The biggest storm cloud hovering over the market is the tension between Ukraine and Russia. As of Wednesday night, Russia invaded Ukraine, causing a large gap down for the market.
The S&P 500 (/ES) dropped lower as the news worsened, but the market popped to close higher. We have to be ready as traders for these opportunities. Our job is to look for inflection points and learn from them.
The market is aware of the Russian-Ukrainian conflict, but the question is how does the tension unfold, who will speak on it, and what will happen next?
Now that the market is aware of the news, the indexes turned green heading into the end of day Thursday.
One level we want to focus on is the last stopping point from the most previous selloff at $4,212.75. This could be the next gap the market fills and our line in the sand.
If the /ES continues to hold above this key level, we can see some relief for the overall market. If it spends more time below that key level, we’ll look to roll back to the recent lows to the $4,100 level.
In the video above, we’ll lay out a compass of key levels going forward using the four-hour Ichimoku Cloud, moving averages, and point of control.
One of my favorite options strategies that can be used for any style of trading, whether you are a swing trader or a day trader, involves playing weekly options. I want to lay out a few simple but powerful tips I wish someone had told me when I first started trading.
The first thing I would focus on as a beginner trader is this simple, low-capital strategy that can provide life-changing opportunities.
Start with buying calls and puts.
There are many strategies you can choose from call credit spreads, debit spreads, butterflies, broken butterflies, etc. As beginners, it’s important to understand how to trade options in a “normal” manner by simply buying calls and puts.
One thing I stress for beginners is to trade bigger picture setups. The market is always moving but if you can remain patient and wait for larger picture setups to form, you’ll have more success than trying to trade the smaller setups.
In a high-volatility market, there are bigger picture setups every week that we can work to our advantage. It takes discipline to ignore the smaller moves and tempting little trades, but we want to focus on the larger moves.
This discipline can grow your profit potential, make your trades happen quicker in a bigger fashion, and allow you to trade with more confidence and an edge.
I recommend all traders focus on the squeeze.
The squeeze is one of the most powerful and straight-forward setups that you can start to wrap your head around.
As options traders, the squeeze is our best friend.
When price rips, options are exploding. When price chops and squeezes, options are cheaper. Once price rips or drops, the options explode – this is the squeeze releasing, up or down.
The squeeze can help you plan for larger picture trades.
The daily squeeze is a great example of a bigger picture trade in the overall market. We aren’t looking at a three-minute chart, hourly chart, etc. We are stepping back and looking at the bigger levels that will actually move price.
When the market starts to dump hard, any pop is a shortable opportunity. Understand that if you can catch the top of the bounce and the squeeze fires, you can make a big move and catch a lot of the drop.
Here is an example of shorting a market pop with a squeeze:
SHOP Daily Chart
SHOP is firing a daily squeeze to the downside, offering opportunities daily to short it and ride a nice easy wave of straight selling.
SHOP Example
On Thursday in Simpler Day Trading, we played SHOP on a rally from $2.40 to $4.20 for a 75% return, while leaving runner targets at $9.00+. This is what it looks like to hold this type of trade.
As a new trader, look for one good trade per day. Let it ride and have a good thesis for your setup. We are taking advantage of the gift that options provide – which is massive leverage.
Zoom out, look at the big picture, understand where you can get a good entry, and let the market work for you. If you build your plan on the bigger picture like daily and weekly charts, you can get a killer setup and grow your success as a trader.
As you get better daily, you can begin to explore the different trading strategies that fit your style best.
This is a question all traders should ask themselves because, truthfully, losing trades don’t have to be a painful experience.
Yet many traders live in constant fear of the next loss. Let’s break down “why” of loss and what can be done to mitigate emotional reactions to a normal part of the trading game.
View a losing trade as a mistake
Too often traders view losing trades as a “mistake,” thinking that because a trade didn’t work they must have done something wrong. When we take entries, exits, and trade setups that aren’t a part of our game plan, that indeed is a mistake that can be avoided.
However, when we stick to our game plan, take the right entries and exits, and focus on the proper strategy, a losing trade is never a mistake. If you took your entry based on your setup, that is simply good trading. Whether or not the trade works in your favor is just an outcome of the random distribution of this numbers game we play.
Losing trades are a part of the game and the sooner you can fully accept this reality as a trader, the sooner you’ll stop reacting emotionally to losing trades. Even the best traders tend to lose 30 to 40 times out of every 100 trades!
Taking too big of a loss
Taking a big loss is certainly painful, but we have to realize that this is a self-inflicted form of pain and a large loss is nobody’s fault other than our own. This can be a tough pill to swallow, but it’s the reality of trading. When trading options, our risk is defined before entering the trade, meaning we know how much we are risking before we pull the trigger.
