indicators is extensive. There are some not so prevalent approaches that are deemed mysterious. I recall a phase where lunar cycles became popular in the ’90s. There was a span when lunar cycles, think Friday the 13th or full moons, saw big jumps in volatility. [more]

Know Your Option Trading Environment

John Kmiecik, Market Taker Mentoring

Sometimes I know I must sound like a broken record. In my group coaching class, I have repeatedly said this is a very volatile environment and option swing traders (2 to 5 days in a trade) may find this too much like gambling. For day traders, this is not a problem watching markets swing throughout the session and on a day-to-day basis. To me, it feels like you need a little too much luck in this environment.

So, this brings me to the gist of this article. Not only is it important to understand the different option strategies and the option greeks, you also have to know or have a feeling what the trading environment is that you are currently in. This addresses the most important [more]

A Look at Sector Relationships

John Seguin, Market Taker Mentoring

If you have been following my articles you know I approach trading with routine and logic. I study graphs to refine a fundamental and technical view of the world and the forces that move markets. Each time an event occurs that causes a ripple in stocks and futures I make a note of the reaction. For example, when news that a reliable vaccine would be available in the second week of December the following kneejerk reactions occurred. The 4 major indexes (ETFs…SPY, DIA, QQQ, IWM) rallied sharply, while treasuries (TLT) and precious metals (GLD, SLV) sold off. Metal and interest rate markets tend to move together because historically they are havens during conflict and chaos, even uncertainty. [more]

Long Calls Are an Option That Can Work

John Kmiecik, Market Taker Mentoring

Here is a quick reminder to all option traders who have abandoned buying calls: Please don’t forget to consider them as an option so to speak. The first thing I personally learned as a brand-new option trader was a long call. I found it to be a great strategy when I expected to profit from a move higher in the stock for significantly less money than buying shares. Of course, as time goes by, and your knowledge increases, spreads usually become another choice for an option trader to consider and for good reason. But let’s not forget a long call has unlimited profit potential and there is always a chance the stock might rise more than you had envisioned. [more]

The Ins and Outs of Inside and Outside Signals

John Seguin, Market Taker Mentoring

A long-term perspective is a must for investors while a mid-term view is sufficient for swing traders. Day traders must be agile and willing to reverse positions quickly, especially during volatile times, such as this entire year. Trend traders have had a rough time and it has not been easy on swing traders either. Trends of more than five consecutive days have been rare since the onset of the pandemic. 

The strongest trends tend to begin after consolidation or balance phases. But since volatility has been so high in 2020, many markets have not settled down enough to establish balance. So, when the rare opportunity is presented to engage in a potential trend trade we must react quickly. [more]

Option Greeks Multiply Like Rabbits

John Kmiecik, Market Taker Mentoring

To be successful at option trading, one has to master a variety of elements. One of them, and some say maybe the most important, is understanding the option greeks. As Dan Passarelli likes to say, the greeks are like the controls and gauges on a car. They give you an idea on how the trade should perform based on the underlying, time and volatility. But one thing about the greeks that is often overlooked is how they multiply based on contract size. Let’s take a quick look below.

Here is a very recent example of an options chain. Let’s say an option trader buys one contract of the November 197.5 calls because he or she is bullish on the stock. [more]

A Look at ‘Cup and Handle’ Chart Patterns

John Seguin, Market Taker Mentoring

In the past I introduced some of my favorite indicators that are kept in a personal “technical toolbox.” This collection of indicators, tools and axioms has grown over 30-plus years and continues to do so. Charting patterns are a big part of my collection, and today I will share another somewhat rare but reliable pattern.

Many traders rely on technical patterns to make decisions. The most prevalent shapes are triangular (pennants) and channels (flags). Flags can be horizontal or slant either up or down during a trend. Double tops/bottoms and head and shoulders are a couple of the more popular patterns traders use to enter positions. The one I want to share today is known as the “cup and handle” pattern. This can [more]

When a Stock Reaches a Target Area, Do Something

John Kmiecik, Market Taker Mentoring

I have several sayings I like to drill into my students’ minds. To me, the more you hear them, the more you will think about them and eventually put them into action. As we move closer to the end of 2020 (and that cannot come soon enough for many), I will continue to introduce you to them, although many of you know them already. For today, let’s look at “when the stock comes into a target area, you need to do something.”

What I mean is when stocks trade into support (for bearish trades) and resistance (for bullish trades) areas, you need to take action. When I look at a chart, I see several potential areas for the underlying to face some adversity. For me, these areas are usually [more]

How to Define Risk Using Time

John Seguin, Market Taker Mentoring

To define risk immediately after a position has been taken, I first need to define the fair value area using intraday charts. An average trading session for stocks and ETFs lasts 6.5 hours, or 13 30-minute periods. Seventy percent of that is 9, and 9 divided by 2 is 4.5. A value area covers roughly 70% of trade during the day. A value area has a top and bottom and illustrates the highest concentration of volume. In other words, it is the area that buyers and sellers transact most often. [more]

Rolling Options Requires Patience

John Kmiecik, Market Taker Mentoring

Rolling options either higher or lower is something I discuss quite frequently in MTM’s Group Coaching class. The reason is many option traders are too quick to roll, in my opinion. Knowing support and resistance have a better chance to hold than break should give the option trader an edge if the short strike is based on levels of support or resistance. Selling premium has so many different risks and nuances that it can drive an option trader crazy. Let me explain in a little more detail and tell you about an example I just talked to a one-on-one coaching student about for several weeks. [more]

Want to Get Better at Option Trading?

John Kmiecik, Market Taker Mentoring

Who doesn’t want to improve as an option trader? It is like the game of golf. You can never be perfect at it, but you can always get better. As I like to say, “The one thing I cannot teach as an option trader is experience.” How do you get that experience? There are two ways: by trading and by reviewing your trades. And the place to start is to record your trades.

Record Your Trades

The first thing an option trader needs to do is screen capture the trade at the moment of entry. This includes the stock chart and option chain. If the trade is held for several days, screens shots can be taken periodically to help you understand what is happening on [more]

Keep Your Cool During Market Panic

John Seguin, Market Taker Mentoring

Volatility usually spikes when momentum indicators turn bearish for stock indexes. This phenomenon occurred at the onset of the pandemic and over the past week as well. Note the jump in the volatility index, or VIX, at those times. Once a market begins to accelerate lower, my instincts tell me to calculate how far it will travel and how long it will take. During a decline, equity indexes tend to move two to three times their normal speed. For example, many recent day ranges for the S&P stretch the length of an average week, and the week range spans the length of a typical month. [more]

Option Profits Can Come Quickly

John Kmiecik, Market Taker Mentoring

Here is another friendly reminder for option traders: Don’t be greedy! If you haven’t noticed, the market has been and continues to be very volatile. The only way you might not have noticed is if you were not trading. That said, sometimes not trading is also the smartest thing to do. I have repeated that mantra several times in the past as well. I have said over the past couple of months that I believe this market has been difficult for swing traders (generally two- to five-day trades) to make money because of the volatility.

I have also said that a market like this can produce some bad habits. Many option traders have gotten away with not timing their entries properly because many stocks have just been moving higher. But one thing that I have always said and will continue to say is it [more]

Fundamental Data Come First

John Seguin, Market Taker Mentoring

I begin every MTM Monday Morning Meeting the same way. First, a recap of market moving events from the previous weeks are noted. Then we move on to the reports scheduled for the week ahead. Fundamental data come first because they are the most powerful force for moving markets. Pro traders always look ahead and learn from the past. The past gives us reference points (in charts) where fundamentals accelerate or change a trend.

The most significant event this week was Chair Powell’s speech at the Jackson Hole Economic Symposium.  There were some violent vertical moves in many sectors when the Fed Chief revealed monetary policy. The Fed will remain accommodative so [more]

Make Friends With the Market

John Kmiecik, Market Taker Mentoring

You have probably heard that the trend is your friend. While this can certainly be true, the market can be a good friend to have as well. This is a reminder that you need to remember what kind of market you are trading in. Over the past several months, the market has been extremely volatile. Take, for example, a recent Monday when the indexes and several big-name stocks jumped out of the gate much higher before settling down on the day. I have repeatedly said during my Group Coaching sessions that, to me, this a day trader’s paradise. What I mean is that since there have been such good movements intraday, there have been plenty of bullish and bearish potential setups. If you are a swing trader, as many option traders tend to be, then you have probably found this market to be a [more]

How to Identify Reversal Points

John Seguin, Market Taker Mentoring

Picking tops and bottoms of market moves is a skill traders desire to perfect. Perfection is the goal, but picking absolute lows and highs is not realistic. However, we can hone this skill through observation and practice. Here are a few exercises I learned over many years of observation.

• Make it a habit to review history in charts after an extreme high or low has been made. Markets frequently reverse after retesting a previous low/high that was made in the first hour trading.
• Extremes tend to be made near old consolidation areas. These congestion zones often [more]

Option Spreads Can Offset Risk and Much More

John Kmiecik, Market Taker Mentoring

Option spreads, like debit and credit verticals, can do more than offset monetary risk. If options traders only buy and sell options outright, they could be ignoring the benefits of using options to create more flexible positions and hedge risks. Options are so sophisticated that even adding another short position to a long position can lower a trader’s risk. As always with options, there are plenty of trade-offs too.

For example, say an option trader believes ABC stock will rally over the next month or so. The stock is currently trading at $39.50. He or she could buy the September 40 call for 3.50. What if ABC traded sideways or dropped in price over the next several weeks or the implied volatility of the option fell? The value or premium of the option would be lowered because of the positive delta and vega [more]

Using Market Tendencies to Your Advantage

John Seguin, Market Taker Mentoring

I spent many years on trading floors, which led to lots of time in pubs and restaurants talking about markets with professional traders. In these post-market “meetings,” we discussed family, sports and other things, but most conversations focused on the day’s events and market tendencies. My friends and colleagues shared knowledge that shaped their trading style.

Our discussions frequently included favorite patterns, technical nuances and reactions to fundamental data. One friend liked to countertrade a market if it moved 50% of an average day from the opening price. Another trader bought or sold the 30-year bond whenever it hit the number 10 because the market often reversed when that price traded. [more]

Does Your Option Delta Make Sense?

John Kmiecik, Market Taker Mentoring

By simple definition, option delta is the rate of change of the option premium based on the movement of the underlying. I like to say that delta will change the option premium for every one dollar change in the underlying. This is true of any option strategy and particularly vertical debit spreads like bull calls and bear puts. But many option traders fail to realize that an extremely small positive or negative delta will fail to provide much of a profit change for a small move.

This concern comes up often with my one-on-one option coaching students. They are befuddled that even though the underlying moves in the intended direction, the position is up only a small amount. Some will say it’s because expiration is still far away (which can [more]

How to Gauge Volatility for Q3

John Seguin, Market Taker Mentoring

Half the year is over, and we are still dealing with extraordinary volatility levels, as we have been since the onset of the pandemic. Equity market ranges are at all-time highs and movement has been erratic to say the least. Traders must adapt to current volatility because risk and reward increase when momentum indicators reverse frequently.

At the end of each quarter I recommend comparing historic and current average true ranges (ATRs). This will make it easier to identify trend potential or when a market is overbought or oversold. When recent day and week ranges are far below the benchmark (long-term average), odds increase for a breakout or onset of a trend. Under these circumstances buying options or the underlying tend to be [more]

What You May Not Know About Option Delta

John Kmiecik, Market Taker Mentoring

In my experience teaching option traders, I would say that option delta is probably one the easier option greeks to get a handle on over time. To me, it seems that option gamma and vega are the most difficult. That said, there are still several facts about delta that many option traders just don’t know or realize. Let’s go through a few together.

Delta is the rate of change of an option based on the underlying. To keep it simple, for every $1 the underlying moves, the option premium should change by the amount of delta. Essentially there are only four things you can do with options: buy a call, sell a call, buy a put and sell a put. Long calls and short puts have positive deltas and can benefit from a move higher in the underlying. Short [more]

How Do Economic Reports Rank by Impact?

