Building Momentum

Working Strategies for Volatile Markets

  • Table Of Contents
  • Chapter 01

    Finding the Best Options Trades in Volatile Markets


    Finding the Best Options Trades in Volatile Markets

    By Mike Ryske - NetPicks

    Traders have spent the last 2 years watching markets grind up to all-time highs without any fear of a selloff. The bulls have had the benefit of a very market friendly Federal Reserve as stimulus programs designed to prop up the economy also pushed stocks into bubble territory.

    However, we have started to see a sleeping giant wake up with volatility coming to life. Much of this is due to the Fed pulling back from the massive stimulus to fight inflation from getting out of control. As a result, we have seen a return of two-way price action in stocks.

    While financial media pushes negative headlines to scare you away from volatile markets, for active traders the volatility can be a great ally. It makes for much better trading conditions if you control your risk and use a diversified mix of options strategies.

    The number one reason I love trade options is the flexibility that they offer. We aren’t limited to buying and selling calls and puts. We can use different options strategies that will allow us to adjust to any kind of market condition. We can use different strategies to adjust whether we want to be bullish, bearish, or market neutral. You can’t say this about any other market.

    In this chapter, we are going to walk you through 4 steps that can follow to find the best options trades for active markets. We will walk you through how to find the best markets to trade, how to identify trade opportunities on the charts, and which options strategies are best for different market conditions.

    Let’s dive in to look at the 4 steps to follow for finding the best options trades in volatile market conditions.

    Four Steps for Identifying Options Trades:

    1. Have a small universe of stocks/ETF’s that you look at on a regular basis.

    Instead of looking at hundreds of stocks and ETF’s on a daily or weekly basis, I would rather focus on a small list of markets that I get to know over time. This way I can easily determine whether I am bullish, bearish, or neutral without spending a ton of time each day staring at the charts.

    My watch list can change once a month. Currently my list is 50 markets which you will see outlined below. These 50 markets come from my universe of 175 stocks and ETF’s that I track monthly. In other words, when I create my watch list of 50 markets for the month, those names came from my universe of 175 products that I have tracked and researched for an extended stretch of time.

    With thousands of possible stocks and ETF’s available to trade, I’m often asked how I decide which ones to track. It’s really a simple process based on a few criteria. The watch list that I trade from every day is based on the criteria that I outline below.

    1. Liquid Options – I want to trade the products with the most actively traded options. This way I can get in and out quickly at good prices. Ideally, I want to see open interest in the options of 50x the number of contracts that I am looking to trade.
    2. Volatility – I’m looking for products that show a history of good movement back and forth. Ideally, I’m looking for quick moves so I can get in and out as soon as possible. A stock or ETF that only makes a few decent moves each year is not going to make the cut into my watch list.
    3. Diversification – It would be easy for me to load up my entire list with tech stocks and call it a day. The tech sector tends to lead the market and has an endless number of quality stocks to trade. However, I would rather establish a broad list of names covering several different sectors (tech, energy, financial, index are the big ones for me). This includes a mix of individual stocks and ETF’s.

    With the above criteria in mind, I have created the following watch list of products that give you a diversified universe of products to trade. I have split them up into 2 lists. One for the individual stocks that we trade and one for the ETF’s that we trade.

     2. Look at the charts for each product on your watch list to get a feel for any key levels, directional outlook, or overbought/oversold extremes.

    There are many different indicators and systems that can be used to help you determine whether to be bullish, bearish, or neutral on a stock. We like to use our Pulse indicator to help us identify near term overbought and oversold conditions.

    The Pulse indicator is a simple approach that uses Standard Deviation Channels to identify extremes. The Pulse indicator will plot Yellow when price is between the 1-2 standard deviation channels on the 130-minute chart. It will plot green when price is between the 2-3 standard deviation channels and blue when price is past the 3rd standard deviation channel.

    We like to look at the last five Pulse bars to identify the extremes. We need at least 3 out of the last 5 bars plotting yellow or at least 1 green or 1 blue bar. When we have this criterion met, we are looking for either a period of consolidation or even better a reversal in the other direction.

    Once we have these conditions met, we move on to steps 3 and 4 to determine which options strategy to use to benefit from the chart pattern outlined above.

    There are hundreds of different systems available to help predict market movement. The key is to make sure you have a system in place that you know puts the odds in your favor over time. It doesn’t need to win on every trade, but it does need to produce consistent returns across a wide range of markets.

    Looking at the charts will help us determine how aggressive we want to be. If we are strongly bullish or bearish then we can reflect that in both position size and the options strategy that we will use. If we are neutral, then we can also adjust position size and go to options strategies that work well in sideways moves.

    3. Look at the levels of volatility to determine if it’s high or low.

    We track the Implied Volatility (IV) levels for each stock/ETF on our watch list. This helps us know if those levels are high or low at the given time.

    A quick tool that you can use inside of the Thinkorswim platform is to look at the IV Percentile number. This can be found at the bottom of the Trade Page in the Options Statistics section.

    When looking at the IV Percentile number, anything below 30 is considered low volatility, which will mean the options are cheap. In this case, we will lean towards using strategies like long calls/puts and long vertical spreads.

    If the IV Percentile number is above 30, it means there is enough premium in the options to make it worth our while to sell credit spreads. In this case, we will lean towards using strategies like selling credit spreads (short vertical spreads, iron condors).

    My first choice is always to sell credit spreads because they give us 5 ways of being profitable. However, we have also seen over the years that when we wait for high IV to sell credit spreads, our performance greatly improves.

    4. Determine which options strategy best fits your outlook.

    We started by looking at the charts of each of the products on our watch list and then looked at whether volatility is high or low. This helped us decide if we wanted to be bullish, bearish, or neutral.

    Once we have an opinion on what we think the stock or ETF is going to do, then we follow the guidelines that we outline for options strategy that best fits out outlook. Let’s look at a few of our favorite strategies.

    Long call or put:

    When buying a long call or put we need to make sure we have a strong opinion on which way the stock or ETF is headed in the near term. We also need to be confident that the market is active to move in our direction fast enough. The long call and long put strategies are the most aggressive strategies you can use. They are a higher risk/higher reward approach.

    We must keep in mind that whenever we buy an option, the clock is ticking the second we decide to initiate the trade. The time decay will start to add up and potentially eat into the profit potential that we have. This means not only do we need to be right on market direction, but the move needs to happen in our favor quick enough.

    To combat some of the negative features of buying an option, we like to be very picky with the criteria that we use when selecting the call or put option.

    Our criteria have us going out 20-40 days until expiration and buying the call or put option that is 1-2 strikes in or out of the money. This criterion is the same whether we are trading GOOGL, DIA, or C.

    By using the same criteria on all stocks and ETF’s, we can take much of the discretionary decisions out of the equation.

    For example, we recently took a long put position on Lyft (Symbol: LYFT) looking for the stock to move lower. We started by looking at the 130 minute chart which showed an entry point for us on the downside.

    At the time of the trade, we looked at the implied volatility and saw that it was below 30. This gave us the greenlight to buy a long put due to the options being cheaper.

    We took the trade by buying the 42.5 puts for $2.78 or $278 per contract. This was an aggressive bearish position that gave us one way of making money. We needed the stock to move lower and it needed to do so quickly.

    The $278 that we paid to open the position was the max risk on the trade. If we were dead wrong and the stock rocketed higher, the most we could have lost would have been $278.

    Our profit potential is unlimited. As long as the stock moved lower, we were going to make money. Fortunately, that is exactly what happened, and we were able to close out of the trade for a nice winner.

    We didn’t hit our 100% initial target return on the trade, but we were able to close the 42.5 puts for $4.25 which gave us a $147 profit per contract or a 53% return on our capital.

    Short Vertical Spread:

    Trading long calls and puts gives us a great way to put on an aggressive trade when we have a strong opinion on market direction in the near term.

     What if we are a little less certain of market direction?

     Selling vertical spreads to open a position can give us a great way of making money in a volatile environment when price action is moving back and forth. We do this by selling an option that is closer to the current price of the stock and then going out and buying an option with a strike price that is farther out of the money.

    By doing this we are still able to be in a risk defined position, but it does give us multiple ways of being profitable. Let’s look at the criteria that we use when setting these trades up.

    When selling vertical spreads to open a trade, we still like to use options with between 20-40 days left until expiration. Why do we prefer to go out farther in time? In most cases the monthly options will have more volume and open interest when compared to the weekly options. This will make them easier to trade.