The moment before entering a trade is when you have to be honest with yourself and your risk tolerance. Rather than day dreaming about the size of your profits should the trade work, ask yourself whether or not you are truly comfortable with the risk you’re putting on the table.
My advice to avoid painful losses is to pre-plan and risk only a set percentage of your account on each trade.
Personally, I only risk on average about 2.5% to 5% of my account per trade and limit overall exposure (all open positions combined) to no more than 15% of my account balance. Doing so ensures I will never put myself in a position to put myself “out of business.”
I only have cash at risk that I am comfortable losing.
For a more detailed view of how I manage my losing trades, check out my most recent newsletter explaining how I limit my losses with my win rate.
These are just a couple of tips but if you are currently struggling with painful losses. Shifting your mindset and your attitude toward risk management can quickly put you on the path toward better trading!
Trades coming against you is part of this game, but how you manage those situations can be what separates the profitable from the frustrated!
Position sizing, allowing for time, and mindset are all things we have control of as traders. Whether or not you use those to your advantage or disadvantage is up to you.
Still, there will be losing trades, so what do you do when a trade goes against you?
In this game, how you start is an important contributor to winning or losing.
Before you pull the trigger, make sure you properly position size. Proper position sizing takes care of a lot of problems. I typically like to risk about 2.5% to 5% of my account (net liquidating value) per trade. If you do this properly, you guard against digging yourself into a hole.
As a swing trader, I’m a big fan of giving my trades time, especially when shorting a volatile market. If you properly position size and a trade starts to move against you, then the trade in the short-term isn’t the end of the world. You also still have time to make up for it.
What we don’t want to do is sit and watch the market bounce against us. We look for clean setups and take action. One trade may be in the hole, but we can make moves that end up as profitable trades… That way we can make money on the upside (and vice versa if the market flips again).
Trading is a game of probabilities. We have to come to the reality as a trader that not all our trades will be winners.
We can be the top traders in the game and with a 70% win rate – if we are taking 100 trades – we can still expect 30 of our trades to be losses. The game plan is not all about avoiding losing trades, it’s about putting yourself in a position that if something moves against you, it isn’t catastrophic.
Position size appropriately, have a probabilistic mindset, and give your swing trades plenty of time. And in the meantime, enjoy the game of trading.
Heading into the long weekend, we are anticipating Options Expiration (OPEX) on Friday as it could likely add to the selling pressure (or continue the chop fest).
We could see selling ahead as the holiday weekend makes the market even more vulnerable and headline-driven.
For the rest of the week let’s see if the S&P 500 (ES) will continue to sell off or bounce back to its middle range due to OPEX.
There is a big liquidity range sitting above the ES with point of control (POC) at $4,505. This further proves our thesis on liquidity that price will bounce toward POC and if it doesn’t break through liquidity levels, the stock will fail and retreat.
Pay attention to lows this week. If the ES breaks the range near $4,354, we could see uglier price action selling off toward $4,328.50 to $4,300.
If the ES holds this range, it could revert to $4,420 and chop, as we’ve seen for most of the week. Note that seeing this choppy action can be a common occurrence during OPEX.
SHOP is a name we’re most excited about as it dropped hard, filled the gap, and is starting to free fall again. If the selloff scenario plays out into Friday, SHOP could hit $630 and continue lower to $600.
Be aware of news updates, watch key ranges, and enjoy the long holiday weekend.
We have a busy week of catalysts that could shape the market with unfortunate international news, the tail end of earnings season, and economic events.
The recent news of Russia possibly set to attack Ukraine on Wednesday has escalated tension in the market and is a very important catalyst to watch. This event – possibly devastating – could cause a massive move in the market so it’s important to pay attention to the news flow during this sensitive time.
Now that the big technology names are out of the way for this earnings season, we’ll preface the larger names we’re personally watching for reports this week…
Tuesday: Roblox, Upstart, and Airbnb
Wednesday: Shopify, theTradeDesk, and Nvidia
Thursday: ROKU
For the economic calendar, we’re keeping a close eye on Wednesday for the retail sales report in the morning and the Federal Open Market Committee (FOMC) minutes in the afternoon.
We’re continuing to build off our thesis that as long as the /ES (S&P 500) holds the 200-day simple moving average, we can see how strong the upside potential is. If the /ES trades above the daily mean (21 exponential moving average), that strength is amplified.
With the many events and reports this week, make sure to stay smart, patient, and recognize the environment for what it is – volatile. Our best advice is to size appropriately to avoid any circumstantial losses.
Since many of our top names have earnings this week and we’re patiently waiting to get through those, we’re mostly focused on trading the overall market.
Watch the video above for a full analysis of the major indices and overall market volatility.