John Seguin, Market Taker Mentoring

Last week Fed Chair Powell held a press conference following the most recent FOMC meeting. He suggested that interest rates will stay at historic low levels into 2022, maybe longer. This notion sparked a decline in stocks and rise in the fixed income market. He also stated that the scheduled economic reports would have little if any impact because they would be unreliable due to the effects of the coronavirus. Yet on Tuesday of this week, the retail sales report was far stronger than anticipated and it did have a positive impact on stocks and negative influence on treasuries.  Obviously, the monthly economic events are likely to impact prices because consensus estimates are so far off. This is an issue with earnings estimates and guidance as well. [more]

How Many Contracts Should You Trade?

John Kmiecik, Market Taker Mentoring

The market has been a volatile beast over the past several months. Take a look at this past Thursday, for instance, if you need any more proof. Reducing risk is always a trader’s goal, but in these conditions it can be vitally important. One way to do this is by trading low risk trades with high potential rewards. But this can be difficult and tricky too. Low risk/high reward trades come with the trade-off of odds being against the trade, which can be frustrating. But there is another potential way to reduce risk, one that I always practice, but more so over this past March and April. And that is position sizing. [more]

Think Like a Pro to Trade Like One

John Seguin, Market Taker Mentoring

I spent many years on trading floors in Chicago and I was always eager to learn. I had the opportunity to meet and befriend many experienced traders and brokers. I enjoyed their stories, which were often very entertaining. But I was mostly interested in the knowledge they gained in the trading pits and how to interpret price action. Most traders have a unique perspective and approach to trading, but they all have a few things in common.

Over the years I compiled a list of the queries professional traders wanted answers to before entering or exiting a position. This list has is tacked to a corkboard next to my desk and it has yellowed over the years. My guess is that it is over 25 years old and I still refer to [more]

Your Option Routine Should Be Routine

John Kmiecik, Market Taker Mentoring

Following a routine is a good thing, especially if it is a healthy routine. Take, for example, a nutritious diet. It can lead to a better you both physically and emotionally. The same can be said about your option trading. Without a routine forged through a trading plan, you may be wandering aimlessly around in breakeven land…or worse yet deficit land.

Think about it for a second: Things that are routine are generally easy. Option trading, most would acknowledge, is not easy -- especially at first. So, doesn’t it make sense to develop a routine and make it as easy as possible to succeed? Option trading is difficult enough. If you cannot improve your odds, it may be a road less traveled to profit land. [more]

How to Tell a Trend Is Near Its End

John Seguin, Market Taker Mentoring

Good traders have a knack for identifying the start of a trend or the end of one. There are a few patterns that are common at the end of a move. The first indication that a trend is over includes a series of three to four sessions where both the high and low of the day are made after the first 60 minutes of trading. This sign of impartiality is often accompanied by decreasing volume. Markets were created to facilitate trade. If volume is drying up as a market moves in a direction, it will typically turn and go the other way.

There are a couple of common candlestick patterns that show up when a trend is dying. A small body candle (a.k.a. doji) signifies balance. These candles have similar opens and closes over a series of three days to a week. Markets move higher to attract [more]

Using Support and Resistance to Your Advantage

John Kmiecik, Market Taker Mentoring

Are the odds on your side for the trade? This is something I go over every day in group coaching class and during one-on-one sessions with students. I like to say, by my own rough estimates, that support and resistance have a 70% to 80% chance of holding. If you just consider that thought, you are a better technical analysist in my eyes. Let’s look at a couple of examples.

Recently in class, we were discussing putting the odds on your side for trades and the subject of day trading came up. I told the students that the same rules apply to smaller time frames as well as larger time frames like daily and weekly charts. Look for areas where the stock may hold and times may reverse like support and resistance areas. We looked at the market and found a potential trade [more]

Using Volume Voids to Your Advantage

John Seguin, Market Taker Mentoring

We have seen some extraordinary price action since the onset of the virus. Initially, stock indexes and crude oil saw steep declines while interest rate ETFs and futures accelerated higher. When markets move quickly either up or down, they frequently leave gaps in their wake. Gaps are areas that are void of volume. They form when bid offer spreads widen due to an unexpected event. The funny thing about gaps is they are usually revisited. Gaps are less frequent in futures markets, which trade nearly 24 hours a day. Stocks and ETFs do not have overnight sessions, so gaps are more prevalent. [more]

Using Collars to Protect Over Earnings

John Kmiecik, Market Taker Mentoring

Has this market been on a wild ride or what? As an investor, your heart has probably been in your throat several times with the feeling the market is going to take another big downturn. Selling a call to help finance a long protective put has not been a bad idea over the past couple of months. Generally, collars are used by investors for this exact situation. But many investors fail to realize what collars can do to protect their equity position at any time and especially over what could be a volatile earnings announcement. We are smack dab in the middle of quarterly earnings and with the economy in potentially bad shape, now might be as good as time as any to discuss this somewhat simple, but effective option strategy yet again. [more]

Adjusting for Spikes in Volatility

John Seguin, Market Taker Mentoring

When volatility spikes, profit potential increases as does risk. It is imperative to stay current with range potential for a few time frames (day, week, month) especially during a crisis when the VIX (volatility index) spends a lot of time above 20. When the COVID-19 virus took hold, this so-called fear index jumped from the norm of about 15 all the way up to 85. The last time VIX reached that high was early in Q4 2008 during the credit crisis. For the rest of that year stock indexes saw huge swings while the VIX oscillated between 40 and 80. It took about a year for the VIX to return to more conventional levels below 20. No one has a clue how long the impact of COVID-19 will last. Until we figure this out the VIX will likely gyrate between 25 and 65 for some time to come. Thus, the big swings in stocks are not [more]

Recognizing the Importance of Option Delta

John Kmiecik, Market Taker Mentoring

Option delta can be the most important option Greek particularly if you like to make directional trades as an option trader. But I think you would be surprised about how people still struggle with this Greek. When I teach options, I always give a quiz, and more often than not, my students struggle with the details of delta.

Option Delta

Option delta is the rate of change of an option based on the underlying. To keep it simple, for every $1 the underlying moves, the option premium should change by the amount of delta. Essentially there are only four things you can do with options: buy a call, sell a call, buy a put and sell a put. Long calls and short puts have positive deltas and can benefit from a move higher in the underlying. Short [more]

Volatility and Volume Gaps

John Seguin, Market Taker Mentoring

Volatility has been at extreme levels since late February when the COVID-19 virus took hold of the planet. The last time the VIX spiked to such lofty heights was back in 2008 when the housing bubble burst. Financial firms took on too much risk with uncollateralized loans, and the Fed failed to stem the tide of toxic mortgages. The VIX shot up to nearly 90 in Oct 2008, and it took about seven months for this so-called fear index to return to normal levels.

During this pandemic the VIX rose from fair value or mid-teens to 85 in less than a month. Since the top was hit in mid-March, VIX has been trending lower while the stock indexes have been clawing their way higher. During this span we have seen major gaps in [more]

Volatility: The Key to Success in This Market

John Kmiecik, Market Taker Mentoring

Not sure if you have noticed, but the market has been pretty volatile. Not only have stocks and ETFs been volatile, implied volatility has spiked for options. But what is implied volatility and how does it compare to historical volatility? Let’s take a quick below.

Historical volatility (HV) is the volatility derived by the underlying stock, stated in terms of annualized standard deviation as a percentage of the stock price. Historical volatility is helpful in comparing the volatility of a stock with another stock or to the stock itself over a period of time. For example, a stock that has a 20 historical volatility is less volatile than a stock with a 25 historical volatility. To keep it really simple, HV is the chart. With this recent volatile market, many historical volatility levels came close to or passed record high [more]

Picking Extremes in Extraordinary Times

John Seguin, Market Taker Mentoring

A bit more than a few decades back, I read my first book on technical analysis. Over the years I have researched, tested and thrown out many disciplines. However, I always kept a notebook that became a compilation of the best parts of each technical tool and indicator. By doing so I developed my own personal approach using market-generated information (technicals) and fundamentals (forces of supply and demand). A consistent approach or personal checklist allows a trader to react and adjust almost instinctively when volatility and pressure are at excessive levels, as they have been since Covid-19 took hold of the planet. [more]

A Relief Guide for Stressed-Out Traders

John Kmiecik, Market Taker Mentoring

Are you stressed about the market and life in general right now? Understandably so, but you are not alone. This market and the coronavirus outbreak do not exactly make us think of fresh washed sheets and puppy dogs. I am also pretty sure you have read an article or two about stress and how bad it is for you. Numerous emotional and physical disorders have been linked to stress, including depression, strokes and heart attacks. Now don’t get me wrong, everyone feels stress from time to time, particularly as a trader. Stress can be a motivator, but it can also be very harmful. As a trader, let’s look at a few things you can do to avoid unnecessary stress. [more]

Is It Safe to Countertrade Extreme Moves?

John Seguin, Market Taker Mentoring

Panic and pandemonium have incited some of the biggest moves ever in many sectors and commodity markets. Recently an average day range for stock indexes covers about the length of an average week. On some days we’ve seen ranges that span the length of an average month. A year and a half of hard labor by bulls has been retraced in a just few weeks. Thus, there are severely oversold issues for many stocks, particularly the energy sector due to the Russian conflict with the Saudis. Meanwhile, fixed income markets such treasury ETFs are acutely overbought. [more]

The Trend is Your Friend More Times Than Not

John Kmiecik, Market Taker Mentoring

If you have studied technical analysis in some form (as most of us have), you have probably heard the phrase “the trend is your friend.” But have you really thought about what that means? It may be fun to say it, but it also truly can help you as a trader.

No matter what you trade, you should always be looking for an edge. Being successful encompasses more than just giving yourself better odds, although it is a good start. Looking for opportunities and being patient are imperative too. [more]

Navigating a Volatile Trading Environment

John Kmiecik, Market Taker Mentoring

Over the past several weeks, the market has been extremely volatile and moved lower over several sessions recently. Not only have the closes been sporadic due to the coronavirus outbreak, some intraday sessions have been like a roller coaster too. I have repeatedly said during my Group Coaching sessions that to me this a day trader’s paradise and not as favorable for a swing trader. There have been plenty of bullish and bearish potential setups, but sometimes the market has a different idea the next day. If you are a swing trader, as many option traders tend to be, you have probably found this market to be a tad more difficult (I have too). [more]

How to Gauge Trend vs. Non-Trend Markets

John Seguin, Market Taker Mentoring

Timing the inception of a trend early in the cycle is on the wish list of every trader. Good trade location not only increases profit potential, it also reduces risk. The first step is to recognize when trend potential is high. Violent moves higher or lower frequently occur after long periods of price contraction. During such periods price action is erratic with small up and down moves that last two to three days before reversing. Trend traders get frustrated and lose money during these phases, while counter traders cash in. I try to view markets as simply as possible. Thus, I categorize markets using just two labels: trend and non-trend. My goal is to catch trends quickly and survive non-trend stages. [more]

Market Making You Anxious?

John Kmiecik, Market Taker Mentoring

What an incredible bull run the market has been on! Seriously, who would have thought at the beginning of 2020 that we would still be setting all-time highs in February? With many traders and investors thinking that at some point the market is going to move lower (although many have been wrong up until now), it may be time to look at a potential protection strategy using options.

The collar is an often misunderstood but rather simple option strategy that can particularly benefit investors. A collar is having a stock position and buying a put option and selling a call option on the stock. Usually both the call and the put are out of the money (OTM) when establishing this option combination. One collar represents one long put and one short call along with 100 shares of the underlying [more]
 

Identify Trend Potential and Protect Profit

John Seguin, Market Taker Mentoring

Great traders routinely go through a checklist before initiating trades. The main questions they seek to answer are as follows. Is the market ready to trend? Is the move apt to be higher or lower? Where do I enter a trade? Where do I set risk? What is the profit potential?

On the top of the list for most traders is to identify when odds favor a sharp vertical move. The combination of below average day ranges with 3 to 5 of days of severe overlapping prices along with small body candlesticks (similar opens and closes) are frequent factors for timing the inception of a trend. [more]

Is It Safe to Trade Naked?

John Kmiecik, Market Taker Mentoring

We are in another round of quarterly earnings and that means implied volatility levels and option prices will rise. If you fancy selling premium like an investor selling cash-secured puts, you may be salivating a little more. But as we know with options, there are always risk/reward trade-offs. Let’s take a look.

Low Risk? 