    Going out to the monthly options will also give us more time to be right just in case the market moves against us initially. This gives us time to recover while the weekly options don’t give us that flexibility.

    When selling spreads, we like to collect as close to 40% of the width of the spread as possible. For example, if SPY is currently trading at $430.00 and we wanted to put on a bearish trade to take advantage of a pullback we could sell a call spread.

    We would look at the available strike prices to see that they are $1 wide. This means we could go out and sell a $1 wide-spread which would allow us to collect around $.43 or $43 per spread (43% of the width of the spread). This $40 is our maximum profit potential. The most we can lose on this trade is $.60 or $60 per spread.

    When looking at the SPY options, we see that the 442/443 call spread is trading for $.43 or $43 per spread. This would have us selling the 442 call and then buying the 443 call to make it a risk defined position. Since we are collecting $.43 when putting the trade on, we would add that to our short strike to give us a break-even point of $442.43.

    Why would we risk $57 to make $43? That doesn’t sound like a very good risk to reward ratio. The reason we would like a trade like this is it would allow us to make money 5 different ways:

    1. We make money if SPY moves higher as long as price closes below $442.43.
    2. We make money if SPY moves lower as long as price closes below $442.43
    3. We make money if SPY moves sideways as long as price closes below $442.43.
    4. We make money as the time decay adds up each day that we hold the trade.
    5. We make money if the implied volatility contracts.

    When I see a trade that allows me to make money in 5 different directions, I get excited. These are the opportunities that I look for every day.

    We like to close out of our short vertical spreads when we can keep 50-75% of the maximum profit potential. In our case of the short SPY call spread, we collected $.43. When I can buy the trade back for between $.10-$.21, I will close the trade out and book my profit.

    It’s important to note that the criteria outlined above is the same for both short call spreads and put spreads. By staying consistent with a rule set, it allows us to be more consistent and eliminate much of the discretionary decisions that so many retail trades get stuck on.

    Selling vertical spreads to open positions is a very powerful approach that many retail traders miss out on. While short spreads are not the holy grail of trading, they give us the flexibility that we need to make money in any type of market condition that comes our way.

    Is there a perfect recipe for finding the right trade?

    Selecting the right trade and determining the right size of the trade is not always a perfect science. There are times when I want to be conservative, so I trade more spreads and use smaller position sizes and end up leaving profit on the table.

    The whole goal here is to have a method in place that you can follow every day. We aren’t going to be perfect on every trade but by following a method we will be sure to have trades that leave us with risk that we are comfortable with.

    The key is to follow a set of criteria that put the odds in your favor and then diversify your account by adding numerous trades that fit your criteria. When doing so, you won’t be backing yourself into a corner by putting on 2-3 trades and hoping for the best. By having a bigger sample set of trades then the odds will better play out in the long run.


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    Authors: Mike Ryske
    Company: Netpicks
    Services Offered: Trading Systems and Education for Options, Futures and ETFs

    Chapter 02




    By Dave Mabe - Trade-Ideas

    Clean Charts

    Too many trading indicators on a chart is a sign of mediocrity. Your charts should be nice and clean showing you exactly what you need to see to make your pre- planned decisions and no more.

    Many traders take this to heart and have simple charts that aren’t littered with indicators, but too many draw the wrong conclusion at this point: that all indicators are worthless. A trader’s clean chart is not recognition that all indicators are garbage – it should represent that the trader has gone through the thorough and painstaking work of determining which indicators are most important to their trading and why. It should represent countless ideas of what indicators make their trading tick and lots of decisions about the trade offs of including or excluding certain ones. A simple chart should represent the quantifiable tests that have gone into determining which indicators contribute to profit.

    Traders spend a lot of time focusing on the event that occurs to initiate a trade (for example, a new high). In Trade-Ideas we call these Alerts. What traders quickly realize, though, is that the filters you use to determine which new highs to actually trade and which ones to ignore is the most important part of a trading strategy.

    A lot traders trade stocks that reach new highs, but nobody trades ALL of them. Most of your time will be determining under which circumstances you take the trade and which ones you skip. This is the meat of your trading strategy and where you should spend the vast majority of your research time.

    If you had to choose just one thing to improve in your trading process, it should be your routine for selecting filters. Improving your skills in filtering will compound over time and you’ll become better and better the more you do it. Your routine will become more efficient and you’ll quickly be able to get from a rough trading idea to an actual strategy that you’re ready to risk money with.

    Indicators Used in Every Strategy I Trade

    I have a consistent routine for evaluating and improving trading strategies. The most important part of this routine and where I think most of my personal edge as a trader comes from is determining which indicators to use in a strategy.

    If you look across every strategy I’ve ever traded you’ll see lots of different indicators in use. You’ll also see some of the same ones appearing in a lot of them  – some appear in every single one. Here’s the list of indicators (a.k.a. filters) most commonly appear in my strategies. When improving my models, these are the ones I look at first.


    Although some treat it as a generic term for movement, volatility has a very specific meaning at Trade-Ideas. It’s the amount the stock typically moves in a 15 minute period. Does it really matter what a stock does on a NORMAL day when strategies are typically looking for ABNORMAL activity? It turns out it has a big effect. Unusual activity with a stock eventually reverts back to its normal behavior and sometimes that can happen quickly. You’ll find that stocks that move more on normal days also move more on unusual days. If movement is what you’re looking for you should be looking at Volatility.

    Take the two charts below. At first glance these charts seem pretty similar, but when you look at Volatility, Novavax (NVAX) simply moves significantly more than ZTO Express (ZTO).

    Relative Volume

    Relative Volume is perhaps the most important filter of them all. Let’s say two stocks have traded a million shares so far today. If stock A normally trades 200,000 shares at this point in the day but stock B typically has traded 5,000,000 shares, the stock A has a lot more interest from market participants than stock B, relative to what it normally trades. This is, of course, critically important to your trading system.

    For stock A a continuation strategy probably makes perfect sense given the volume is unusually large, but for stock B the same amount of volume is unusually small. These are two completely different situations even though the shares traded is equal for the day for these two stocks. The value for Relative Volume alone could be the determining factor for choosing the direction you want to trade a stock.

    Take the two charts below. They both have almost the same shares traded for the same day, but the relative volume for BNTX is 0.8 while the relative volume for SKYS is 24. The calculation for Relative Volume at Trade-Ideas is perfect because it is aware of how many shares a stock trades throughout the day. For example, if a stock has an average daily volume of 500,000 shares and by 9:45am it’s already traded 400,000 shares, the Relative Volume value recognizes that this is more significant that if the stock reaches 400,000 shares at 3:45pm. You can read more about exactly how this indicator works here.

    Gap %

    A lot of traders trade gapping stocks (including me). Stocks that have potential for movement have very often gapped up or down at the open. But not all gaps are equal. Take this gap in TSLA yesterday (Top Image). It’s over $18 but you hardly even notice it on the chart.

    But then take a look at this gap in EVFM (Bottom Image). It’s less than $2 but very significant when you look at the Gap percent.

    I’ve backtested gaps for a long time and the value that keeps popping up as a good one to use as a starting point is 3.5 percent. When looking for gaps up, I start with a minimum Gap Percent of 3.5 and when looking for gaps down I use -3.5.

    Average True Range (ATR)

    The Average True Range (ATR) of a stock has a very specific definition. Like Volatility above, it captures typical price movement. So why do I have two indicators for price movement? They are highly correlated, so surely we can just choose one and simplify things, right?

    “All things equal, stock movement due to recent earnings is more significant than movement for other reasons.”

    It turns out there is a subtle difference between the two measures that is quite important for trading systems.

    The Average True Range is measuring the daily movement of a stock, while the Volatility is measuring the average movement during a 15 minute period. These numbers are highly correlated, but you do see stocks that have higher or lower volatility numbers relative to their ATRs and vice versa.

    All things equal, the Average True Range will be a better indicator when applied to a trend type strategy where you’re holding a lot of the day or overnight. The Volatility indicator will be better when you’re trying to capture a shorter move on an intraday timeframe. I always look at both of these indicators when designing strategies. I’d encourage you to look closely at the definitions and understand what both of them represent.

    Earnings Date

    There are a lot of news items that can move a stock: upgrades, downgrades, share offerings, splits, etc. None are more consistently important than earnings announcements. Both investors and technical traders are focused on earnings so it’s bound to have an impact on your trading system. All things equal, stock movement due to recent earnings is more significant than movement for other reasons.