In this Sunday video, we’ll review a short position we opened in the Compounding Growth Mastery last week and lay out our plan heading into March and April.
This week we entered an in-the-money (ITM) call credit spread on the IWM (Russel ETF), risking about 5% of our account on this trade to potentially make anywhere from 20% to 25%.
On any bounce next week, we would like to add another 5% of risk to potentially make 30% by March.
This is the type of trade we want to continue taking over and over again.
If we’re in a downtrend for the next few months, we’d love to get into setups just like this where we can risk about 5% of our account to work the numbers in our favor for a higher reward.
In a bearish structure like we are in with sell signals across the board, we’re best served by shorting the bounces.
Into March and April, we’ll look for bounces in the QQQ (Nasdaq ETF), SPY (S&P 500 ETF) and other names to short and position ourselves to risk 5% of our accounts to make 20% to 30%.
The markets finished the week in an ugly fashion today, and we continue to think there’s more downside to come heading into March and April.
Our major focus on the short side has been the IWM (Russell ETF), and we initiated the first half of our short position this week on the bounce on Thursday.
IWM Weekly Chart
Looking at the weekly chart, we can see that IWM traded sideways for most of 2022. Just recently we have seen the break of support with the move under $210. On the bounce this week, previous support proved to be resistance and we opened our short position, catching a nice dump into the close on Friday.
Our downside target into March and April is $170, and that’s where we’ll aim to take profits over the next handful of weeks. Currently we’re risking 5% of our accounts on a March expiration in-the-money (ITM) call credit spread. We’d like to add another 5% of risk, bringing the total potential return to around 50% to 60%.
The next few weeks shall not be dull, and until things change, our focus will be on getting positioned for the next leg to the downside in IWM and other good looking setups!
The biggest focal point all week was getting through the Consumer Price Index (CPI) report on Thursday morning. The disappointing numbers were revealed and the market reversed hard, with the S&P 500 (ES) dropping to point of control (POC) at $4,505.
This volatility roller coaster swung the ES higher midday and it broke above key moving averages. Following negative news from the Federal Reserve, the market dropped back to the mean at the 21 exponential moving average (EMA), flushed to POC, and drifted below it into the close.
News can accelerate technicals, so pay attention and see if the market sells off into the weekend. This dizzy ride will continue.
We’ll use key ranges to navigate the market moving forward. The POC at $4,505 is a massive line in the sand for the ES. Above POC, the market could see upside potential. However if the ES fails to break through these key ranges, it has a chance to rollover to $4,455 and even to the 200-day simple moving average (SMA) at $4,420.
It’s a whipsaw up-and-down type of market. As long as we are prepared, there’s nothing wrong with these volatile swings. We want to use lower time frames, buy low, and short high.
The market can change in minutes and even seconds. Stay open minded and be ready to flip the switch at inflection points.
In the video above, We’ll cover the recent action of the Volatility index (VIX) as well as discuss names on our focus list like AFRM, UPST, GOOGL, and more.
We have a light week in regards to the economic calendar, with the main event this week being the Consumer Price Index (CPI) on Thursday morning. As traders, we want to be aware of this index because it is a gauge into inflation that could affect the market.
The structure of the market is starting to shift to the bearish side with tensions rising between Russia and Ukraine. This could lead to more uncertainty and fear in the market, further pushing away from a bullish scenario. Pay attention to the news flow because if any large event does occur, the market could change at any given moment.
One big level we want to focus on this week is the 200-day simple moving average (SMA) on the S&P 500 (ES). It’s a battle between the 200-day SMA and a reversion to the mean, showing the market is changing structure now that the ES is trading below the Ichimoku Cloud. Long story short, it’s going to take a lot of work for the bulls to take control.
If the ES doesn’t break below the 200-day SMA, we could just stay in choppy territory.
The ES will need to hit $4,600 to start slowly working its way back to bullish. Until we see things change structurally, we’re trading in a short-the-pop type of market.
Here is our focused list:
NVDA – On Monday, NVDA held $240 and popped to $251, reverting it to the daily mean. If it keeps holding $240, it could revert to the mean again and head to $260. Point of control (POC) at $243 could be a good spot to buy. If NVDA gives up its strength and breaks below $240, we could expect a move to $230.
SHOP — If SHOP holds and breaks above POC at $883, look for it to break through $915 and revert to the mean near $1,000. If SHOP rejects $883, it could drop to $800, $780, and potentially fill the gap to $745.
GOOGL – Announced the stock split last week and has been selling off for a healthy pullback. Be patient with GOOGL. If it can trade through its 50 daily SMA near $2,820, it could push to POC near $2,866. Below POC, look for a move to $2,700.