Traders often think selling “naked” options is a low-risk strategy that can offer consistent profits and indeed it can. However, it can be dangerous especially for new option traders and should be left for more advanced option traders and those with large trading [more]
 

Consider These Strategy Building Basics

John Seguin, Market Taker Mentoring

Recently, I began working with some talented programmers who deal with big data. They organize and manipulate data to identify trends and patterns. In my three-plus decades in the markets, I have met many traders from both schools of thought. Some are technical in nature, while others rely solely on fundamental analysis (supply and demand). I have researched and tested many technical tools as well learned the fundamentals that drive price action. I believe the ultimate trading system would incorporate fundamentals and technicals. With the use of artificial intelligence and horizontal and vertical measurements (technicals), the dream of creating a robust systematic trading strategy is more attainable now than ever. [more]

Never Take Your Eye Off the Fed 

John Seguin, Market Taker Mentoring

In December 2018 the stock indexes fell sharply following a G20 meeting where President Trump among other things called out many countries for unfair trade, particularly China. Furthermore, the Fed raised rates for the fourth time of the year, which happened to be the last in a series of nine rate hikes since December 2015. After months of climbing higher, stocks fell hard in May following an FOMC meeting. Another rapid decline began in August following what would be the first of three interest rate cuts in 2019. Stocks have done well since. The point is, trade and the Fed dominated headlines that moved markets last year. [more]

Be Patient When Rolling Short Options

John Kmiecik, Market Taker Mentoring

There are a lot of mistakes that can be made and ways to do things better as an option trader. Trust me, I have seen it in the past with myself and with my current students. But one of the biggest things I have noticed is that traders and investors roll their short options way too soon. Patience needs to be applied and better results should follow.

Selling a call option against a stock position is commonly done by investors (covered call). The call option’s strike is generally sold where the investor thinks the stock will be at the short call’s expiration. The call option expires worthless and maximum is earned for the stock position without being called away (assigned). When a time spread is bought (calendar or diagonal), the maximum profit is earned [more]

How to Manage Your Trading Team

John Seguin, Market Taker Mentoring

I've dealt with many professional traders in my long career as a broker, analyst, journalist and educator. Good traders surround themselves with a team of specialists to guide them in their trading decisions. As a broker I had my own team to call on when a trader asked me a question I could not answer fully. Each player on the team has unique talent. The trader is the manager of the team. An economist takes on the role of a leader or quarterback. Fundamentals move markets and the economist researches events and ranks them according to potential impact. An economic report may change sentiment in stocks and ETFs, which may affect interest rates. And what happens in interest rates often has an influence on currencies, precious metals and even energies. Energy prices frequently [more]

When to Consider a Spread

John Kmiecik, Market Taker Mentoring

In a market like this, and for that matter any market, it is wise to consider a spread trade. Like everything in option trading, there are always trade-offs. The same is true of spreads. There are so many different risk/reward scenarios to ponder as well as positive and negative options greeks. With just a long or short call or put, you have either positive or negative delta, gamma, theta and vega. But when buying and selling, you have both for each greek. So, if an option trader wants to totally or partially offset some risk due to one or more of the greeks, a spread should be considered. [more]

Identifying Trends and Turns Using ATR

John Seguin, Market Taker Mentoring

Investors or longer-term traders endeavor to pick off extreme highs or lows. As a matter of fact, all traders dream of picking off major highs and lows. In this week’s article I want to focus on a couple of long-term indicators. It is widely accepted that the investor benchmark moving averages are 50- and 200-day. When viewing weekly charts, I use a 13- week moving average (MA), which covers 1 quarter of the year. And for longer-term looks, I prefer a 52-week MA to cover a full year. These MAs are akin to 50- and 200-day moving averages. I use these in conjunction with a 13-period average true range (ATR). [more]

Not Option Trading Is a Gift to Yourself

John Kmiecik, Market Taker Mentoring

The problem a lot of traders have, including option traders, is over trading. Just because you are around the market or have your computer open, does not mean you have to trade. Trust me, this is easier said than done. Traders need a mental break from trading even if things are going well, and the holidays might be the perfect time for some downtime.

I have talked to plenty of option traders and investors in my career at different stages of their success or lack thereof and under different market conditions. But I have found this current market to be universally a little more difficult than most. For the most part, traders I talk to agree, asking me what they should do or consider, and I tell them not trading is always an option. [more]

How to Stock Your Trading Toolbox

John Seguin, Market Taker Mentoring

When I bought my first house, I had no tools to repair or make anything. I was far from a handyman, and my father knew it. After we settled in, my dad showed up with gifts every homeowner should have. The essential tools he gave me were duct tape, WD-40, a couple of screwdrivers, pliers and a hammer. He said I could fix most problems with these essential tools. As time passed my toolbox grew, but after 30-plus years of home ownership I still use those original tools more than any others.

Every professional trader I ever worked with or for has a toolbox. Some toolboxes are overloaded with technical indicators and charting methods, while others have only the bare basics. [more]

Find an Option Trading Friend

John Kmiecik, Market Taker Mentoring

I have always said, and I know I am not alone when I say it, that trading can be one of the loneliest activities out there. As a retail trader, you sometimes may feel like you are on an island because you have to make all the decisions yourself. This mentality feeds into why extracting money from the market can be difficult because of the psychological aspects of trading. However, there is a simple solution that cannot guarantee your success but may help. Find a friend!

To be honest, this might not be the easiest thing to do. First of all, where do you find someone? And secondly, can you trust that person? There are several trading groups out there that you can search for online as well as chat groups. We have one at Market Taker [more]

How to Form Your Methodology as a Trader

John Seguin, Market Taker Mentoring

Over the years I have researched and tested many strategies using the seemingly countless tools and indicators available to traders. The goal is to understand the logic of each technical tool, as well as to learn the fundamentals that impact the stock or commodity. Each tool has a purpose, but generally they are meant to reveal trend strength or change in trend. There are short-term indicators for timing breakouts or reversals. And of course, there are the universal long-term trend indicators 50- and 200-day moving average, which are standard for most equity market traders. [more]

Using Spreads to Offset Risk

John Kmiecik, Market Taker Mentoring

As a general principle, when the market and stocks move lower, implied volatility (IV) rises. When the market and stocks trend sideways or move higher, IV generally falls or stays where it is. High IV means option prices increase and when IV falls, they typically get cheaper all things being held constant. Option traders try to sell when IV is high and buy when IV is lower. Sometimes, of course, that is not possible.

Over the past couple of weeks, the market has been volatile with many stocks falling from recent highs. IV level has certainly spiked to levels not seen in quite some time. This means option prices also spiked. [more]

How to Scan Markets for Breakout Potential

John Seguin, Market Taker Mentoring

All traders fantasize about the perfect trade where they enter a position just before the market accelerates in the direction they have chosen. In this dream, risk is never a factor because the trade was never in the red. Such trades do exist, though they are elusive and rare. The trick to catching one is recognizing when probability favors a sharp vertical move.  

I often refer to fast vertical moves as breakouts or sprints, because the market is running from a consolidation zone or fair value area. So, we must define what a consolidation phase looks like and when it has matured, making the market ripe to go on a run. [more]

Create a Manageable Stock Watchlist

John Kmiecik, Market Taker Mentoring

Having a well-researched and ever evolving watchlist can be imperative for a trader’s success. The key in my opinion is to keep it tight and relatively small. The bigger it grows, the bigger the chance that opportunities will be missed. If there are fewer underlyings to watch, the less the chance an opportunity will be overlooked.

There are so many different scans and services out there that a trader has at his or her disposal it could make your head spin. The thought of having the best candidates at your fingertips can be quite exciting, but it can sometimes be a little overwhelming too. Now, by no means do I mean to say never use them because I use a few myself. But truth be told, probably 70% to 80% of my option [more]

Pro Traders Move Markets

John Seguin, Market Taker Mentoring

When all trades were executed in pits at the exchanges, it was a clear advantage to be on a trading floor because we could see who was buying and selling and how much. When the institutional traders were bullish the market went higher, and if they were bearish it went lower. When professional traders move in groups, their bids and offers far outweigh those of short-term traders or speculators. They move markets.

My goal is to identify when and where professional traders are operating because doing so early increases the odds for catching the onset of a trend. Vital information from a trading floor is no longer available, so we need to find a method that will help identify [more]

When in Doubt, Option Spread It Out

John Kmiecik, Market Taker Mentoring

Learning about options can be very difficult. I always like to say there are three difficult phases when learning how to trade options. The first, in my opinion, is learning about options, including the strategies and the greeks. The second is the easiest of the three, but by no means is it easy: learning when and what strategies to use based on the charts, time and volatility, just to name a few. And the last is the hardest: managing the trade.

Maybe you will never become a so-called “option greeks expert,” but you may just need to know one thing that might help you immensely and that is to spread it out. Here is what I mean. If you are concerned about one or more of the option greeks, consider a spread [more]

Market Movement Speed Dictates Strategy

John Seguin, Market Taker Mentoring

Extraordinary moves both up and down were frequent last month. Choppy trendless trade typically follows large vertical moves. August began with a bang after the trade war with China escalated. The sharp decline lasted three days, and the range exceeded the length of an average month. A move of that speed and magnitude brought on an oversold signal. When markets get severely oversold/overbought, they frequently go through a few weeks of erratic trade where trends last for two or maybe three days before reversing. A pennant often forms during these consolidation periods. Speculators or short-term traders tend to excel while this pattern takes shape. [more]

Option Traders Often Adjust Too Soon

John Kmiecik, Market Taker Mentoring

As an investor or trader, selling option premium can make a lot of sense. But there is a common problem I see among option traders, particularly when covered calls and time spreads are involved: They tend roll the short position too soon. Let me explain myself in more detail below and tell you about an example we just talked about several weeks ago in Group Coaching.

Short Options

Selling a call option against a stock position is commonly done by investors (covered call). The call option’s strike is generally sold where the investor thinks the stock will be at the short call’s expiration. The call option expires worthless and maximum profit is earned [more]

Great Traders Create a Methodology

John Seguin, Market Taker Mentoring

Aside from being a Market Taker Mentoring coach, I publish daily newsletters to guide traders in the futures markets. I started doing this in the late ’80s as a broker, and to be competitive I had to adapt to different conditions and client requests. It forced me to develop strategies for equities, treasuries, precious metals, energies, currencies and even grains. I started my analytic career as a technician and soon realized that a fundamental view of the markets was just as, if not more, important than charting techniques.

The road to becoming a well-rounded broker/trader/educator forced me to develop a list of tasks that I use faithfully before entering a trade. [more]

To Trade or Not to Trade

John Kmiecik, Market Taker Mentoring

As I have often said, trading and making money is not easy. Most traders, including option traders, will never consistently make money. Now I am not here to make you feel bad. If you have traded before, you have probably already done that to yourself. I am here to remind you that when you don’t feel you are putting the odds on your side, you should consider not trading.

The market has been extremely volatile with potential breaking news moving stocks higher and lower the next trading session. It is frustrating as a trader to be up on a position for a short amount of time and suddenly be down big the next session because of the market changing. I tell my students to use small contract size and consider smaller profit targets too. [more]

How Will Employment Report Impact Markets?

John Seguin, Market Taker Mentoring

On the first Friday of each month, the government releases data on the employment situation. Of all the monthly reports, job numbers have the most impact on interest rates and the ETFs that track yield, notably TLT and IEI. That impact often reverberates in currencies, precious metals and occasionally the equity indexes. We saw the impact a rate cut had on stock indexes on Wednesday, July 31.

The day ranges for many markets are well above average on Payroll Fridays. This report is frequently responsible for setting an extreme (high or low) for a week or two. Quite often the high or low for the month is made on the day of this report or shortly thereafter. July’s high was made on the day of this report. [more]

Your Option Trading Mantras

John Kmiecik, Market Taker Mentoring

Rinse and repeat. You have probably heard this many times in your life. The saying probably was derived from the directions for shampoo, but people often use the phrase for everyday activities as well. In fact, as option traders, repeating positive steps can lead to your potential success as a trader. Below are some sayings I like to use often with my students, and many of you have heard me use them before. But because I think they are so important for your success, I am repeating them here and hope you will repeat them too.