    Trade-Ideas has a fantastic way to filter on Earnings Dates. I use it to determine which stocks are moving due to earnings and which ones are not. I also have scans that show me stocks that are reporting earnings after the close or the next morning.

    Volume Leaders Just Reported

    Volume Leaders Reporting Soon

    Here’s the cloud link for the Volume Leaders Reporting Soon top list I use and for the Volume Leaders Just Reported top list.

    Position in Range

    A stock’s position in its recent range has a huge impact on its future movement. Take a look at Morgan Stanley (MS). (Left Image) It gapped up above its recent range. But look at SL Green Realty Corp (SLG). (Right Image)

    These are comparable gaps, but these stocks are in very different situations. MS gapped up well above its recent range but SLG is still very much at the bottom of its recent range. The recent trading range is very important to a stock’s future price movement and I always look at the Position in Range indicator when evaluating my trading systems. The time period for the range will vary based on the timeframe for your system. For an intraday trading system you should start with the position in today’s range but for longer term systems the position in yearly range might be more appropriate.

    While I don’t use all these filters in each strategy I trade, these are definitely the ones I examine first when researching a new strategy. What are your go to indicators for your trading systems?


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    Authors: Dave Mabe
    Company: Trade Ideas LLC
    Services Offered: Live Streaming Trading Ideas Powered by Artificial Intelligence
    Markets Covered: U.S. and Canadian Equities

    Chapter 03

    The Most Consistent Trend Indicator and Candlestick Signals for Trading Volatile Markets


    The Most Consistent Trend Indicator and Candlestick Signals for Trading Volatile Markets

    By Steve Bigalow - Candlestick Forum

    Do you want to take the guesswork out of your trading? Do you seem to get whipsawed in volatile markets? The T line can help resolve that problem. It has Fibonacci characteristics, acting as a natural support and resistance level of human nature.

    The T line is a very powerful indicator. It is the 8 EMA. It has Fibonacci characteristics, acting as a natural support and resistance level of human nature. This creates a very powerful trading methodology.

    Prices do not move based upon fundamentals! Prices move based upon the perception of fundamentals. When an investor understands this basic concept, they gain a much stronger perspective on when prices are reversing and when price trends will continue. Simply stated, if you see a candlestick bullish reversal signal in the oversold condition, the probabilities dictate that an uptrend is about to occur. The same analysis can be applied to a sell signal. If you witness a candlestick sell signal in the overbought condition, the probabilities indicate a downtrend is about to start.

    Utilizing those parameters creates a trading strategy that greatly improves investors profitability. Investors, understanding the highly profitable probabilities of price movements, based upon candlestick signals, are able to take emotions out of the decision-making process.

    A major attribute of candlestick signals is being able to see what investor sentiment is doing at observable technical levels. Major moving averages, trend lines, recent tops or bottoms, or any technical indicators that are being used by other investors, become levels that candlestick signals reveal what investors are doing. This allows the candlestick investor to see exactly what the decisions are at those technical levels.

    As you can see in this short video, the most powerful trend indicator used in conjunction with candlestick signals is the T line.

    The T-line Rule

    If you witness a candlestick buy signal and a close above the T line, you can stay long as long as there is not a candlestick sell signal and a close back below the T-line.

    Conversely, you can go short if you see a candlestick sell signal and a close below the T line. This is an extremely high probability result. Confirm this for yourself.

    Put the 8-exponential moving average/T line on your charts. It can be easily back tested by visually analyzing what price trends have done after a candlestick buy signal or sell signal and a close above or below the T line.

    Also, be aware of a caveat to that basic rule. The further away you move from the T line, the higher the probability prices will come back and test the T line area.

    Where do most people buy? They buy exuberantly at the top! Where the most people sell? They panic sell at the bottom! Candlestick charts clearly illustrate the normal reactions of human nature. Ask yourself, when everybody is selling, who is buying? When everybody is exuberantly buying, who is selling? The smart money! The Japanese rice traders professed a very simple trading strategy. Be ready to take profits when witnessing exuberant buying at the top of a trend. Be ready to buy or cover short positions when witnessing panic selling at the bottom.

    The accuracy of the T line support and resistance implies a viable concept. The T- line has Fibonacci characteristics. It acts like a natural support and resistance level of human nature. This makes the T line indicator an extremely powerful trend indicator when used with candlestick signals. Why? If candlestick signals and patterns are the accumulated knowledge of everybody buying and selling during a specific time frame, the graphic depiction of what is occurring in investor sentiment, and the T line is the natural support and resistance level of human nature, the combination is an extremely powerful trading technique. This is the most important statement of this e-book!


    The combination of candlestick signals and the T line produce extremely high probability results. This allows the candlestick investors to put all the stars in alignment! First, they produce the ability to accurately evaluate the overall direction of the markets. Witnessing a candlestick sell signal in the overbought condition and a close below the T line in the Dow and the NASDAQ becomes a strong implication the bears are starting to take control. This allows the candlestick investor to take profits on long positions and scan for the best short trades.

    Obviously, the same is true for bullish positions. If the market indexes are showing bullish candlestick signals in the oversold condition and a close above the T line, the probabilities are extremely strong an uptrend is in progress. Scanning for stock positions with the strongest bullish candlestick signals is the logical strategy.

    Improve Your Correct Trade Ratio

    Candlestick analysis is not conjecture! The signals and patterns are the actual buying and selling decisions of investors. They show you exactly what is occurring in investor sentiment. The T line dramatically improves the probabilities of being in a correct trade at the correct time. You gain valuable insights when analyzing candlestick charts. Because candlestick signals and patterns produce high probability results, you gain an inherent natural self-discipline.

    The T line produces a calming effect during volatile market conditions. You can stay long in long positions as long as there is not a candlestick sell signal and a close below the T line. You can stay short as long as there is not a candlestick buy signals and a close above the T line.

    Learn how to greatly simplify your trading decisions (you'll know exactly when to buy and when to sell) eliminating your emotions completely. This is not a complicated process. One of the keys to being a successful investor is knowing the correct strategies that produce consistent probabilities. The combination of candlestick signals and the T line puts the probabilities in your favor.


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    Authors: Stephen Bigalow
    Company: Candlestick Forum
    Services Offered: Training Courses, Member Forum, Trade Alerts
    Markets Covered: Stocks, Options, Futures

    Chapter 04

    Using Price Action to Make Sense of Volatile Markets


    Using Price Action to Make Sense of Volatile Markets

    By Richard Krugel - Price Action Income

    When the markets get highly volatile, I sharpen my focus on what price action is doing to try and make sense out of what is going on. My goal here is to practice patience and look only for the highest probability set-ups, based on patterns that tend to repeat themselves. My "go to" strategy for doing this is rooted in applying market geometry techniques to analyze changing price structures and finding emerging trends.

    In this short video, I will share the process, tools and indicators I use to evaluate potential set-ups and how I time my entries and exits in the market, regardless of whether I am trading stocks, commodities, futures, or forex. In short, my techniques can be used to trade any market and in any market condition.



    Market Geometry Toolbox

    The Market Geometry Toolbox is like a "Greatest Hits" collection of trading tools.

    It's a complete package for analyzing the markets just like I do, and it includes every analytical tool that I use to trade the markets, all pre-loaded with my custom settings and exact specifications for using them effectively to find massive opportunities in a freely traded market.


    Authors: Richard Krugel
    Company: Price Action
    Services Offered: Training Courses and Trade Alerts
    Markets Covered: Forex. Futures, Options

    Chapter 05




    By Larry McMillan - Option Strategist

    Put-call ratios are useful, sentiment-based, indicators.  This indicator was discovered by the late Martin Zweig back in the 1950's, when he noticed the option volume in put-and-call broker ads in Barron’s.  There were only 6 or 8 such brokers, and each would advertise every week.  In the ad, they’d report the number of puts and calls traded during the prior week.  Zweig noticed that when the ratio of puts to calls was extremely high (that is, “everyone” was bearish), the market tended to rally.  Conversely, when the number of calls to puts was extremely low, “everyone” was bullish, and the market tended to decline.  We have much more sophisticated ways of getting at that information today, but the concept is still the same – it’s a contrary indicator.  It can be used on individual stocks, futures contracts, ETFs, and indices (as long as they have listed options trading), and one can also group those options to get broad market indicators.

