Options trading coach Jo created a video to show examples of support on charts. Support is an area and not normally a specific number. Traders normally round the support area to “quarters” – $.25, $.50, $.75, $1.00 For example, if support was at $68.17, a trader would either round down to $68 or round up to the next quarter which would be $68.25.
Always look for the support area when evaluating a stock. If the stock is moving downward and approaching the support area, make sure that the stock closes below the support area and then get confirmation of going even lower the following day or two before buying puts. If the stock is moving downward and approaching the support area, make sure that the stock bounces up from support and gets confirmation of going higher the next day or two before buying calls.
Train your eyes to see significant support. Draw support on your charts. Notice that the more times that a stock respects support, the more significant the support.
Most clients of Options Trading Coach Jo struggle with support. Support is an area rather than an exact magical number.
A strong support area is an area that the stock has frequently gone down to and either pops back up or hangs out at that area until it eventually pops back up. The more times that the support area is hit, then goes back up, the stronger the support area.
Traders that look at a chart can easily see the support area. In fact, they may make the decision or tell their broker to buy the stock once it hits the support area and starts back up. Many traders seeing this same pattern will make the same decisions to buy at support. Due to this high volume of buying, the stock price will raise and continue to raise as more traders see the stock bounce up from support.
Support can be a horizontal area, an ascending area or a descending area. Pay attention to these support areas. Start by drawing lines on your chart where you see a support area.
Determine support areas for 3 stocks by drawing lines on their charts. Watch to see if the stock respects the support area and bounces off and back up.
Of course, the support area can be broken. In this case, watch for the next lower support area and watch to see if your stock respects the new support area.
Determining support can be seen as an art rather than a science. Train your eyes to see support areas and your trading profits will greatly be improved.
A couple of weeks ago, PCLN had a huge gap to the upside. For a variety of reasons, several of trading coaching clients decided that PCLN was going to continue to go upwards. Some coaching clients were interested in buying Dec Calls. Others of us were interested in a November Bull Put Credit.
The December call position would have to be closed by the November expiration due to time decay. The price of the option would have to be higher than the open price to make a profit. The higher the stock, most likely the higher the profit. Slight moves up or down will affect their profit.
The November 270/280 Bull Put Credit spread will be at maximum profit on November expiration if the stock price is above $280. Although the profit has a limit, that profit will be there on November expiration. Since the current stock price is above $370, as a trader, I don’t sweat it if PCLN has a few (or quite a few) down days.
With this goofy market, I really appreciate spread trades and prefer spreads to single leg calls or puts – in most cases. Paper trade some spreads and single leg calls or puts. Let me know which ones are working out to give you the best profit with the least heart burn.
When I walk my trading coaching client’s through their set up on the Think or Swim trading platform, I have the watchlists and the trade management information on my primary monitor. On my secondary monitor, I set up 8 charts on one page. The watchlists, the trade tab, the analyze tab and the 8 charts are all linked. With this linking, I can click on a ticker on my watchlist and the other tabs and charts will all change to the same ticker.
Seven of the 8 charts use different indicators for different types of trades. One chart is used for intraday data. I can glance at all 8 charts at once, or click on one of the charts to expand that one chart to the entire monitor.
When you first begin using a new trading platform, it can be a terrible use of your precious time. With Coaching, I can run you through the set up and how to use the platform. Coaching will save you weeks of time, frustration and down time. Save your energies for trading and contact me today for a session or two.