Money Lying in a Corner…

The first saying I like to use is taken from Jack Schwager, who was quoting James Rodgers. It is part of a longer quote, but I have narrowed it down to trigger a response from traders. When I say “money lying in a corner,” it means that I want to take a trade [more]

Liquidity Is King

John Seguin, Market Taker Mentoring

Traders are almost as unique as snowflakes. We all have different risk parameters and time frames and use an array of technical indicators.

Not long ago all trades were executed in pits at the exchanges. Buyers and sellers battled to gain an edge in these spheres of organized chaos. Years of watching and reporting price action allowed me to learn what information professional traders were seeking to create strategies.

Professional traders contacted brokers on the trading floor to not only execute trades, but to gather information on who was buying or selling and how much. With this information, the trader might be able to tell if a rally occurred because institutional traders were [more]

A Look at Bearish Vertical Credit Spreads

John Kmiecik, Market Taker Mentoring

Vertical spreads offer an option trader a wide variety of risk/reward scenarios. There are always tradeoffs when it comes to options and the different strategies that can be used, and vertical spreads are no different. If the risk outweighs the reward, the chances are better for profit. If the potential profit outweighs the risk, it is going to be harder to profit.
 
Many option traders tend to stay away from credit spreads or trade them too much. Debit spreads (depending on how they are implemented) usually offer higher rewards based on the risk amount and are often viewed as a “safer” choice and easier to understand. Once option traders understand credit spreads, many prefer them over debit spreads. Let’s take a look below at [more]

 

Uses for Average True Range

John Seguin, Market Taker Mentoring

When traders talk about range, they are referring to a number that is the difference between the high price and low price of a time period. It does not include gaps and is a measure of the prices that have actually traded. Average True Range (ATR) is a technical indicator that measures volatility. To calculate ATR we must first define absolute value. To find absolute value, take the current high minus the previous close, and take the current low less the previous close.  Whichever is greatest is the true range. The ATR is an average of absolute ranges and is typically calculated using 14 days.

Simply, the higher the ATR, the more volatile a market is. [more]

How Does an Options Calendar Work?

John Kmiecik, Market Taker Mentoring

The market continues to be volatile and many traders fail to consider how a time spread like a calendar spread can profit from a neutral or for that matter a directional outlook. A calendar spread, or what it is sometimes referred to as a time spread, can be a pretty simple and straightforward option strategy. The spread is designed to work somewhat like a covered call but without the initial outlay of cash that can accompany buying shares of stock. The spread profits from time decay and can make money in any direction depending on the strikes that are chosen. Options are versatile.

Creating a calendar spread involves buying and selling options on the same underlying with the same strikes but different expirations. The best-case scenario is for the stock to finish at the strike price allowing the short-term option to expire worthless and still have [more]

Learn How to Read Price Action

John Seguin, Market Taker Mentoring

Recently I met a group of novice traders and they were very interested in learning how to develop a personal trading style or methodology. I told them the first thing they need to do is learn how to read price action. All traders endeavor to catch trends early and hold positions until exhaustion or max profit. Start by using charts to interpret the auction process. Trends have common characteristics.

A healthy trend is one that is facilitating trade as it moves in a direction. Markets were created to facilitate trade between buyers and sellers. So, if volume is increasing as a market moves in a direction, it is likely to continue on that path. A good trend usually has day ranges that are near average or larger. Long candlestick bodies are common during trends. A fast-moving average will remain [more]

Using Iron Condors in Volatile Markets

John Kmiecik, Market Taker Mentoring

With the market providing a lot of volatile action and implied volatility elevated, it might be a good time to talk about iron condors again. In Group Coaching, we have modeled out several iron condors recently. An iron condor is a market-neutral strategy that combines two credit spreads. A call credit spread is implemented above the current stock price, and a put credit spread is implemented below. The objective of any credit spread is to profit from the short options' time decay while protecting the position with further out-of-the-money long options.

The iron condor is simply combining both the call and put credit spreads as one trade. The trade is based on the possibility of the stock trading between both credit spreads by expiration. Let’s use XYZ stock as an example. If you have noticed that the stock has [more]

When a Market Moves Too Far, Too Fast

John Seguin, Market Taker Mentoring

Traders effort to catch a trend early and ride to the end. To accomplish that requires incredible timing on both entry and exit. To improve timing we need to know when a market has moved too far, too fast and is therefore likely to stall out or reverse direction.

Markets often telegraph an end of a trend by simply going through a period consolidation. Markets were created to facilitate trade. When a market moves in a direction and the day ranges and volume decrease, it is not facilitating trade. Subsequently, a reversal often occurs. [more]

Is Option Trading Easy?

John Kmiecik, Market Taker Mentoring

I often get asked that question. The truth is, trading is not easy and when the markets are volatile, as they have been, it just makes it tougher. Option trading like any other trading is an emotional activity. Most people are attached to their hard-earned money and don’t want to lose it. But as traders, you can’t make money if you don’t have any positions on. Therein lies the dilemma. How do I make money without trading?

The answer is you can’t. But you can also lose when you are not a disciplined trader, particularly in a market like we have been experiencing over the past several weeks. Market risk over this trade war has been crazy. As I always like to say as a reminder [more]

Trading Is Like a Box of Chocolates

John Seguin, Market Taker Mentoring

The stock indexes have seen some wild swings over the past year and a half. In February 2018 the fear of mounting inflation instigated a big decline. In October 2018 there was another dramatic drop for many reasons, mainly a policy mistake by the Fed, tariff talk and slowing slow global growth. Then in December 2018 stocks took another huge hit. This decline was sparked by almost the same reasons in October, but add in Brexit and a slowdown in the Chinese economy.

Lately, the indexes have been ultra-sensitive to the war on fair trade and intellectual property with China. There have been unprecedented moves outside regular U.S. trading hours. Traders are vulnerable to forces that have had little or no impact in the [more]

Implied Volatility vs. Historical Volatility

John Kmiecik, Market Taker Mentoring

Historical volatility (HV) is the volatility derived by the underlying stock, stated in terms of annualized standard deviation as a percentage of the stock price. Historical volatility is helpful in comparing the volatility of a stock with another stock or to the stock itself over a period of time. For example, a stock that has a 20 historical volatility is less volatile than a stock with a 25 historical volatility. Much of this can usually be seen by the naked eye as well. Take a look at a stock chart to get a feel for historical volatility.

In contrast to historical volatility, which looks at actual stock prices in the past, implied volatility (IV) looks toward the future. Implied volatility is often interpreted as the market's expectation for the future volatility of a stock. Implied volatility can be derived from the [more]

Can You Make Money Trading Options?

John Kmiecik, Market Taker Mentoring

Here is a simple question for you that all traders need to answer on a regular basis. Is the reward worth the risk? I pose that question to my students all the time. To me, it is a critical element to your success as an option trader. Without a doubt you can make money trading options, but you have to be disciplined. Let’s take a quick look at two different aspects to the risk/reward question.

Position Risk/Reward

As I have said numerous times in the past, you have to be a risk manager first and a trader second to be successful on a consistent basis over the long haul. Before you enter a position, you need to ask yourself, do you believe based on your trade assumptions that the risk is worth the reward? It is really that simple but let’s be honest, now easy to do. Do you truly like the trade or are you getting [more]

How to Save Time Scanning Market Patterns

John Seguin, Market Taker Mentoring

Just about everything can be quantified and bought and sold. One thing we can’t buy is time, although we can save it. For traders, time is a huge factor. There is the time frame an investor prefers to trade or hold onto a position, intraday, day, week, etc. And there is the time it takes to scan markets for patterns that suit the trader’s strategy or style. Since the time we spend searching for ideal trade setups cannot be recovered, we need to find a way to shorten that task so we can spend more time with family and friends or leisure and hobbies.

There is an exercise we practice in futures class that helps us speed up the process of selecting stocks or commodities with a high probability of trending. At the same time we have a method of scanning the markets for patterns that precede consolidation [more]

Is Psychology Important in Options Trading?

John Kmiecik, Market Taker Mentoring

Let’s start this short blog with a quick answer…Yes! Psychology is important in most aspects of life including option trading. When I started out as a retail trader, I had no idea how important it would truly be. I quickly learned, although it took me several years to understand how to control my emotions.

Trading is not intuitive for most humans. To accept defeat, in this case an options trading a loss, goes against what you were brought up to believe. As humans, we want to be right because it makes us feel good. But unfortunately, taking losses from time to time is a regular part of successful trading. Having a perfectionist mentality is not going to serve you well as a trader. Trust me, I know! [more]

Before Trading, Ask These Questions

John Seguin, Market Taker Mentoring

I spent a couple of decades on the trading floors in Chicago. As a broker I serviced numerous professional traders. Some used only fundamental data, economic reports or order flow to make decisions. Quite a few used charts and technical indicators, while several entered trades because an automated system or “black box” gave the signal to buy or sell. Some traders incorporated all this information in their decision making.

One of the most valuable services I provided was to relay information I saw in the trading pit. Off-the-floor traders frequently called the trading floor to find out who was buying or selling and how much. If I reported that the big firms were favoring the short side, it [more]

Do This Before Placing Your Trade

John Kmiecik, Market Taker Mentoring

I have talked about this before and I am going to talk about it briefly again because it bears repeating. Know what you will do no matter what happens before you enter a trade. It sounds like a simple thing to do, but you would be surprised how many traders are so excited about the entry, they hardly think about the management of the trade.

Let’s say you see a stock breaking over a resistance level and you think it can continue to move higher. A bull call spread is selected as your choice to try to capture a profit. Before you enter the trade, there are several things to think about. When are you going to take a profit and a loss? Should you use multiple exits for profit or loss? Will you use hard or mental stops? What if your stops or targets [more]

Choosing an Optimal Stop Loss

John Seguin, Market Taker Mentoring

One of the most frustrating occurrences for a futures trader, or any trader for that matter, is getting stopped out on a high print when short or the lowest price of a move when long. Choosing a stop loss price is a difficult task, but it is imperative after entering a trade. Stops are often placed just below a support area if a bullish bet is made and just above a resistance level if a short position has been taken. Some stops are set at the price that is the maximum risk one is willing to take on a trade. In volatile markets, stops are often triggered because they were set too tight. Balancing the amount of risk either in a dollar figure or a pivotal price can be daunting. [more]

A Covered Call Play in Sideways Trading AAPL

John Kmiecik, Market Taker Mentoring

Many of you own Apple Inc. (AAPL) stock. Although it has not been the best performer over the past few months, there is always hope that the stock will move back to its recent highs set in October 2018. But what is more interesting to me as of late is how the stock has pretty much hung around the $170 level at the time of this writing. As an owner of the stock, there is not much you can do to make money if the stock trades sideways, but an option trader knows how.

Take a look at a recent chart of AAPL. This is a 15-minute chart, but you can see how the stock has pretty much traded in a [more]

Find Order in Chaos

John Seguin, Market Taker Mentoring

Too often price action is difficult to discern as we search for clues for a directional trade. Traders frequently rely on very short-term signals to make wagers. But short-term price action is often erratic making it tough to choose if bulls or bears are the dominant force. For this reason, it is imperative to step back and take a longer-term look using charts. Markets extend and contract, that is what they do. In other words, they trend and consolidate. Erratic trade often occurs after an above average vertical move, and trends frequently begin after an extended period of consolidation. This phenomenon is illustrated in the 10y note chart below. [more]

How to Avoid Stress as a Trader

John Kmiecik, Market Taker Mentoring

How many articles and reports have you seen or read in the past telling you that stress does not do the body good? The answer most likely is a lot. There are numerous emotional and physical disorders that have been linked to stress including depression, strokes and heart attacks to name a few. Now don’t get me wrong, everyone feels stress from time to time particularly as a trader. Stress can be a motivator but it can also be very harmful. As a trader, let’s look at a few things you can do to avoid unnecessary stress.

When there is extra stress in your life, you should consider taking a break from trading. Extracting money from the market is difficult enough with a clear mind, but adding stress to the mix makes it almost impossible. The pressure traders put on themselves [more]

Be Aware of Critical Moments and Prices

John Seguin, Market Taker Mentoring

Prices move up and down in response to fundamental and technical data. Fundamental or economic statistics are the driving force for price discovery. Bullish news or an indication of a lack of supply forces a rise in price, and weak demand pushes price lower.