    The Standard Put-Call Ratio

    The standard put-call ratio is simply the volume of all puts that traded on a given day divided by the volume of calls that traded on that day.  The ratio can be calculated for an individual stock, index, or futures underlying contract, or can be aggregated.  For example, we often refer to the equity-only put-call ratio, which is the sum of all equity put options divided by all equity call options on any given day.  Once the ratios are calculated, a moving average is generally used to smooth them out.  We prefer the 21-day moving average for that purpose, although it is certainly acceptable to use moving averages of other lengths.

    The chart on the right below is a sample put-call ratio chart – of IBM.  Buy and sell points are marked on the chart.  Note that buy signals occur when the ratio is “too high” (i.e., near the top of the chart) and sell signals occur when the ratio is “too low” (near the bottom of the chart). Specifically, buy signals (for the underlying) occur at local maxima on the put-call ratio chart, and sell signals occur at local minima. The chart on the left below is that of IBM common stock, with the put-call ratio buy and sell signals marked on it.  You can see that, in general, the signals are good ones.  In reality, we couple technical analysis – using support and resistance levels – with the signals generated by the put-call ratios.  The combining of the two methods normally produces better-timed entry and exit points in our trades.

    The Weighted Put-Call Ratio

    A dollar-weighted put-call ratio is constructed by using not only the volume of the various options, but their price as well.  The two are multiplied together (we use the day’s option volume times the closing price), and the total of that product for all put options is divided by the total of that product for all call options.  That computation is the daily weighted put-call ratio.  As with the standard put-call ratio, this weighted ratio can be computed for individual stocks, futures, or indices, or for aggregated groups of options.  What this weighted ratio attempts to show, which the standard ratio does not, is how much money is being spent on puts versus how much is being spent on calls.

    The thinking is that it is more important to know how the total money is being spent than merely knowing the volume.  This point has some validity.  For example, a person who is merely hedging his position perhaps is not really all that bearish, but just wants to buy some puts as insurance.  He might buy fairly deep out-of-the-money puts.  Thus, not many dollars would be spent on such low-priced puts.  On the other hand, a truly bearish speculator would most likely buy a put with a higher delta – something that is at-the-money, or perhaps slightly in-the-money.  Thus, this “true” bearishness would perhaps result in a higher expenditure in terms of dollars spent on puts.

    The main difference between the standard and weighted ratios is that the weighted put-call ratio generates more extreme readings – especially at major turning points.  That is, during bullish periods the weighted reading can dip down to 0.20 or below on a given day, even pushing the 21-day moving average down to those minimal levels at times.  The standard put-call ratio rarely gets that low, especially where equity options are concerned.  Furthermore, during extreme bearishness, the weighted ratio will easily rise above 2.00 on individual days, and the 21-day average can rise to nearly 2.00 as well.  Again, those kinds of numbers are generally unheard of for the standard ratio.

    As an example, let’s look at the big picture, via the equity-only charts.  The two charts below show the standard ratio (on the left) and the weighted ratio (on the right).  The buy and sell signals are marked on the charts.  For these charts, the major buy and sell signals occur at relatively the same points in time.  On each chart, the top line is an unscaled graph of $SPX (the S&P 500 Index).

    The Y-axis scale on the weighted chart shows the relatively dollars being spent.  For example, 90 means $90 are being spent on puts for every $100 being spent on calls.  On the standard chart, the Y-axis scale is merely the ratio of puts to calls: 100 means that 100 puts traded for every 100 calls (i.e., the put/call ratio was 1.00).

    On the weighted chart, one can easily see that the put-call ratios were at their highest at the depths of the decline in December 2018.  That was a peak of fear and put buying.  Moreover, at the lows on the charts, there was vast optimism and complacency (more calls trading than puts); those were sell signals – for example, in late September of 2017.

    In summary, put-call ratio charts are very useful – especially the weighted charts. When using these to make a trade, it is probably best to buy at-the-money options and be prepared to risk the entire premium if you are wrong. Combine technical analysis with the signals generated by these sentiment indicators, and you should have a good system for speculative trading.

    Our company publishes over 600 individual put-call ratio charts – both of the standard and weighted variety – every day on our website at  These are located in the “data” area of our website, which we call The Strategy Zone.  Moreover, our Option Strategist and Daily Strategist newsletters make recommendations based on certain of these put-call ratio charts, and our track record on these has been strong over the past few years (that track record is available on the website).


    Get a free 30-day trial to my flagship advisory service, The Option Strategist Newsletter.

    Scroll to the bottom, click the “ADD TO CART” button ($28.75) and enter the Coupon Code TPFREE at checkout. No credit card is required. Subscription will not automatically renew upon completion.


    Authors: Lawrence McMillan, Founder
    Company: McMillan Asset Management
    Services Offered: Trading Education, Account Management Services
    Markets Covered: Stocks, Options

    Overnight Trades…

    Let me show you the technique of how one expert trader
    made 25% - 50% … overnight?!

    I can’t believe he’s sharing this…

    Watch the video on the next page.

    Chapter 06




    By Barry Burns - Top Dog Trading


    What? You mean there are trading “tricks?”

    Well, yes and no. None of these “tricks” are magical ways to make money in the markets. But they do represent things the pros do, and most amateurs don’t do.

    In this way, it’s something the pros have “up their sleeve.”

    Now some of these things you may already “know.” At least you think you know. And maybe you do know … intellectually. But that doesn’t do any good.

    Knowledge is NOT power!

    Applied knowledge is power. Action is power.

    So, the ultimate “trick” to trading is to work on your own self-discipline and master yourself. Successful trading, like all great achievements, is about self-mastery.

    That’s the truth, but you probably bought this Special Report because you were looking for some new trading “techniques.”

    So that’s what we’ll focus on.

    These are some techniques that pros use, and amateurs don’t … or don’t do correctly. Again, remember it’s the DOING not the KNOWING that’s critical. The pros are different and they’re making money because they apply some or all of these techniques in their trading consistently.


    It’s well known that the crowd is normally wrong. Contrary thinking is often the key to success in trading. Doing this requires nerves of steel, however. It’s unnatural for human beings. Since we’re social beings our “herd” instinct is very strong.

    But the nature of the markets, being a mass-market auction place, is such that trading with the crowd doesn’t work in your favor. Being a rogue is the secret to success. And that means DOING WHAT IS UNCOMFORTABLE.

    The chart above is an example of where a pro might find an excellent buying opportunity. What about you? Would you BUY that last bar? The market is going down and not showing any signs of reversing. There’s also a gap below that may get filled. Besides, you’re not supposed to buy a “falling knife” right? Traders who misinterpret this pattern to be a falling knife, know just enough about technical analysis to get their accounts sliced to pieces!

    On the longer-term chart you can see that what looked like a move DOWN, was actually just a small retrace in a new uptrend on the longer time frame. As the market comes down, it is retracing into a cluster of support.

    Rather than waiting for the market to bounce and then take a long position, the professional trader may just buy into the selling. Looking back at the short-term chart, it would be very uncomfortable for most people to BUY while the market is moving DOWN short-term.

    That’s why it works! Amateurs like to wait for a lot of confirmation before they enter a position. But waiting for a lot of confirmation before you buy, means buying at a higher price. The pro wants to “buy low and sell high.” The best way to buy low is to buy before price moves up!

    The obvious objection is, “How do you know it’s going to bounce?”

    We don’t know that the market will continue its long-term trend up, but the short-term odds are that when the market is in an uptrend and it retraces into a cluster of support, it will produce at least a small bounce up.

    Making this work in real life requires nerves of steel and impeccable money management. It’s the money management that allows you to move into these positions and trade them profitably.

    Just remember: By the time you would be buying a retrace, there are other people lightening their long positions … meaning they got in way before you and are now selling some of their position to adjust their overall cost in the trade!

    The “trick” is to buy below support and short above resistance. This works for several reasons:

    1. When the market holds support, it normally will “pierce” support, allowing you to actually buy BELOW the support level, even though it “holds” most of the price action (and the bars on the chart).
    2. Even when support doesn’t hold, and the market breaks down through support, the first attempt normally results in at least a little reaction or bounce up off support. Thus, allowing you to get in near the bottom of the swing, making your risk smaller than it otherwise might be.

    The above chart shows how price found support and resistance at the 50 MA of the S&P Daily Chart. Even though support and resistance held each time, notice that price went BELOW support and ABOVE resistance, giving you a chance to enter at those extreme levels.

