The Weekend Shift – Episode 20

The Price Action

More downside action with some great moves to the upside in XLE, and XLF. Apple rocked its earnings, and the market didn’t sell Apple into the ground.

Is this the move?

I see everyone working well in the chat. Its funny how the market has change. For weeks the institutional buyers were buying right at the beginning of the day, and then nothing the rest of the day. Now that has flipped. Now during the open, nothing happens, and they start buying in the middle of the day. Sometime around 12:30 est. Be patient, and wait for Rob to tell you were to go. He will.

The broader averages and the Weekend winners

The S&P 500 (SPY) opening a 2-2 continuation down on the week. This reconfirmed the outside month to the downside. There was some reversals on the 60s to the upside, but they were quickly sold off the next day. We were all waiting for the FED report on Wednesday. Look at the 60s on Monday, at round 12:30 est the Market rallied big time with a 2-2 reversal up. That happened right at the Strat time report. That cause Monday to close as Hammer, and we were all anticipating the 2-2 reversal on the day. We did not get that. We got an inside day. We did little. XLE stayed strong in all of the ”doing nothing”. During Wednesday the Market stood still for most of the day. Finally at 2:30pm we got what we wanted. Full time frame continuity to the downside on the 60s. We wanted this because it was a definite direction that we could work. Then all we had to do was find stocks that were also full time frame continuity to the downside. Going after the stocks that were already beat up was low hanging fruit, easy pickings. Friday had a great rally at the end of the day with a 3-2 reversal up on the 60s. If you waited and did nothing, you could have made your whole week in one day. Apple beating its earnings, and not selling off contributed to this move.

The top winners from last week’s Weekend Vid from Rob Smith were:watchlist

No list last week due the earning reports, FED report, and high volatility. What was the top winner for you?

Tell us on Twitter at @SepiaGroup

The Spread

The spread is the difference between the Bid and the Ask. When trading common this is usually close together. When trading option this can be a totally different story.

Most options traders do not take options with spreads that are more than 10-20 cents. Anything more than that, and you are asking for trouble. If you take an option that has a 50 cent spread if you have to cut it, you have no choice but to take a 50 cent loss on top of being wrong in the direction of price. Now imagine having a winning trade on an option with a dollar spread. You decide to take your profit. You may still be selling for a loss, because the spread is so large. In the future pay attention to the options spread. It could be the difference between winning, and losing even before you start.

Ray started with the Strat one year ago after some personal experience trading on his own. After finding the Strat community he changed how he did everything. No longer relying on indicators to tell him when to get in. Ray primarily trades options using the 30 min, 15, and 5 minute time frames. He only uses three times frames on his screen. His main go to indicator is the TTM Squeeze Pro indicator found in TradingView. This measures the volatility of the Market. The squeeze is basically working an inside break. Much like we do with a 2-1-2 reversal, or a 3-1-2 reversal. The red, yellow, and blue bars at the bottom of the screen shows the momentum on the squeeze. Ray says, “Right before it fires, you will see these bars get tighter, and then switch color. I want confirmation across all the time frames.” He uses these bars to have further confirmation of the move. This gives him confidence to hold the option. He wants confirmation so that he does not have restrictions from a higher time frame. “If the 30 minute is firing to the downside, but the 15 minutes is going up, I know (the 15 min) is not going to last long,” says Ray. He wants to ensure he doesn’t get caught up in a pull back. “When price shoots up really fast, it’s going to pull back really fast,” cautions Ray.

“When price shoots up really fast, it’s going to pull back really fast."

When the price reverses down, you will see the TTM bars at the bottom turn dark blue. This lets him know the momentum of the price is cooling down. Then based on the TTM and the options expiration Ray will exit the trade. He uses options that are right at the money. He likes that intrinsic value, and if conditions are correct, he will swing that option. Ray emphasizes that he uses the Strat first and uses the TTM as confirmation. Not only do we look at trades that are going to upside, he showed us trades are selling off.

We looked at his trades on NIO. NIO was full time frame continuity to the downside, shooter in force on the daily. Looking at the TTM indicator the bars are long and red. This confirmed that Ray could hold it over the weekend, and he took profits on it on Monday.

What Gentsmen does that I really like is that he uses his TTM indicator to just confirm what he is working. We used the analogy of being a pilot. The pilot has one job, fly the plane. There are gauges he/she uses to remind him/her of conditions they may not be thinking about at the time. Ray uses his indicators, and his indicators don’t use him. He uses these “gauges” to get into the mindset of the other traders. That’s how he creates his winning positions.

Another indicator that the chat noticed was the Sector performance indicator. This shows all the sectors at once on your chart, and it turns red or green to show buyers or sellers. Another one he uses is, CD Average daily range zone, it helps to gauge if you have a strong runner.

It also helps in know when it’s time take your profits. The values are set right at the beginning of the day. Ray will check them, and them turn them off. It’s a quick reminder of what is going on all time. He knows what his tools are for, and he only has them on the charts when he needs them. You don’t want a lot of stuff all over the charts. That’s why we started learning the Strat. So we could get way from having a much of lines and junk on the charts.

EYE ON IT

Possible 2-2 week.

We could see a nice reversal to the upside on the weekly charts in all sectors of the Market. Don’t mess around with getting early. The week could still start as an inside week.

Software

Weekly Tips

In TrendSpider, you can search whole sectors all in one search field. The cool thing about that is you don’t have to know the actual sector ticker symbol. Just search “Energies” and all of the stocks associated with that will pop up. The same for the word “semiconductors”. This is helpful because when Rob is calling out a general sector name, now you can search it easily.

Ray uses the analyze tab in Think or Swim to determine his risk/reward ratio before he takes his trades. This allows him to take trades that are worth taking. We also talked about finding setups for yourself for the week. We look for actionable signals on the weekly and monthly to work. Ray emphasized that you should still be looking at the yearly charts. This will show you were the buyers and sellers really are. We want to go where the buyers are. He will look at the sectors. Is the sector directional on the month, or year? He uses Trendspider to scan for his favorite set up. He marks the high and the low of the weekly, and the daily. There are no set ups on the week or daily, he will drop down to the 4 hour, and look for inside bars.

In summary, Ray Gentsmen provides a lot of value for all Straters on how to trade options using TTM. He uses his tools, his tools don’t use him. He also shared a couple other great indictors to use during the day. He is a very laid back trader, and he does a show called Watchlist and Chill on YouTube on Sundays. This is was very fun interview for me. I believe Ray had a great time as well. I know the people in the Chat had a great time. We had just shy of 100 people in the chat. It was just a great time.

This Week’s Strat Q&A Tips

Q: Why is it so hard to see The Strat play out Live, but easy to see hindsight?

A: Until you get used to seeing things our way, it seem like that. That’s why we preach tight stops. Looking back and identifying reversals is a great exercise. Repetition is the mother of skill. Back testing is important. Then when you have the confident to work it during the day, set your buy order, and set your stops. You do not have to get in with a lot. Start with a small position. Then you will get to the point you can add. Move your stops up so it doesn’t become a loser. You can also paper trade. That works to get the mechanics of trading down. You will get to a point that you will have to start trading real money after awhile. There is an emotional hurdle that you have to negotiate that paper trading doesn’t simulate. So start small, and learn what it means to create winning positions. You can do it. Get with anyone here a Sepia we will help.

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