A technical view takes a backseat to basic economic principles of supply and demand. But when new data are unavailable, technical information is often used to take a bullish or bearish position. Fundamental data take precedence over historic patterns. But when essential news is not available, observation or a technical view can help navigate a difficult trading environment. [more]

Consider the Risk/Reward Ratio

John Kmiecik, Market Taker Mentoring

Everything about option trading has risk/reward consequences. As I like to tell my students, if you give up this, you get this in return. If you get this in return, you are giving up something. This is a brief reminder of that fact and to think about it all the time as an option trader.

Synthetically, vertical debit and credit spreads are the same. Many traders sell out-of-the-money (OTM) credit spreads. Why does this trade have a seemingly unfair risk/reward ratio? In other words, why are you risking a lot more than you are willing to make? The answer is because the odds are on your side to profit so the risk is higher. [more]

Pro Trader’s Checklist: Trade Target and Profit Protection

John Seguin, Market Taker Mentoring

In this series we covered a checklist of components professional traders routinely use to create strategies or initiate trades when probability favors a sharp vertical move. The combination of below average range and above average time at price is one of the most powerful signals for timing a breakout or onset of a trend.

“Ducks in a row” or “planets are aligned” are common metaphors used to describe when conditions are right for an above average vertical move. When odds favor a breakout, entry is the next task and after entry risk must be defined. These issues were addressed in previous articles. Setting targets and protecting those profits are the next chores on the “pro trader’s checklist.” [more]

Bear Call Spread in AAPL

John Kmiecik, Market Taker Mentoring

One of the nice things about a credit spread is it can profit if the underlying doesn't move much or moves in the intended direction. A debit spread, such as a bear put spread, often needs the underlying to fall in order to profit.
 
A bear call spread involves selling a call option while purchasing a higher strike call option with the same expiration. The short call option is more expensive than the long call option, which creates a credit spread and protects the position from further losses if the underlying rallies. [more]

Pro Trader’s Checklist: Time Entry

John Seguin, Market Taker Mentoring

Back in November I introduced a “pro trader’s checklist” that included the components required to create strategies. To define momentum, or who controls direction, we need to establish where fair value lies. Once we determine value, we can define risk. When risk is identified, timing entry is next on the agenda, followed by projecting and protecting profit.

Timing entry depends on a few factors.  First, is the type of trade you are looking to execute: a directional or vertical trade versus a contrarian or horizontal trade. Breakout or vertical trades are most common after a market has established a symmetrical fair value area with below average ranges and volume over several days. The contrarian trade is best when a market is thought to be overbought [more]

Understanding IV Skew

John Kmiecik, Market Taker Mentoring

If you trade options, you may have heard the term IV skew. If you know what it is, great. If not, this little blog may shed some light on the subject. If you know what to look for, it can improve your profit potential by putting the odds even more on your side.

An IV skew is when there is a difference in implied volatility (IV) levels for different expirations. For instance, one expiration has an implied volatility of 23% and another has an implied volatility of 28%. Keeping it simple, implied volatility is how options are priced. When IV is higher than normal, option prices are higher than normal and vice versa. Many option traders use the average IV levels over the course of a year to gauge whether IV is currently high or low. Others compare it with historical volatility (HV), which is the volatility [more]

Trading Prep for the New Year

John Seguin, Market Taker Mentoring

It is that time of year to set goals and renew resolutions that were neglected or ignored in 2018. When the year-end holidays roll around, I make it a point to update a statistical cheat sheet and charts that include current and historic dimensions for commodity futures, stocks and ETFs. Comparing historic and current ranges will help identify when a market has moved too far, too fast, thus favoring a consolidation phase. This is commonly known as overbought or oversold. Or these stats may signal when a market is wound too tight making it ripe to trend or move vertically either up or down. [more]

Your Year-End Trading Inventory

John Kmiecik, Market Taker Mentoring

There are many of us out there who have been postponing some chores until after the holidays. Whether it is cleaning our closet or basement or finally getting organized in general, January is probably a good time to get these finished. But what about your trading? Have you thought about taking an inventory of your trading this past year? If not, you probably should.

Reviewing your trades and taking an inventory of your trading in 2018 can do a couple of things. First and foremost, it can tell you how much you made or lost throughout the year. But your progress should not just be measured in dollars and cents. Sometimes traders make real progress but the growth cannot be seen, and sometimes they can be successful making money but lack of discipline [more]

The Pro Trader’s Checklist: Define Risk

John Seguin, Market Taker Mentoring

In this series so far, we have discussed how to define a fair price and fair value area, as well as how to recognize when trend potential is high and momentum apt to kick in.

Defining risk is one of the most difficult and immediate tasks a trader must do after entering a position. When entering a trade, one has a bullish or bearish bias. Risk is thought to be a change in momentum. If a short position is taken due to bearish read on momentum, that trade should be held until momentum turns positive. Conversely, a long position should work until momentum turns negative. [more]

Consider Taking Profits Sooner

John Kmiecik, Market Taker Mentoring

If you haven’t noticed, the market has been very volatile. The only way you might not have noticed is if you weren’t trading. I have said over the past couple of weeks that I believe this market has made it difficult for swing traders (generally a 2- to 5-day trade) to make money because of the volatility. I have also said it might be prudent to take profits and cut losses quicker than normal under these circumstances.

To me this means looking for smaller profits and limiting yourself on the loss side too. For example, if you normally look to take a 50% profit, maybe consider taking a 25% or 30% profit instead. The market has been gapping so much that limiting your gains [more]

The Pro Trader’s Checklist: Identify Trend Potential

John Seguin, Market Taker Mentoring

In my last article I discussed how to define fair value. We needed to start there because it is the foundation for building strategy. Traders hunt for opportunities to jump on trends early, so it is imperative to recognize when odds favor a directional trade. Momentum begins as a market moves either up or down away from fair value.

A fair price is that price where buyers and sellers transact most often. Measuring time at price reveals a pivotal level for defining momentum. One of the most logical and reliable signals for reading short-term momentum depends on where a market closes in relation to the fairest price of the day. A close above the high-volume or fair price indicates bulls are in control and that the market will [more]

There May be a Better Time to Sell Option Premium

John Kmiecik, Market Taker Mentoring

Selling credit spreads based on support and resistance is often a very good way to go for option traders. If an option trader believes the stock will stay under a specific area, he or she often looks for areas of potential resistance that might help keep the underlying from attempting to move higher. If he or she believes the stock will stay above a certain area, potential areas of support might help keep the underlying from moving higher. It seems intuitive but I also see option traders do the opposite when initializing their credit spread.

Many times, traders will identify support and resistance and use that as a guide for their credit spread. That is all fine and good but I often have questions about when to initialize the trade. One of the biggest potential mistakes I see is that option traders sell put spreads [more]

The Pro Trader’s Checklist: Define Value

John Seguin, Market Taker Mentoring

In my last article I presented a checklist of professional trader inquiries used to create strategies and implement trades. Pro traders are inquisitive and use all available technical and fundamental data available. Most of us do not have access to research teams so we must learn to interpret price action to get some answers.

To be a pro trader is to be a price investigator. The two most common questions I experienced as a broker were, who is buying/selling and how much? They wanted to know if bulls or bears were dominant. To define that we must first define a fair price. After all, momentum is the move from a fair price. [more]

A Look at Naked Put Options

John Kmiecik, Market Taker Mentoring

Although the majority of earnings have already been announced, several companies still need to report. With the recent drop in the market and earnings season upon us, the implied volatility of many options has increased tremendously. When implied volatility is considered high, it can be tempting to sell premium like a naked option. Generally, after the earnings announcement, the implied volatility drops again and so does the option premium. This is naturally a good thing for a seller of an option.

The potential problem is it is also considered to be even more speculative if the position was held over the earnings announcement. A volatility event like an earnings announcement can produce some unpredictable price action for stocks. [more]

The Pro Trader’s Checklist

John Seguin, Market Taker Mentoring

As a former broker at the exchanges in Chicago, I had the privilege of reporting price action in its most basic form, open outcry in a trading pit. In these spheres, where traders battle to buy low and sell high, it was chaotic to the untrained eye. When in fact there were incredible amounts of information that a trained eye could decipher.

One of my early jobs at the Chicago Board of Trade was to report what was going on in the pits to professional traders using a squawk box. This box or speaker was often a centerpiece in trading rooms around the globe. The information broadcasted was frequently used to make trading decisions. So, what information were these institutional traders seeking? [more]

Patience After Morning Gaps

John Kmiecik, Market Taker Mentoring

One of the biggest mistakes I see traders make is that they get too excited right when the market opens. This is particularly true after a sizable gap higher or lower to start the session. I think many of us can agree that the first 30 minutes of the market are very volatile. If you have been watching the market over the past couple of months, you might say the whole session has been volatile. But knowing not to get caught up in the early market action can improve your chances for success further down the road.

Let’s take a look at a recent example of when the market gapped lower and it looked like it was going to zip higher right after the open. When the market has been moving lower and then there is a gap lower, the odds are that stocks will recover some, but maybe not [more]

A Look at Patterns Preceding Trends

John Seguin, Market Taker Mentoring

One of the most common pre-trend setups requires monitoring time at price. The more time spent at price, the more volume accumulates, subsequently a fair price and fair value area take shape. In markets, momentum is recognized as a vertical move away from fair value. Uptrends begin with positive momentum and downtrends start with negative momentum.

Powerful moves often occur after a market has gone through a period of choppy trendless trade. Think of it as the time it takes to build up energy for the big race. When pent-up energy is released the move is often one-directional and rapid. [more]

Using Delta to Help a Credit Spread

John Kmiecik, Market Taker Mentoring

When you think about selling a vertical credit spread as an option trader, probably the first thing you think of is positive theta. Of course that is a very important aspect to a potential profit. But there is another Greek that can get you to your profit destination quicker than even theta sometimes and that is delta.

There are two types of vertical credit spreads: put and call. Selling a call credit spread, an option trader believes the stock will stay below a certain area like resistance for maximum profit. Trade is initiated by selling a call and buying a higher strike call with the same expiration. A put credit spread is created by selling a put and buying a lower strike put with the same expiration. The option [more]

A Look at Short-Term Sniping

John Seguin, Market Taker Mentoring

During my years at the Chicago Board of Trade, I had many friends who were short-term or day traders, also known as “locals,” in the trading pit. The locals provided liquidity to brokers who were filling orders for institutional traders and fund managers. The reward for providing liquidity was that locals were given the edge. Getting an edge meant you sold the offer side or bought the bid side of the market.

Institutional traders typically executed large orders and held positions to ride trends. Locals, on the other hand, traded for one or two ticks many times during the session. They usually traded large quantities for small profits and losses. An institutional trader might do [more]

A Simple Lesson on Vega Exposure

John Kmiecik, Market Taker Mentoring

As an option trader, implied volatility (IV) can be a big influence on your option trades. IV is used to determine the current price of option contracts together with other factors like time to expiration and the strike price. Keeping it simple, when IV rises, so do option prices, and when IV falls, so do option prices.

IV generally increases when the market is bearish and decreases when the market is bullish. Long options, both call and puts, have positive vega. Vega changes the option premium for every 1% IV changes. If IV rises, so do call and put premiums and vice versa. So, when an option is bought, an option trader prefers IV to increase. The option premium increases, which could lead to a profit to [more]

Fed’s Reaction to Tariffs Pivotal

John Seguin, Market Taker Mentoring

News travels fast and markets react just as quickly because access to the financial futures markets is virtually uninterrupted from Sunday night to Friday afternoon. In our Monday morning meeting we review event risk for the coming week. We examine scenarios depending on data that are bullish, bearish or neutral. There is an emphasis on economic reports that typically affect interest rate policy. Interest rates are the engine for the economy. The Fed raises interest rates to tame an overheated or inflated economy. And they lower rates to encourage spending and lending.

For years the monthly employment report was the main market mover. Recently, price components in many of the regular monthly reports are in vogue. Prices for goods and services are scrutinized more than job data lately. Producer and consumer prices are [more]

Using Collars to Protect Gains

John Kmiecik, Market Taker Mentoring

After a number of big-name stocks like Apple and Amazon hit record highs recently, many of them moved lower over the past several sessions. As an investor, this can be a little disheartening, to say the least. But if you know how to use options, some of these gains can be protected. Let’s take a quick look.