    This can provide you a tremendous edge against other traders! You want to be FIRST in?

    Again, you have to employ some advanced money management techniques to make this work in real trading, including “legging in” to a position.

    I teach the complete rules for this in my Advanced Trading Course.


    In a brief Special Report like this I don’t have the space to go into all the details of how I personally trade these principles. However, you have enough here to apply to whatever trading methodology you may currently be using. Adding just ONE of these tricks to your trading can increase your trading profits tremendously.

    Your next step is getting my Market-Timing Indicator to give you accurate and precise entries for your trades.

    You can get it for free (with a complete tutorial) by clicking on the button below.



    Authors: Dr. Barry Burns
    Company: Top Dog Trading
    Services Offered: Trading Education, Free Videos, Books
    Markets Covered: Stocks, Options, Futures

    Chapter 07

    Best Working Strategies for Volatile Markets


    Best Working Strategies for Volatile Markets

    By Larry Gaines - Power Cycle Trading

    My name is Larry Gaines, and I have been a professional trader for over 40 years. For the past 30 years my focus has been on trading options, and I have found that the secret to generating consistent results in any market environment is direction, timing and solid risk management using options.

    In this short video, I am going to share with you my two favorite working strategies for trading volatile markets: the Option Butterfly and the Long Condor. This is my trading secret weapon because it takes advantage of time decay and volatility in a way that stacks the trading odds in my favor ... especially in uncertain and volatile market conditions.



    Butterfly ~ Long Condor Option Trading Workshop

    Recorded 5+ Hour Butterfly ~ Long Condor Option Trading Workshop, plus

    • Training manual of Event, plus
    • Bonuses


    Authors: Larry Gaines, Founder
    Company: Power Cycle Trading
    Services Offered: Trading Courses, Bootcamps/Coaching, Custom Indicators
    Markets Covered: Stocks, Options, Futures

    Chapter 08

    Spotting and Trading Large Momentum Plays


    Spotting and Trading Large Momentum Plays

    By Melissa Armo - The Stock Swoosh

    Why is momentum good for traders? Because it means you can get a higher return on investment when you have a large move versus a small move. Also, you typically get higher volume with momentum which makes it easier to get in and out of the market. Currently, we are in earnings season and it's a good time to find many large momentum plays.

    What strategy do I use to trade momentum and how do I spot momentum? I use my The Golden Gap Strategy. Gaps may create and feed momentum in stocks and the overall market. Trading gaps can be very desirable due to the big moves they have. Again, momentum is good for traders whether you are using small size or large size to trade. You get higher risk to reward trades when you have momentum on your side ... but you always must make sure that you get the market direction right!

    Watch this video to learn more.




    Authors: Melissa Armo, Founder
    Company: The Stock Swoosh
    Services Offered: Trading Rooms, Trading Courses, Newsletters
    Markets Covered: Stocks, Options

    Chapter 09




    By Marina Villatoro - The Trader Chick

    One of the most powerful and high probability trades to take is the Break Out Trade. However, if we don't understand the areas that define it, we can miss out on these trades.

    In the video you'll learn about Support and Resistance areas, that make up the different spots that Breakouts can take place. How to recognize them, how to draw them and how to utilize them for the best set ups.



    4 Steps to Simplify your Day Trading

    Learn my unique 4-step process that I use to be consistent and profitable in my own day trading.


    Authors: Marina Villatoro, Founder
    Company: The Trader Chick
    Services Offered: Trading Education, Boot Camps, Trading Community
    Markets Covered: Futures, Equity Indices and Commodities

    Chapter 10

    The Slingshot Setup


    The Slingshot Setup

    By Jeff Tompkins - Altos Trading

    Discover how to navigate market sell-offs using volatility bands. This unique setup developed by Jeff Tompkins will help you spot when the market is vulnerable to a downturn, as well as when it might turn around and move back up.

    In this educational video Jeff will reveal how to use the CBOE volatility index (VIX) with standard deviation volatility bands to identify whether momentum is positive or negative. This can help traders and investors more accurately analyze market trends.




    Authors: Jeff Tompkins
    Company: Zillion
    Services Offered: Trading Signals, Scanners, Market Analysis, Charting

    2 to 4 Trades Every Single Week…

    My team and I scan the markets every week.

    We look for trades that made 25% - 50% … Overnight!

    Want me to send you two - four of these overnight trades every single week?

    Chapter 11

    Trading In The Zone With The Buy/Sell Line


    Trading In The Zone With The Buy/Sell Line

    By Steven Primo - Pro Trader Strategies

    “Being In The Zone” is a term usually associated with superstars and athletes. It’s a state of mind where all actions seem to be easier, and one appears to be in sync with whatever they decide to do. But did you know that this very same process can be applied to trading? Imagine how confident you would feel knowing that when you are trading,that both you and the market are in unison? Seeing every decision you made, whether buying or selling, was perfectly in sync with the current market you were trading.

    Join Steven Primo, Former Stock Exchange Specialist and 45-year professional trader as he presents “Trading In The Zone With The Buy/Sell Line!” In this educational video, Steven will not only show you how to achieve this process, but he will also reveal an indicator that is specifically designed to have you trading in the zone. And the good news is – you already have access to it! Whether you are new to trading or a seasoned professional, you can’t afford to miss this education class.




    Authors: Steven Primo, Founder
    Company: Pro Trader Strategies, Specialist Trading
    Services Offered: Trading Courses, Trade Signals, Member’s Section, Videos
    Markets Covered: Stocks, Emini Trading, Forex, Day Trading, Swing Trading

    Chapter 12




    By Mark Sebastian - Option Pit

    The Hedge Fund Secrets Checklist

    Hedge funds are incredibly good at one thing: making money.


    Because they do not trade like retail traders.

    Hedge funds think and trade several steps ahead of even the best retail traders out there.

    The moves they make are strategic, precise, and developed with a specific action plan for each and every trade.

    If your goal is to trade like the “Big Boys,” there are some things you have to do to create the type of environment in which you can succeed.

    In this article, you will receive a complete checklist of these action items, complete with explanations on how you can think and act like your very own hedge fund manager.

    (Of course, if you don’t want to go through this checklist every time you make a trade, our Capitol Gains program can do it for you!)

    Hedge Fund Set Up

    Developing a Trade:

    When hedge funds trade, it’s not on a whim.

    The process is measured, considered and usually traders need to pitch a trade idea to the CIO, rather than trading whatever they want to.

    Furthermore, these trade ideas can’t be “simple” trades.

    Retail traders, meanwhile, generally stop at the easiest answer.

    Here’s an example:

    Imagine an infrastructure spending bill gets passed, meaning roads will be built …

    Retail traders might think to buy Caterpillar (Ticker: CAT) or Deere & Co. (Ticker: DE) because they make heavy machinery and may benefit from the bill.

    Or maybe they anticipate a need for steel, so they buy U.S. Steel Group (Ticker: X).

    These are not bad ideas, but generally speaking, everyone knows this.

    When a trade is made based on common knowledge, it tends not to produce results.

    The hedge funds, however,  take a different approach -- and think a little deeper, for instance ...

    “All the equipment will need maintenance and parts. Who is going to service the vehicles?”

    “There will be a lot of concrete poured, and someone needs to make all that concrete, and concrete needs minerals to be made. Who provides those minerals?”

    “U.S. Steel Group will need raw ore; who is going to dig all that up?”

    Or one step further … “Who makes the equipment miners use to dig up materials? Who has those mineral rights?”

    It is within these deeper questions that real money can be found.

    Sometimes the answers to these deeper questions are not always obvious or easily found.

    This is why hedge funds collaborate with experts in specific areas; they are the ones who can find these answers.

    When developing a story for a trade idea, take the story as far as you can take it, and then find the trade. That is what hedge funds do.

    ✓ Check list item #1: Where does the story behind the headline really end? Take the pitch all the way down, and then find the trade.

    Executing a Trade:

    Hedge funds do not use ThinkorSwim or Tastyworks to trade. Those are fine platforms, but they are not what hedge funds use.

    Hedge funds have something called Direct Market Access (DMA). What’s the difference?


    DMA goes directly to the exchange to take out an order; it does not have to route to first go through a broker. So if a hedge fund wants to put an order through, they just click ‘buy’ or ‘sell’ and the order is taken.

    Here’s the good news: it doesn’t really matter that much.