Collars

A collar is selling a call option and using some if not all of the premium collected to buy a put option. Think of it as a covered call and a protective put as one trade. Many investors will sell call options against their long stock position to potentially increase their return. But with collars, the proceeds are used to partially or fully pay for a long put. The buyer of a put option has the right to sell the stock [more]

See Support and Recognize Resistance

John Seguin, Market Taker Mentoring

Choosing where to enter and exit trades is a skill that can be learned through observation and practice. At the end of every day, get in the habit of marking where the high and low were made. Then look back to the last time that price traded. If you do this on a regular basis, you will find that highs and lows tend to be made when old high-volume prices and very low volume prices are retested. Recognizing where sellers gained control of momentum before a decline and where buyers gained control before a rally will help you pinpoint entry and exit levels. I prefer to use 30-minute bar charts for reading day momentum and marking low and high-volume or fair prices. [more]

The Importance of a Trading Routine

John Kmiecik, Market Taker Mentoring

You might have heard that pilots seem to make pretty good traders. Whether that can be proved is doubtful, but why is it a possibility? The simple answer might be that they have to follow a routine as pilots, and traders should do the same.

Think about it for a second. Things that are routine for you are generally easy. Trading, as most know and have experienced, is not easy especially at first. So, doesn’t it make sense to develop a routine and make it as easy as possible to succeed?

If you trade “normal” market hours with the market opening sometime in the morning, plan a pre-market routine. How are you going to look for new opportunities and how are you going to address any current positions? These are just a couple of issues to consider, [more]

Recognize Neutrality to Identify Change

John Seguin, Market Taker Mentoring

In our daily futures class we frequently refer to a list of axioms that reveal market tendencies. This “Tool Box” is divided into sections that focus on different situations traders face when developing strategy or trade ideas.

In this week’s newsletter we will focus on a few scenarios that frequently telegraph the end of a trend and sometimes the reversal of one.

When markets trend higher they tend to make lows very early in the day and closes tend to be above the midpoint of the range. When bears are in control, highs tend to be made in the first hour of trading and closes are often below the midpoint of the day range. [more]

More Odds on Your Side

John Kmiecik, Market Taker Mentoring

I have always had this discussion with my trading students, but lately it has been a fixture in every conversation. Are the odds on your side for the trade? Here is a brief account of a discussion I had with a one-on-one student this past week about putting the odds on his side based on technical analysis.

We were talking about putting the odds on your side for trades and the subject of day trading came up. I told him the same rules apply to smaller time frames as well as larger time frames like daily and weekly charts. Look for areas where the stock may hold and reverse like support and resistance. We looked at the market and found a potential trade idea on Alibaba Group (BABA) on a 5-minute chart. [more]

When Is a Market Move too Quick?

John Seguin, Market Taker Mentoring

For an independent short-term or swing trader, timing is crucial. There are patterns that frequently precede trends and increase the odds for vertical or directional moves. On the other hand, there are also situations or setups that occur when a market is apt to go through a holding pattern or period of consolidation.

Measure price action using vertical and horizontal dimensions. These stats allow a trader to distinguish if a market has moved too far and too fast, thus favoring a short volatility strategy, or whether it is likely to trend or move directionally, thus favoring a long option tactic. Identifying when a trend is about to start or end is how we get probability in our favor. [more]

It’s a Good Time to Review

John Kmiecik, Market Taker Mentoring

If you are an option trader like me, you are not a big fan of earnings season. The reason is simple: I do not like to hold positions over an earnings announcement. All trading is speculative, but to me it seems that holding a position over earnings is “extra” speculative. So, what is an options trader to do? The simple answer is to review his or her trades.

This should absolutely be done year-round, but many of us do not do it enough. Here is the excuse you need to get started. I know you might have procrastinated writing that trading plan for a long time, but I’m hoping you have finally completed it. This is an integral part of your trading plan and putting it off is not doing you any favors. [more]

How to Track Financial Market Correlations

John Seguin, Market Taker Mentoring

Trading financial futures has been a tough task lately. The equity indexes have done well recently, but they have spent most of the past five months chopping around in the range that was established over two days back in early February. Treasuries have been stagnant, while precious metals have been trending lower and the dollar higher. 

At times the relationship between these sectors is not apparent. However, a sharp move in one commodity may renew or reveal a relationship with another sector. In Futures Group Coaching class, we track correlations between many markets and different time frames. For example, a gold trader may refer to Japanese yen or dollar index to time the start of a trend or possibly the end of [more]

How to Choose a Stop Loss

John Kmiecik, Market Taker Mentoring

When it comes to options, stop losses can be a little trickier than, say, equities. Bid/ask spreads tend to be a little wider, which means there is more ground to make up than something with a tighter spread. Let’s look at a general rule of thumb I use when it comes to stop losses and options.

Outrights

When just buying or selling a single-legged option, I tend to use a hard stop. I will put in a sell stop loss for long positions and a buy stop loss for short positions. The reason behind this is that since there is only a single leg, the bid/ask spread is usually [more]

Sprinting Into a Trend

John Seguin, Market Taker Mentoring

When trends begin there tends be a violent move from a fair value area. The range on the day of a breakout usually exceeds the average, and it is often almost twice the length of a normal day. The so-called “sprint” from value is also called a trend day and occurs 10% to 15% of the time.

Odds for catching a trend day nearly double when the previous 72 hours have seen below average volume and ranges. In addition, day ranges tend to overlap severely, while opens and closes during regular trading hours are near each other. A series of candlesticks with small bodies are common before trend days. [more]

Motivation Is Critical to Trading Success

John Kmiecik, Market Taker Mentoring

If you are new to trading or have been trading for several years without the success you envisioned, it might be time to reflect on a very important component of successful trading. Are you really committed to being a successful trader? Ask yourself that and really think hard about the truthful answer. Trading, as you probably know, can be very frustrating and I mean very! A lot of traders say they are willing to put in the time and effort to make it a successful endeavor, but are they really? Putting in long hours does not guarantee your success because you need to spend your time wisely. To say you are motivated and to make the changes and put in the time to make yourself successful are two very different things. Trust me, I have been there in the past, so I know it is true. [more]

Impact Reports and Market Correlations

John Seguin, Market Taker Mentoring

Markets typically bounce around in consolidation patterns. Trend type moves occur about 25% of the time. Consolidation phases precede trends, and trends follow consolidation phases. Traders labor to catch trends and avoid the trendless choppy trading periods. It requires timing and agility to be profitable when a market is gyrating and not trending.

There are markets that correlate either directly or inversely. Occasionally a breakout or onset of a trend is revealed, while the other correlating commodity remains stagnant. Recognizing subtle differences often leads to the edge we all seek to catch a trend when it kicks in. [more]

How to Sell a Bull Put Spread

John Kmiecik, Market Taker Mentoring

Implied volatility has remained predominantly low for well over a year now, except for a few spikes higher up when the market has sold off or there has been some pending news that can affect the market. The Federal Reserve is expected to raise interest rates this coming week, so it is doubtful IV levels will change much based on the outlook. Undoubtedly, there will be another time when the market drops and IV rises again to high levels.

Implied volatility by definition is the estimated future volatility of a stock’s price. More often than not, IV increases during a bearish market and decreases during a bullish market as we have seen. The reasoning is that a bearish market is riskier than a bullish market. [more]

The ‘Players Card’ Edge

John Seguin, Market Taker Mentoring

As an educator I have made assumptions that new traders already have a good understanding of market fundamentals. The more I teach, the more I realize most traders have not experienced trading pits and the valuable lessons we were privy to in that environment. Looking back, it was a privilege to watch the auction process in its most basic form, a trading pit.

When I started my career at the Chicago Board of Trade, my title was “runner.” Basically, I did whatever the rich guys told me to do. Getting lunch, buying an anniversary card for someone’s wife and appearing in court for someone were just a few of the chores. When it came to my actual job, maybe the most valuable task I had was to fill out a “players card.”  [more]

How to Set Up a Call Credit Spread

John Kmiecik, Market Taker Mentoring

Call credit spreads can be an effective way to profit when an option trader expects a stock to stay below a certain area. Many times this area is potential resistance in the form of pivot levels or maybe a moving average. Let’s take a look at how to implement this trade strategy.

A call credit spread — or as it is sometimes called, a “bear call spread” — is created by selling a call option and buying a higher strike call with the same expiration. Maximum profit is the credit received, and it would be earned if the options expire worthless (at or below the short strike at expiration). The maximum risk on the trade is subtracting the premium received from the difference in the [more]

How to Diagnose Trend Potential

John Seguin, Market Taker Mentoring

Prediction is fallacy, probability is not.

Time may be the most valuable commodity for traders. If we could control it, we would know where a price would be anytime. This is what we seek, but such knowledge is idealistic unless you are a time traveler or “terminator." However, there are patterns that give us a slight chance to get time on our side.  

A candlestick is a technical tool that reveals momentum or direction in real time. This tool is geared to determine future direction using the close in relation to the open of a specified time frame. If a market closes above the open, it is deemed bullish, and a close [more]

Long Calls Can Work

John Kmiecik, Market Taker Mentoring

Here is a short little reminder to all option traders who have abandoned buying calls: Please don’t forget to consider them as an option, so to speak. The first thing I personally learned as a brand-new option trader was a long call. I thought to myself that this is such a great strategy when I expect to profit from a move higher in the stock for significantly less money than buying shares. Of course, as time goes by and your knowledge increases, spreads usually become another choice for an option trader to consider, and for good reason. But let’s not forget a long call has unlimited profit potential, and there is always a chance the stock might rise more than you had [more]

Will USD Trend End or Reverse?

John Seguin, Market Taker Mentoring

For most markets trade has been quite choppy and trendless since early February when the stock market suffered a steep decline of historic speed. Since then trend trades have been rare in most commodities. However, recently the dollar has risen steadily against a basket of currencies, mainly the Euro, British pound, Aussie dollar and Japanese yen.

For many futures traders, catching a trend with few if any reversals that lasts for more than a week is a dream trade. Riding a trend for a few weeks is almost unheard of. Short-term or swing traders are an impatient bunch. Once a trend has begun, many of us attempt to time when it will end. Often traders walk the line bordering on psychosis. First, they work hard to recognize the onset of a trend [more]

Tesla Collar Over Earnings

John Kmiecik, Market Taker Mentoring

Generally, collars are used by investors when they want to protect a profitable equity position by setting an exit point. But many investors fail to realize what collars can do to protect your equity position, particularly for a volatile stock. We are smack dab in the middle of quarterly earnings, and now might be as good a time as any to discuss this somewhat simple, but effective, option strategy.

A collar is holding shares of stock and buying a put and selling a call on the position. Usually both the call and the put are out-of-the money when establishing this option combination. One collar represents one long put and one short call along with 100 shares of the underlying stock. One of the main objectives of a collar is to protect the shares of stock from decreasing in value rather than [more]

How to Increase Odds of Catching a Trend

John Seguin, Market Taker Mentoring

Most forecasters categorize price action and assign names or numbers to certain patterns. Patterns may differ but are often dependent on each other. Basically, there are three types of patterns: directional, neutral and trend.

Trends frequently begin violently. They often originate after neutral phases, also known as consolidation periods. Directional patterns are most common mid-trend. [more]

Let's Talk Iron Condors

John Kmiecik, Market Taker Mentoring

An iron condor is a market-neutral strategy that combines two credit spreads. A call credit spread is implemented above the current stock price, and a put credit spread is implemented below it. The objective of any credit spread is to profit from the short options’ time decay while protecting the position with further out-of-the-money long options.

The iron condor is simply combining the call and put credit spreads as one trade. The trade is based on the possibility of the stock trading between both credit spreads by expiration. Let’s use ABC stock as an example. If the stock has been trading between a range of [more]

Consider a Spread

John Kmiecik, Market Taker Mentoring

If options traders only buy and sell options outright, they are really ignoring the benefits of using options to create more flexible positions and hedge risks. Options are so multifaceted that even adding another short position to a long position can lower a trader's risk. As always with options, there are tradeoffs too.

Take this example: An option trader believes XYZ stock will rally over the next month or so. The stock is currently trading at $39.50. He could buy the April 40 call for 3.50. But what if XYZ traded sideways or dropped in price over the next several weeks or the implied volatility of the option fell? The value or premium of the option would probably be lowered. [more]

3 Top Tools for Traders

John Seguin, Market Taker Mentoring

Every day during our Futures Group Coaching, class we search for patterns that put odds in our favor to make trades that have trend potential with risk levels that are far less than the profit potential. Good trade location and timing are a trader’s holy grail.

Markets move from balance to imbalance. A balance phase typically occurs after a trend, and an imbalance phase is the onset of one. The trick is to recognize which phase a market is in. [more]

Higher Highs and Higher Lows

John Kmiecik, Market Taker Mentoring

The trend is your friend. How many times have you heard that famous saying? Probably too many, right? Well there are several sayings and reminders when it comes to trading that stand the test of time, and this is absolutely one of them. I start my Group Coaching class each and every session by reminding traders to consider the trend. To me it is so important, and it is a good reminder to look for opportunities when it comes to trends.

As traders, we are always looking for an edge and to put the odds on our side. Looking for opportunities and being patient fit these criteria. To me an uptrend is an underlying that is setting higher highs and [more]

Average vs. Median Ranges in Volatile Times

John Seguin, Market Taker Mentoring

When entering a trade, one must consider return objectives and how they relate to risk. There are many ways to project profit, but one of the most logical is to use average true range (ATR) over various time frames (day, week, month).

For example, assume a short-term strategy has given signal to buy. After entering the trade, the next steps are to define risk and then project profit potential. From the entry point, let’s say risk (stop loss) is set at 50% of an average day range below the entry price. And the first profit target would measure 100% of an average day range above the entry price. This simple strategy may prove useless if volatility jumps drastically and the current ranges become much larger than the [more]

Not Trading Is Always an Option

John Kmiecik, Market Taker Mentoring

If you have been watching the market over the past several weeks, you have seen lots of volatility. Not only has there been choppy and sloppy action from session to session, but also many moves that have been extended both ways. The closes have been erratic at best, and the intraday action has been just as unpredictable, with early buyers’ enthusiasm slowly surrendering to sellers to end the day.

I have talked to plenty of option traders and investors in my career at different stages of their success or lack thereof and under different market conditions. But I have found this current market to be universally a bit more difficult than most. For the most part, the traders I have talked to agree and ask [more]

Recognizing Change in Trend

John Seguin, Market Taker Mentoring

Timing the end or reversal of a trend is a difficult task and the ambition for most traders. There are a few patterns that recur when a trend is nearing an end.

When a market is trending higher, the low for the day is frequently made very early in the session, often within the first hour of trading. Conversely, when the trend is down, the high for the day is often seen early in the session. So, if a market is trending lower and the high for the day is made in the first hour, chances are that trend will continue to extend down. When we begin to see lows made in the initial hour, it is an indication that the trend is near an end. [more]

Analyzing Implied and Historical Volatility

John Kmiecik, Market Taker Mentoring

Historical volatility (HV) is the volatility derived by the underlying stock, stated in terms of annualized standard deviation as a percentage of the stock price. Historical volatility is helpful in comparing the volatility of a stock with another stock or to the stock itself over a period of time. For example, a stock that has a 20 historical volatility is less volatile than a stock with a 25 historical volatility. Much of this can usually be seen by the naked eye as well. With this recent turbulent market, many current historical volatility levels are trading above levels from as little as a month ago. [more]

Emotion Breeds Volatility

John Seguin, Market Taker Mentoring

In the past month we have seen all-time highs for stock indexes and endured a historic correction. Though extreme movements are unpredictable and scary, they teach us humility and respect. When emotions run high, severe up and down moves occur. Markets take no prisoners.

During extraordinary price movement a trader must adapt. Risk and profit targets need to expand. For example, shortly before the S&P topped out an average day range was about 23 points. During the past [more]

Odds on Pattern

John Seguin, Market Taker Mentoring

There are no indicators or patterns that pay off every time.  The best we can do as traders is to calculate probability of a trade working in our favor. Markets are like snowflakes. No day is like another.

Legally every analyst must have a disclaimer. The reason for this is protection. The truth is no one can predict future events, but we can get odds in our favor. [more]

Selling Puts and Earnings

John Kmiecik, Market Taker Mentoring

If you are like me, you have probably seen numerous emails about selling puts. Writing or selling “naked” options is selling options without having a position in the underlying stock or being long any options on the stock. For example, if a trader is writing naked calls, he is selling calls without owning the stock. If the trader did own the stock, the position would be considered “covered.” [more]
 

Crude Oil Pace Problem

John Seguin, Market Taker Mentoring

The past year has seen some incredible trends. Most notable is the rise to historic levels in equity indexes. Another more recent rally began in June and has yet to recede. Crude oil bottomed out in early 2016 and spent the next 18 months or so in a rather tight range. Nearly all the trade during that consolidation period occurred between $45 and $60. In mid-December oil began to rise from $56 and penetrated the upper band of the long-term range on the last day of 2017. It has been on a steady rise for a month straight.

Using a 7-month sample as a benchmark, the average month range for oil spans about $5.50. The range over the past month is almost $9.00. The range since mid-December is closer to the length of an average quarter, which is [more]

Comparing Bearish Verticals

John Kmiecik, Market Taker Mentoring

Vertical spreads offer an option trader a wide variety of risk/reward scenarios. As I like to say about options, there are always tradeoffs. The various strategies that can be used and vertical spreads are no different.
 
Many new option traders tend to stay away from credit spreads. Debit spreads (depending on how they are implemented) usually offer higher rewards based on the risk amount and are often viewed as a [more]

Tracking Trading Trends

John Seguin, Market Taker Mentoring

The speed of a rising or declining trend may reveal the longevity of a directional move. When markets move in a methodical fashion trends tend to last longer, thus increasing profit potential. When markets get severely overbought/oversold they frequently go through days, even weeks, of choppy trendless trade. Such periods of consolidation occur when trends near exhaustion and signify that profits should be realized.

To determine if a trend is moving too fast it is imperative to track average range length, commonly known as average true range (ATR). For short-term or swing traders the ATR for days and weeks can be [more]

Option Traders Should Still Consider Long Calls

John Kmiecik, Market Taker Mentoring

With so many option strategies out there, a trader can be overwhelmed at times, especially during volatile periods. They will hear things like “you have to be able to trade spreads if you are going to make it trading options” or “professional option traders only sell options.” Option traders might be inclined to never look at buying call options again if they believe everything that is said. This famous saying applies here: “Don’t believe everything you hear.” In this article we’ll share a couple of great reasons buying calls should not be overlooked, but first here’s a brief look at what a call option is [more]

Monitoring Trading Momentum to Gauge Trends

John Seguin, Market Taker Mentoring

When prices severely overlap over a few sessions and the day ranges are below average, odds favor a breakout. When a direction is established we can monitor the strength and likely continuation of a trend using a couple of short-term indicators. One of the most reliable direction indicators requires watching the highest volume time of day. Consistently, the first hour of regular trading hours provides the most liquidity. It is during this time that institutional traders typically execute orders. After all, they are [more]

Smart Traders Review Their Trades

John Kmiecik, Market Taker Mentoring

As we move closer to the end of another year, you will probably see plenty of “year in review” pieces in the media. Consider doing the same as a trader. This is a great way to gauge how you are developing as a trader. A lot of traders will concentrate on their profit and loss statement, but this can be deceiving. Why? Many good trades lose money and a lot of bad trades make money. Your goal as a trader is to follow your trading plan and take the best trades that make sense to you with the hope of putting the odds on your side for success. With the end of the year fast approaching, there is no better time to start than now.  [more]

Stats for the New Year

John Seguin, Market Taker Mentoring

When December rolls around it is a good idea to take a step back from short-term charts and focus on long-term patterns to prepare for the coming year. Creating a spreadsheet of statistics is a great start. Traders need to know when a market is ripe to trend or ready to consolidate. Tracking vertical measurements of price action in various time frames can be a useful resource when timing directional trades or determining when the end of a trend is near. [more]

Using Butterflies to Trade Directionally

John Kmiecik, Market Taker Mentoring

Many option traders use butterfly spreads for a neutral outlook on the underlying. The position is structured to profit from time decay but with the added benefit of a “margin of error” around the position depending on what strike prices are chosen. Butterflies can be great market-neutral trades. However, what some traders don’t realize is that butterflies can also be great for trading directionally. [more]

Use Value Areas to Protect Profit

John Seguin, Market Taker Mentoring

Breakouts frequently occur after consecutive value areas severely overlap. Value areas are also used to risk and protect profit during a trend.

Value areas include approximately 70% of the volume around the mean or high-volume price, also known as POC (point of control). In the monthly macrographs below value areas are shown. There is a value area high (VAH) and a value area low (VAL). The POC or fair price is shown as that price that sticks out the furthest to the right of each monthly profile. [more]

Nervous About Your Stock? Consider a Collar

John Kmiecik, Market Taker Mentoring

What an incredible bull run the market has been on. Seriously who would have thought at the beginning of 2017 that we would still be setting all-time highs as recently as a couple of weeks ago. With many traders and investors thinking that at some point the market is going to move lower (although many have been wrong up until now), it may be time to take a look at a potential protection strategy using options. A collar is an often misunderstood but rather simple option strategy that can particularly benefit investors. [more]

Recognizing Market Breakout Potential

John Seguin, Market Taker Mentoring

Large capital flows are what move markets. Simply, if there are more buyers than sellers, prices rise. And when offers outweigh bids, prices fall. One of the goals of a trader is to recognize when a shift in capital flow occurs. Better still, it is important to identify when odds favor a shift, before it happens.

Before markets begin to trend, they frequently go through a period of choppy trendless trade or neutral [more]

There Are Other Options Than Calls and Puts

John Kmiecik, Market Taker Mentoring

Many new and some more experienced options traders think that strategies come down to one simple idea: Buy calls for a bullish outlook and buy puts for a bearish outlook. Now don’t get me wrong, I still buy calls and puts and use them successfully for my options trading but there are alternatives too. Long calls and long puts are without a doubt the most basic options positions, but they may not always be the most suitable. If options traders only buy and sell options outright, they are really ignoring the benefits [more]

Quantify Breakout Potential

John Seguin, Market Taker Mentoring

Traders, especially short-term traders, tend to be impatient. We all want the market to move in our favor directly after entering a position. Great timing, eases anxiety, decreases risk and increases profit potential.

Choosing when to enter a trade may be as vital as where to buy or sell. It is common for a trend to develop after a consolidation phase. Conversely, consolidation phases typically follow trends and the circle repeats. To increase the odds of catching a trend early refer to horizontal measurement also known as “time at price.” This dimension is best [more]

All Traders Need a Plan

John Kmiecik, Market Taker Mentoring

Every day I host a live options trading class and every week I choose a trading subject to talk about in addition to just talking about trade ideas. This past week we talked about having a trading plan and following that trade plan. I know when I bring up the subject, many of you groan and most likely it is because of one or two reasons. The first is you have heard this before that you need to have a plan and follow it but have not done so yet. The second is because maybe you have started a plan or have a plan, but are not following it. In either case, this will serve as another little reminder.

Before you get started writing a trading plan, traders need to ask themselves if they are truly motivated to succeed. It may sound insulting to ask that but traders really need to find out. Will you put in the time to make it as a trader? There are going to highs and lows along the way. Will you be able to handle those? And will be disciplined enough to write and follow a trading plan? [more]

Making Money in a Neutral or Down Market Trading Index Options

Marlene Sackman, Author

Trading index options is like a game of chess. There are many choices to make in a chess game based on what you want to accomplish, but, in many cases, more importantly, on what your opponent does. The best chess players are able to look multiple moves ahead in determining the possible action and reactions to these moves. The first moves, in many cases, are relatively standard. It’s the subsequent moves in the middle game  that set up the strategy to take control and ultimately come in for the kill in the end game.
 
In trading index options, the first move is based on a variety of fundamental and technical analytics. There are a vast array of fundamental and technical tools that have proven some consistency in predicting future outcomes, however, in the end, one must rely on personal judgment in choosing a strike, month and [more]

How to Protect Yourself from HFTs

The Hold Brothers Team, Contributors

Trading is a business that is constantly changing in terms of regulation, market structure, and trading styles. Arguably the biggest change within the industry within the past decade has been the emergence of high frequency traders (HFTs), who employ automated algorithms and black box strategies to execute certain types of trades faster than a human can.