    But there are some things you can do to put yourself on more equal footing.

    For starters, I advise against using a free broker.

    ThinkorSwim -- for all its faults -- does have one nice feature: order routing to an exchange. This will get better fills on both marketable orders (if you route to the exchange that is bid), and more importantly, non-marketable orders (orders that you are “working”).

    How do you do it on ThinkorSwim? It’s actually pretty simple. When you pull up the order bar, at the very end, there is a category called “exchange.”

    This defaults to ‘best,’ which means it gets sent to the market maker who is paying for the order flow. However, if you change the order to ‘CBOE’ or ‘ISE,’ you are far more likely to get a fill on a working order.

    These types of little things in order routing are key to getting better fills on your trades -- closer to what a hedge fund might get.

    If you do not use ThinkorSwim, many other brokers also have ways of routing the order. It is important to take the time to learn how to do so in order to optimize your execution.

    ✓ Check list item #2: Learn the best way to execute an order with the broker you use.

    Picking the Option:

    Retail traders tend to either buy simple calls or puts, or use simple strategies like covered calls.

    Hedge funds will employ these kinds of trades as well, but they will also look at hedging strategies such as straddles and strangles.

    How do they develop their options strategy?

    The answer is implied volatility (IV).

    Hedge funds that trade options always have professional options traders on staff.

    These options traders are especially knowledgeable about one thing in particular … volatility.

    Why volatility? It helps them find the best way to express their trade idea.

    Simple calls or puts are fine, but as a retail trader you need to ask yourself, “Is this the best way to trade this? Is this the best option to buy?”

    If you cannot quickly answer this question, you need to do a deep dive on implied volatility.

    By understanding IV, you will come to understand options at a deeper level, much closer to the level of the options traders hedge funds employ.

    (Option Pit can help with that, too.)

    Let’s look at an example ....

    You want to go long on Apple (Ticker: AAPL). What do you do?

    Here’s how you can develop a trade quickly.

    Look for the cheapest month to buy, then within that month find the cheapest option to buy that has reasonable odds of ending up a winner.

    Here’s the catch: when I say “cheap” I’m not talking about the price of the option, I’m talking about the implied volatility.

    The more IV that is priced into an option, the more expensive that option becomes. Finding reasonable trades with lower implied volatility will help you avoid overpaying for the options trades you are trying to make.

    Every brokerage platform will show you implied volatility for recent contract terms.

    Here’s some recent implied volatility readings for AAPL:

    Is there one term that is cheaper than the rest?

    As you can see, the Aug. 20 expiration is cheaper in terms of implied volatility than every other expiration around it.

    Now take it one step further, and find the cheapest option to buy in that month.

    AAPL is trading $145. Do you see an option that is cheaper than the others in terms of IV (cMIDIV)?

    The August 148-strike calls are the cheapest option to buy on the board. This is the best play for a bullish options approach (please note this is for example purposes only, and is not a trade recommendation).

    If you cannot do this, you need to learn how.

    Selling options is exactly the same as buying, except I want to find the most expensive option.

    Complex options plays like call spreads and strangles are often even better to trade than outright simple options. You should take time to learn how and when to trade these as well.

    ✓ Check list item #3: Learn to use implied volatility and complex spreads to optimize your options trading.

    The Plan:

    The final piece of the puzzle is the plan.

    When hedge funds execute a trade, they have a complete trade plan. Many retail traders do not.

    Retail traders tend to fly by the seat of their pants. They get into a trade on a whim, and exit on a whim. They panic at the worst times, and even worse, get greedy at the worst times.


    They have no plan.

    Hedge funds always have a plan.

    Before taking a trade, they ask themselves these questions (and you should too):

    • What is my target entry price?
    • Where is my first exit point on a winner?
    • Where is my next exit?
    • If my option wins, do I roll up (exit your current position and enter a new position) to keep the trade going?
    • What factors will cause me to roll an option up?
    • If I do roll, what options would I roll to?
    • If the trade goes south, where is my exit?
    • What is my desired and maximum time frame for this trade?
    • If my trade reaches my maximum time frame and I am not out, what do I do?

    Of course, having a plan is not enough -- you must follow it.

    Any trader that does not follow their plan (or worse, doesn’t have a plan!) will not be working at a hedge fund for very long.

    ✓ Check list item #4: Create a complete plan for every trade.

    Whether hedge funds are systematic or discretionary in their operations, the items in this checklist are always followed.

    If you want to run your portfolio like a hedge fund, you need to make sure you hit all of the items in this checklist every time, whether you’re trading a systematic or discretionary retail strategy.

    To sum up the list:

    ✓Item 1:  Find the true end of the trade story.

    ✓Item 2:  Optimize trade execution.

    ✓Item 3:  Pick the optimal option trade.

    ✓Item 4:  Build a thorough trade plan and follow it.


    PIT Report

    Get the story BEHIND the headlines and avoid EXPENSIVE investing mistakes.

    Pit Report is all about helping you understand WHY markets do what they do … so you can become a better trader and make more money!


    Authors: Mark Sebastian Founder
    Company: Option Pit
    Services Offered: Trading Education, Training, Trade Room, Newsletters
    Markets Covered: Stocks, Options

    Chapter 13

    DecisionPoint Price Momentum Oscillator (PMO)


    DecisionPoint Price Momentum Oscillator (PMO)

    By Erin Swenlin - Decision Point


    Developed by Carl Swenlin, the DecisionPoint Price Momentum Oscillator (PMO) is an oscillator based on a Rate of Change (ROC) calculation that is smoothed twice with exponential moving averages that use a custom smoothing process. Because the PMO is normalized, it can also be used as a relative strength tool. Stocks can thus be ranked by their PMO value as an expression of relative strength.


    The DecisionPoint Price Momentum Oscillator is derived by taking a 1-period rate of change and smoothing it with two custom smoothing functions. The custom smoothing functions are very similar to Exponential Moving Averages, but, instead of adding one to the time period setting to create the smoothing multiplier (as in a true EMA), the smoothing functions just use the period by itself.

    The table below shows the calculation for Amazon's PMO:


    The PMO oscillates in relation to a zero line. Normally, the PMO direction indicates if strength is increasing or decreasing, while the steepness of the trend angle demonstrates the power behind the move. Since this is an internal ratio calculation (versus external, like the standard relative strength calculation, which divides one price by another price index), it returns a result that is normalized and can be compared to the PMO result of any other security or index. Therefore, chartists can rank a list of securities or indexes in relative strength order simply by using their PMO values. The list does not have to be homogeneous; ­the PMO can be used to rank market indexes, stocks and mutual funds in the same list.

    An indicator that looks very similar to the PMO is the MACD (Moving Average Convergence-Divergence) indicator invented by Gerald Appel. The main difference between the PMO and MACD is the absolute value of each indicator. The MACD is based on moving average calculations - one stock's MACD reading bears no relationship to another's - whereas the PMO, as explained above, is an internal ratio. The chart below shows the PMO and MACD together.

    While the PMO and MACD have similar shapes on shorter-term charts, the advantage of the ratio-type calculation for the PMO is evident on longer-term charts because the PMO is fairly constant, unlike the MACD. See the weekly and monthly charts below.

    Overbought/Oversold Indicator

    As demonstrated below, the PMO can help determine if a price index is overbought or oversold. Below is a five-year chart of the S&P 500 index, showcasing a wide range of extreme market conditions. The normal PMO range for this index is from about +2.5 (overbought) to -2.5 (oversold); when the PMO approaches or breaches those limits, it often signals a price reversal. When the PMO changes direction at or beyond the extremes of its normal range, it is a fairly reliable indication that an intermediate-term change in price direction is taking place.

    While +2.5 to -2.5 is the usual range for broad stock market indexes, each price index will have its own “signature” range. For example, the chart of Microsoft (MSFT) below shows a range of +5.0 to -5.0. Always check a longer-term chart to verify the normal range for the index you are analyzing.

     Also, remember that technical indicators are calculated based on a specific number of time periods within the timeframe being addressed, so a monthly PMO looks completely different from a daily PMO. See the monthly based chart below which uses the same seven-year period as the daily MSFT chart above.

    Momentum Indicator

    As a momentum indicator, the PMO expresses the direction and velocity of price movement. In this regard, it is much like other momentum indicators. On the chart of the Gold ETF (GLD) below, the strongest moves in either direction are characterized by straight, steep, smooth PMO movement. More halting trends usually are accompanied by frequent PMO direction changes. PMO bottoms and tops suggest that price momentum has shifted direction, so they can provide early flags to price tops and bottoms. They are usually more reliable when the PMO is in overbought or oversold territory.

     Finally, like other oscillators, the PMO gives hints of important direction changes by forming divergences against the price index. Three separate divergences have been highlighted below. The two negative divergences (red lines) warn of important tops as the price index makes a higher high and the PMO makes a lower high. The Positive divergence (green lines) signal an important bottom with price making a lower low while the PMO makes a higher low.

    Signal Generator

    The PMO generates a crossover signal when it crosses through its 10-period EMA. These signals tend to be short-term in duration, but they can last for several weeks. Do not take them at face value because they can whipsaw quite a bit. They should be used to alert you to possible trading opportunities, rather than as a mechanical trading model. Always check the chart to verify the price pattern and the configuration of the PMO. Signals are best when price appears extended, is near support or resistance, and the PMO is very overbought or oversold. These signals may also be used with DecisionPoint Trend Analysis using 20/50/200-EMA crossovers which determine long-term, intermediate-term and short-term bull or bear bias.

    The most reliable signals are generated when the PMO is near the extremes of its normal range, or when a direction change and crossover occurs following a strong, clean, straight PMO move. Quite a bit of “noise” can be generated around the zero line and while the PMO is moving in a relatively flat pattern. Crossover signals have been highlighted on the chart below:

    PMO Configurations

    Sideways Wiggle

    The following chart illustrates a common PMO formation that emphasizes why all PMO crossover signals cannot be taken literally. The area circled in red is typical of PMO movement during a steady rising price trend. There is little volatility in price movement, so the PMO moves sideways. The fact that the PMO remains above the zero line testifies to the strength of the price move; however, minor zigzags in price movement cause the PMO to whipsaw above and below its 10-period EMA, generating many unprofitable crossover bull signals. This chart also shows how sideways wiggle ultimately will end and how it can offer subtle clues that the end of the trend is near.

    Bear Kiss

    The “bear kiss” is the final part of three distinct topping actions often displayed by the PMO. When we see this classic formation, it offers additional reassurance that a tradable top is in place. We start looking for this formation when the PMO has become relatively overbought and the price index has experienced a substantial move up. This formation doesn't always occur at tops, but, when it does, it helps build our confidence in the reliability of the signal.

    The first action is a false PMO top. Major tops are always accompanied by an overbought PMO top, but not all PMO tops signal major price tops. The false top alerts us that a price top is probably just a few weeks away.

    Next, we'll see a slightly higher PMO top followed by a crossover sell signal, which is generated when the PMO (blue line) crosses down through its 10-period EMA (green line). When these signals occur at very overbought levels, they may tentatively be taken at face value, but, when they have been preceded by very strong price action, it is possible for prices to make yet another new high, causing the PMO to begin rising again.

    Finally, as prices roll over from the final top, the PMO turns up again, this time topping after just barely “kissing” the underside of the 10-period EMA. Some refer to this as the “kiss of death,” but this seems a tad dramatic, so a bear kiss seems more appropriate. Besides, there is a reciprocal formation at important bottoms, and the term “bull kiss” seems more apt than “kiss of life.”

    Note that an important aspect of this analysis is that the price index has broken a rising trend line in conjunction with the bear kiss.

    Bull Kiss

    The “bull kiss” occurs shortly after a PMO crossover buy signal, and is the result of a price pullback after the initial up thrust that generates the crossover signal. While the bull kiss and bear kiss are essentially equal but opposite formations, price behavior between the two is different. Normally, the bear kiss is a non-confirmation which coincides with the final price high in a rally, while the bull kiss normally coincides with a higher price low in a new rally.

    Clean Signals

    While the bull and bear kiss formations are quite common, it is also possible to have very clean PMO reversals and crossovers, which lack the gyrations associated with blow-offs and retests as the change in price trend is relatively smooth. The point is that reversals and crossover actions can cover a wide range of configurations. A study of the charts will lead to a better understanding of the kind of price action that begets a certain type of PMO behavior. The PMO behavior also gives clues as to what kind of price behavior to expect.


    The DecisionPoint Price Momentum Oscillator (PMO) can be used as both a measure of relative strength, momentum and overbought/oversold conditions. It can also be used to determine price reversals using bull and bear crossovers.


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    Authors: Erin Swendlin
    Company: DecisionPoint
    Services Offered: Trading Education, Software, Trade Alerts
    Markets Covered: Stocks, Options, Futures, Forex

    Chapter 14

    Using Sector Watchlists to Help Identify When to Get in and Out of Trades.


    Using Sector Watchlists to Help Identify When to Get in and Out of Trades.

    By Rick Rouse - Momentum Options

    At Momentum Options, we use Watch Lists to keep track of hundreds of stocks. Watch Lists are straightforward to create and are helpful when you want to “watch” where the money is flowing in the market. What we have done here is take all 24 S&P Industry Groups, and divide those out into their respective industries. 

    We have mixed and matched a few for various reasons and sometimes placed certain companies in another industry if we felt they were more relevant there.

    Sector Rotation

    Oftentimes you will see a certain sector of the market get “hot,” and the top three or four stocks out of those sectors could start to make big moves. When the stocks have finished their run, traders could jump ship and look for the next sector where the money could be rotating into, or they could buy puts when a top is reached. 

    When you set up your Watch List, it will instantly show you if the stocks in the sector are up or down. This may help you to spot a trend. That trend may only last for a few days, or a few weeks. Most of the time, the option trades we profile on our website are for short time periods, and are a good place to get your “ideas” from. There is a lot of information here, so don’t overwhelm yourself. We don’t expect you to “watch” all of these stocks; just pick a few sectors you know and go from there.

     We have highlighted a diverse group of stocks in our Watch List for several reasons. You will notice that there are several foreign stocks included. If something is happening in a specific country, you have a way to play it.

    If Israel goes to war with the Arab states or Spain melts down then we have various companies in a position to take advantage of that situation. 

    We have also included some companies inside each industry that are very specific in nature. We did this so that if you hear news about a certain industry, region, or even a product, you could be able to play the stock that is most directly tied to the issue. If Hawaii suffers a natural disaster, we have two different stocks you could play. If barge traffic is halted in the US, we have a stock for that too.

     Sometimes the option volume for these stocks may make them inappropriate to play unless a major event happens. If you only see few contracts being traded in a day, please proceed with caution. The trade could go your way, but it may be hard to get out. We occasionally omit major companies from our Watch List because we feel there is a better option play with a smaller, more volatile stock.

     Most brokerage firms are set up so that you can trade from your Watch List. This could be the best way to utilize the Watch List. Generally, when you click on a Watch List via your brokerage account you will see: a quote, the day’s high and low, the current bid and ask, and the option chain.

    Sectors We Watch

    In the following pages, I will highlight a few of the 80 Industries and sub-industries we follow.

    Each sector will usually have three or more stocks along with their current ticker symbol and a brief business description. You can build your own personal Watch List from our list of over 600 stocks, and add or subtract companies to fit your trading style.

    Energy Equipment & Services

    This Industry reacts to a lot of the same factors as the Oil, Gas, and Consumable Fuels Industry (see section below for details), specifically the price of oil and natural gas. The price of oil/natural gas rising or falling could cause the stocks in this sector to basically follow that direction. However, there are some other key factors to take into account. The number of rigs available and operating is one. Ideally, you would like to find a company that has all of its rigs being used for drilling, or better yet, a backlog of orders and a growing rig count. Put simply, the more rigs the company has being used, the more money they are most likely making. 

    The second thing to look for is the day rates these rigs are getting while in use. Most companies will tell you the day rates in press releases or conference calls which can be found through a simple Google search. Day rates declining indicates a possible oversupply of rigs, since companies would rather have the rig working for less money than have it sit idle. Obviously, rising rates indicates a rig shortage which could cause the companies in this sector to grow in earnings  because they are charging more for the rigs they have. 

    It is also a good idea to look for news about large contracts, either being awarded to these companies or taken away as that can move the stock price significantly. There is a lot of merger activity in this space, so any rumors may be an opportunity for an option play. 

    You may wish to focus on the small to midsize players if you are going to speculate on a take over. The real large players will typically go after those types of companies rather than making big acquisitions.

    Flowserve (FLS)

    – Company makes valves, pumps, etc, high beta name.