Some strategies that automated traders use include low latency implementation of price arbitrage, trading for liquidity rebates, trading from sides of the spread then profiting from the difference, and price spiking or trading on the [more]

Keeping the Context When Trading Patterns

Craig Garbie, Contributor

Myopia and trading, generally, do not mix well. What do I mean? Focusing on a single timeframe while looking for an opportunity will likely have the trader entering many subpar trades that look like wonderful candidates without the markets background. I say generally, because some HFT algorithms and other unique trading methodologies are indeed very short term focused. However, I am referring to strategic trading even if that means a daily timeframe focus. Having a plan and carving out trading opportunities requires time, work and analysis.

A popular and relatively simple trading pattern is based on continuation. Continuation is defined for our purpose, as market movement [more]

An Effective Strategic Option Trading Plan Requires Flexibility 

Dan Passarelli, Market Taker Mentoring, Inc.

Sometimes the best move in executing your strategic option trading plan requires you to change course.

In battle, the generals never order an army to retreat. They simply order a "strategic withdrawal" of troops and resources, based on new information and conditions.

Semantic silliness, perhaps, but a valid strategy. [more]

You Gotta Know Who is in Control

Craig Garbie, Contributor

As a futures trader it is critical to know who is in control for the day. What is the dominant timeframe in the market? For our purposes I will breakdown participants into four basic groups operating on different timeframes. They have different motives, tactics and tools.  Now, there will be times [more]

Wheats the Matter with the Grains?

Craig Garbie, Contributor

Looking at the grain complex, one thing is apparent. Wheat is the worst performer over any recent time period. While we see some strength in beans and its related markets, soy bean oil and soy bean meal. This is reportedly due to palm oil shortages in Asia. Palm oil has no other readily available substitutes so end users have been tapping soybean oil. Corn has not been able to find a reason to show lasting strength.

Wheat is near decade-long lows, and lower if we adjust for inflation. The temptation is to get long some grains as the rallies can be ferocious. If traders do not get the timing right, the markets [more]

Trading and Filtering Continuation Trades

Craig Garbie, Contributor

The last article I talked about the importance of considering the context of the market when carving out trades and ideas. In this piece, I will explore some contextual elements that can be used as filters for continuation trades. Continuation trades are defined as trade opportunities in the direction of the perceived trend on the time frame being traded. Pauses or small retracements in the directional price action, provide opportunities to participate in the directional activity.

The question remains, under what conditions will a high probability trade present itself? The first thing to look for is where an impulse has taken place [more].

Stock Options Advice: Investor, Know Thyself

Dan Passarelli, Market Taker Mentoring

Here's some general advice about taking any stock options advice: Don't.

More precisely, never take stock options advice from anyone without weighing it against your own criteria for an appropriate risk or trade.

Every investor has a trading and investing psychology that constitutes his beliefs, values, aspirations and gratifications about risk and wealth. No two investors have the exact same psychology. [more]

Synthetics in a Low Volatility Environment

Ross Barnett Terry, Contributor

In a low volatility environment, creating synthetic call and put positions offers traders creative flexibility. Synthetic positions can allow traders a position in the underlying stock (long or short) with protection.  Synthetic long calls or puts afford traders the luxury of cheap protection while creating unlimited upside potential on calls: with the only limitation to the downside for puts is the zero mark.

A synthetic call is created when the trader buys stock and purchases a put contract for downside protection (the position can also be legged). A synthetic put is created by selling shares of stock while simultaneously purchasing a call for [more]

Learn Options Trading with a Paper Trading Account First 

Dan Passarelli, Market Taker Mentoring, Inc.

At first glance, the work to learn options trading may be daunting to the individual investor. But you needn't worry. No one is a professional trader when they first start out. Everyone is inexperienced and needs to learn how to trade before they can master the market. The psychological impact of the fear of risk of loss can make the learning path particularly intimidating. But you can learn options trading without risk of loss. Quite the contrary.

In fact, you can learn options trading, developing and testing your own trading strategies in a real world environment [more]

How About Some Implied Volatility to Compliment Your Futures Trading?

Craig Garbie, Trader

When trading futures it helps to frame out the current day before the open. One thing I have found useful is using the Implied Volatility (IV) of the at the money options to create the zones where moves may exhaust and reversion becomes more likely.

The easiest way to show how I use IV for this estimate is by way of example using the S&P E-mini contact and the VIX. I am using the VIX as my estimate of IV because it is easy for anyone to get and track. The current VIX from the CBOE website on [more]

Learn Options Trading With a Demo Account Before Trading for Real

At first glance, the work to learn options trading may be daunting to the individual investor. But you needn't worry. Everyone is inexperienced at the start of a new venture. But there is a way where traders can learn options trading without the risk of loss.

In fact, you can learn options trading, developing and testing your own trading strategies in a real world environment, without risking a penny of your own money. How? With a demo, or paper-trading account at your online options broker [more]

Correlations and Trade Timing

Craig Garbie, Contributor

Capital markets and commodities are tied together through capital flows. Money moves in and out of asset classes in somewhat predictable ways. Part of the trading game involves figuring out what the current relationships consist of. Another part of trading is figuring out when those relationships break down or change.

There are many ways to track these correlations or non-correlations. Some traders or firms spend large sums of money tracking the way markets move [more]

Flash Boys and the Tower: FCC License Number 1215095

Amy Boggs, Traders Exclusive

Michael Lewis’ Flash Boys gives us an interesting, yet somewhat biased glimpse about life as a high-frequency trader. As controversial as it may seem, it is an entertaining book that has roots in reality. In all its glory, Lewis’ book offers the secrets of the insider, an elite group known as high-frequency traders (HFT). But some secrets are not all laid out. Some are ... [more]

The "Greeks"

 Ross Barnett Terry, Contributor

Options are dynamic animals governed by a set of theoretical variables known as “Greeks.” Together they assume the dynamics of the sensitivity of the option with regards to a one point move in the underlying...[more]

Creating a Low Cost Collar

 Ross Barnett Terry, Contributor

When investors get to a point where they have substantial gains in a position, they may want to start to look at protection against loss. One of the most creative low cost ways to achieve this is through an options play known as a collar trade. The trade consists of buying a put option and financing the cost of that put option with a call option that has a higher strike with the same expiration. The call option... [more]

How Patience Will Earn You Money In The Stock Market

 Tim Melvin, Contributor

That seems to be the attitude that infects all too many investors. When the opening bells ring on the NYSE every morning at 9:30 am EST, traders seem to feel the need to do something.

The ticker tape is running, the talking heads on the media are cheerleading different stocks and sectors. The advertisements are almost constant, urging out... [more]

Advanced Trading: Going Long and Short on the Same Instrument in the Same Account

 Raymond Stein, NinjaTrader, LLC

Savvy investors must have an arsenal of tools and strategies available to employ as the market continually changes, adapts and corrects to news and events from around the world. I would like toshare a powerful technique any trader can use to either hedge their position and/or trade in multiple time frames and multiple directions (long or short) at the same time.

Why would I want to trade long and short on the same instrument, in the same account at the same time? This is a great question and the key... [more]

Butterfly Spreads: Part C

 Ross Barnett Terry, Contributor

As previously discussed, the butterfly and condor spreads are a composition of vertical spreads combined in various ways. All offer the trader various ways to profit with inherent defined risk. The long butterflies can be designed to profit as a stock moves up or down or trades sideways. The key to success is for the stock to stay in the range between the long strikes and optimally being at the common short strike nearest to expiration; which is when the spread is at its most profitable point.

Another form of the butterfly is called a double diagonal, which is a similar position to the iron condor, but is created by the long strikes being purchased in the next... [more]

Understanding Butterfly Spreads: Part B Variations

Ross Barnett Terry, Contributor

Now that we have discussed the basics regarding the butterfly spreads, it is time to look at variations common to many floor traders regarding positioning. As we initially saw in part A, the Butterfly Spreads are comprised of a long vertical call spread and a short vertical call spread in the same expiration on the same underlying with a common short strike. The spread is most profitable at the common short strike. The goal again is to have the stock closest to the short strike but more importantly; between the two long strikes. The same is true for put butterfly spreads. That said let us look at a variation known as the iron butterfly.

The iron butterfly is a variation comprised of a short call vertical and a short put vertical on the same underlying and done in the same expiration... [more]

How to Get Your Wife to Support Your Trading

Laurie Itkin, The Options Lady

Before I began my formal presentation at the Traders Expo last year, I asked the 90% male audience three questions:

1) How many of you have wives/partners who trade?
2) How many of you wish your wife/partner would trade?
3) How many of you wish your ex-wife would trade so you can reduce your alimony?

As you guessed, very few hands went up in response to the first question, lots of hands went up in response to the second question, and laughter was the response ...[more]
 

Butterfly Spreads - Part I

Ross Barnett Terry, Contributor

In this discussion, butterfly spreads and variations will be addressed in an attempt to build on a concept that will be further explained in additional soon-to-be released articles. The trader should then have a fundamental grasp on the different ways to properly position themselves for a wide array of scenarios in regards to the underlying security in question.

Butterfly spreads are an options position created by buying one vertical spread and selling another with the short strike of the verticals being ...[more]

When Should You Take Advantage of the Early Exercise Right?

Dave Rodgers, Contributor

The early exercise feature for equity options contain fundamental changes in risk that need to be evaluated prior to making a decision. The most common reason to exercise a call early is to capture a dividend. By exercising a call option the day before a stock goes ex-dividend the option holder take delivery of the stock and captures said dividend. This is can be an easy decision if options are deep in the money but how do you evaluate  ...[more]

Understanding Front Month Gamma

Ross Barnett Terry, Contributor

Gamma is a greek term that identifies the rate of change in a delta. In essence, it is the delta of the delta. Why is this important? It is significantly important because gamma is a dynamic animal and is most sensitive as an option nears the end of its “life”.

Think of it as a dying entity, a warrior lying in the battlefield gasping for his last breath, lashing out, striking at anything that comes close. This is the very essence of the term gamma. The life of an option is limited. It either ends up ...[more] 

Earnings Volatility: Friend or Foe?

Ross Barnett Terry, Contributor

When a company has an earning’s conference scheduled, many times there is speculation not only in regards to the accuracy of the projected earnings per share (EPS), but to several other factors as well. These include but are not limited to sales and revenue streams, products in the pipeline, cash on hand, management changes, possible future stock or bond offerings, etc. The uncertainty may cause volatility in the shares themselves, but the diamond in the rough is actually the temporary parabolic increase in the exchange listed options on the underlying shares. Traders tend to stay on the sidelines going into the days leading up to the earnings...[more] 

Delta is the King of Option Greeks

Dan Passarelli, Market Taker Mentoring

We all know option contracts are derivatives, and option prices are derived from the underlying stock, index, ETF or futures contract. But with other factors at work – implied volatility, time decay, etc. – how can you know how much an option is going to move with respect to said underlying? Very simple – check out the option’s delta.

Delta is arguably the most heavily watched of the option greeks, as it offers a quick-and-dirty way of telling us what to expect from our option positions ...[more]

Is Time Decay Kicking Your Butt?

Dan Passarelli, Market Taker Mentoring

There are still a few weeks to go until options expiration, but it is never too early to start thinking about time decay. Time decay is a premium buyer’s worst enemy and a premium seller’s trusted friend.

An option’s pricing consists of two main elements –intrinsic value (the difference between the strike price and the stock price; out-of-the-money options have no intrinsic value) and time value, measured by the length of time until expiration. While intrinsic value is ... [more]
 

Finer Points of Expiration

Dan Passarelli, Market Taker Mentoring

Once a month, options expiration rolls around. But options expiration requires some study to understand. Let’s take a look at some options expiration finer points.

1. While we always refer to “expiration Friday,” options don’t actually expire until Saturday. Technically, expiration occurs ...[more]

The Power of Leverage: Purchasing Options Verses Owning Shares of Stock

Ross Barnett Terry, Contributor

Why would anyone want to risk capital trading derivatives in lieu of the actual physical underlying vehicle they are based on? The advantages are based on the potential to leverage available capital and better position one’s self for greater profit with greatly reduced risk.

Buying one standardized option affords the owner a veritable safety net on the price of the underlying. The strike price coupled with the cost of the options...[more]