    Core Laboratories (CLB)

    – This high flier helps companies extract more oil/gas from existing wells.

    Diamond Offshore (DO)

    – They have the largest deepwater rig fleet, and most of the new offshore oil finds are in deepwater.

    Transocean (RIG)

    – Gulf exposure could impact this company’s stock in either direction.


    This sector has some really basic drivers. Input prices make a huge difference. Oil and natural gas are major inputs; thus, rising prices are bad for this industry, and conversely falling prices are good. Look for companies that are niche players, meaning they make a specialty chemical with a high penetration rate. Also, pay attention to the pricing of various chemicals, sometimes short term surpluses or shortages can change prices and provide direction as to which way to place a trade. A great example is the gulf oil spill. Corexit is a dispersant whose price went through the roof as BP was forced to buy tons of the stuff. 

    Dow Chemical (DOW)

    – Large chemical company, not much beta though.

    E.I du Pont de Nemour (DD)

    – Another large chemical company.

    Huntsmen (HUN)

    – Smaller specialty chemical company.

    WD40 Company (WDFC)

    – Yes they make WD-40, but they also make a host of other chemicals and the stock moves around quite a bit.

    Construction Materials

    This industry is very basic. Cement, aggregate, asphalt, et cetera are all about demand. These companies are most successful when the overall economy is doing well, specifically if residential and commercial construction is on the upswing. Large government programs to build infrastructure can also impact these companies. Watching the pricing of these materials is one of the easiest ways to monitor the industry as a whole. Rising prices for the end materials these companies produce means better margins and more revenue growth, and maybe a call option opportunity. This sector tends to trade with commodities as a whole and, obviously, with the homebuilding stocks. 

    Cemex (CX)

    – Mexican concrete company, another Carlos Slim holding.

    Vulcan Materials (VMC)

    – This stock has some real movement; it was over $120 during housing boom.

    Martin Marietta Materials (MLM)

    – Another high beta materials play.

    Eagle Materials (EXP)

    – A smaller version of Vulcan. 

    Containers & Packaging

    The key to this industry is finding companies with high margin packaging solutions. Making cardboard boxes or soda bottles is not a real revenue driver, but making a coated cardboard box that is water and heat resistant can be. This is also a good space for mergers and acquisitions, so keep an ear out for rumors regarding takeover targets. In general, you should not be playing many options in this space though.

     Sonoco Products (SON)

    – Big packaging company that is shifting to specialty products.

    Sealed Air (SEE)

    – These guys have some interesting brands including Bubble Wrap and Cryovac.

    Bemis (BMS)

    – Company specializes in flexible packaging solutions, mainly in food service.

    Temple Inland (TIN)

    – Mostly corrugated products, but they also have some home building materials exposure.

    Get the picture? With every passing month or season, certain industries or sectors can fall in or out of favor.

    Like birds of a feather, a handful of stocks in a particular sector can take off or fall out of favor on a moment’s notice.

    That’s why it’s important to have a watchlist of key companies in a broad array of industries.

    Other Industries that we watch include:

    • Metals and Mining
    • Paper & Forest Products, Building Products
    • Aerospace & Defense 
    • Construction & Engineering 
    • Electrical Equipment 
    • Industrial Conglomerates, Trading Companies & Distributors 
    • Machinery 
    • Commercial Services & Supplies 
    • Professional Services 
    • Air Freight & Logistics, Marine Transportation 
    • Airlines 
    • Road & Rail, Transportation Infrastructure
    • Automobiles 
    • Household Durables & Homebuilders 
    • Leisure Equipment and Products 
    • Textiles, Apparel, & Luxury Goods 
    • Hotels, Restaurants, & Leisure 
    • Diversified Consumer Services 
    • Media 
    • Internet & Catalog Retail 
    • Multi-line Retail 
    • Specialty Retail 
    • Food & Staples Retailing 
    • Tobacco
    • Beverages
    • Food Products
    • Household & Personal Products 
    • Health Care Equipment & Supplies 
    • Health Care Providers & Services 
    • Health Care Technology, Life Sciences Tools & Services 
    • Biotechnology 
    • Pharmaceuticals 
    • Commercial Banks, Thrifts & Mortgage Finance & Consumer Finance 
    • Diversified Financial Services 
    • Capital Markets 
    • Insurance
    • Real Estate Management & REITs
    • Internet Software & Services
    • IT Services
    • Software
    • Communications Equipment
    • Computers & Peripherals 
    • Electronic Equipment, Instruments & Components, Office Electronics 
    • Semiconductors & Semiconductor Equipment 
    • Diversified Telecommunications Services, Wireless Telecommunications Services 
    • Utilities: Electric, Gas, Multi, and Water Utilities, Independent Power Producers & Energy Traders 

    With carefully selected stocks listed in each sector, you can scan stocks that are rising and falling by their respective sectors.

    At Rick Rouse’s Momentum Options, we use options strategies to trade stocks that are breaking out into Uptrends (calls), or falling into Downtrends (Puts).

    We provide you with a list of stocks that meet our screening criteria, and we are transparent about the performance of our recommendations, listing all winning and losing transactions.



    Authors: Rick Rouse
    Company: Momentum Options Trading LLC
    Services Offered: Directional Options Trades, calls and put options
    Markets Covered: Major Indexes, Volatility, Individual Stocks and ETFs

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    Chapter 15

    Forecast Market Direction in Times
    of CHAOS


    Forecast Market Direction in Times
    of CHAOS

    By Lane Mendelsohn -

    With the markets’ wild volatility so many traders are having trouble with:

    • Finding Opportunities
    • Timing Their Entries
    • Timing Their Exits

     Most traders right now are breaking even or losing money.

    But it’s not their fault.

    It’s not because they’re buying risky stocks or even investing in bad companies. There are some major forces at work outside a trader’s control like the price of oil, the value of the dollar, and other global factors. Most traders know those factors exist but very few traders can harness the effects those markets have on what they’re trying to trade.  The ones that do, struggle knowing when it’s time to enter a trade or exit a position. On top of that, trying to remove the emotions from trading when it’s time to pull the trigger makes it even more difficult.       

    As a result, traders then look towards technical indicators like MACD, Stochastics, and RSI to attempt to infer what that stock or market is doing - except these indicators have some major flaws and deficiencies.

    During our live training session, we’re going to highlight these deficiencies and teach you how to overcome them in a few easy steps with the power of artificial intelligence. 

    VantagePoint’s artificial intelligence has the capabilities to process massive amounts of data from the global markets that humans cannot. This powerful A.I. then uses that information to predict, up to 72 hours in advance, where the market is likely headed. Even during times of major volatility when the market tends to swing wildly.

    In this example, Vantagepoint indicates a reversal in the Dow on February 1st prior to one of the biggest selloffs in market history.


    Trader spots for our next Live Class are filling up fast!

    Our experts are showing you how to use artificial intelligence trading technology on TODAY’s market. The class is about an hour long with an interactive chat box to ask our presenter any questions about the A.I.!

    Click the button above to save a seat in today’s class!

    Today you’ll learn how to…

    Get Ahead of Market Movements

    Technical Analysis is simply a reaction to past price action. By using traditional lagging indicators such as Moving Averages, there are often missed opportunities. VantagePoint’s Artificial Intelligence “brain” generates market predictions with up to 87.4% accuracy, up to three days in advance.

    Navigate Today’s Globally Interconnected Markets

    VantagePoint recognizes and calculates how markets around the world drive, impact, and influence the markets you are trading. This patented process utilizes Artificial Intelligence and Intermarket Analysis to quantify and generate predictive leading indicators.

    Forecast Trends Days in Advance

    Most trading tools focus on past-price data that’s already occurred. VantagePoint applies an AI Neural Network to forecast market data, allowing you to get into trades days before other traders know what’s happening. Our predictive indicators give you a head start on trend changes.

    Click here to sign up. If the spots are all filled, you’ll be put on our waiting list for the next class!


    Authors: Lane Mendelsohn
    Company: Vantagepoint AI
    Services Offered: Free Live Training, Free Live Demo, Market Outlook, Stock Study, Indicators, Predictive Analysis, Free A.I. Forecast, A.I. Software
    Markets Covered: Options, Stocks, Cryptos, Futures, Forex, ETFs

    Please note examples are from past data and are success stories. Trading involves financial risk and is not suitable for all investors. Past results do not guarantee future performance.