The Odds of a Rate Hike and How to Play It

Over the past few years, arguably the Federal reserve has been increasingly important in the stock market. The Fed has always been important. But its current role seems to prop the stock market up. It doesn’t do so by buying stocks but instead, the Fed uses policy tools. The Fed Is Not a Stock Market Investor To begin with, it is important to emphasize that the Fed does not own stocks directly. According to the Federal Reserve Bank of San Francisco: Federal Reserve System does not hold corporate stocks, but it does hold government securities. The Federal Reserve's securities portfolio ...
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Wall Street’s Wisest Saying

There’s a great old saying on Wall Street: The trend is your friend. That’s especially true if you want to trade in the options market, where you have a limited amount of time for a trade to play out. Yet many investors, focused on a company’s fundamentals, don’t think about trends at all. It’s a critical skill for any investor—but it’s crucial for shorter and more leveraged trades like those in the options market. That’s why it’s important to consider all the factors that can cause a company’s share price to rise or fall. For longer periods, the fundamentals definitely matter. But f...
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Using Momentum Indicators to Forecast the Stock Market

Momentum indicators tell us a great deal about the stock market. These indicators can be a useful forecasting tool. But that might not be the way all investors look at these indicators. Momentum indicators are designed to measure the strength of the trend. They are usually thought of as short term trading tools. This makes sense because momentum measures the strength of a move and if a stock moves too fast, or shows too much strength, a reversal should be expected. That standard interpretation of momentum indicators is based on the fact that stock prices tend to exhibit mean reverting be...
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Scouting Out Your Next Big Trading Win

Trading can be tough for many reasons. But just as a general fighting a war may send on scouts, you too can scout out the options market for the best possible trades. Understanding how a company’s options usually move can prepare you to find moments where they’re making unusual moves. And by looking at options with unusual activity, you can get an idea of where larger investors in the options market are placing their bets. These larger traders—the so-called “Smart Money” on Wall Street— may not make huge profits, but they have a great track record of being right far more than wrong. ...
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This Old School Chart Says New School Stocks Are In Trouble

Point and figure (P&F) charts are among the oldest trading tools. They were in use by the late 1800s and they are still widely used by traders. They are valued by traders because they can easily be used to identify the trend and to develop price targets and trading strategies. We have written about the construction and fundamentals of the P&F chart and we will refer readers to the previous article for a review of the basics. That article can be found here. In this article, we will focus on what the charts tell us about the current state of the stock market. Horizontal Counts The f...
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Using The Options Market to Find the Next Big Trade

One of the hardest things in investing is finding a winning trade. That’s especially true when looking for short-term trades that are ideal for investing with options. Fortunately, there’s a way to use the options market itself to find such winning trades. How? By focusing on unusual options activity. When big money moves in the relatively small options market, it’s incredibly visible. It shows traders exactly which stocks are likely to make big moves – up or down. But that’s not all. Thanks to the options market, investors can also see where unusual moves are happening specifically ...
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The Charts Show to Trade This Market

Chart patterns show the emotions of traders. Technical analysts combine the price action seen on charts with indicators designed to measure momentum and other characteristics of the market. Combined, these techniques can provide a trading strategy. To begin the development of a trading strategy, traders can look at a price chart of a broad stock market index such as the S&P 500 or the Dow Jones Industrial Average. Price trends in indexes are highly correlated with each other so traders can benefit from an analysis of any major index. The Chart Shows a Down Trend The S&P 500 Index ...
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Using Options For Modest, but Consistent Gains

Most options investors screw it up. They may just buy a call option and hope a stock will rally further, leading to huge profits. Or they buy a put and hope a company immediately starts filing for Chapter 11. The fact of the matter is, stocks fluctuate. They may eventually go way up or way down, but it won’t be in a straight line. And knowing how to profit from more modest moves in a stock—the more typical daily moves you’re going to see over most of your investment life—is crucial for any options investor. That’s where options spreads come in. This strategy uses two options in a tra...
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Here’s Why Chart Patterns Work

Some traders look at charts and see actionable information. Warren Buffett is not a member of that group. Buffett has admitted that he tried to use technical analysis, the broad field of investment analysis that includes charts. He reportedly joked in a speech that, "I realized that technical analysis didn't work when I turned the chart upside down and didn't get a different answer.” Another skeptic is Burton G. Malkiel, a well respected economics professor at Princeton University and the author of A Random Walk Down Wall Street. Malkiel tested the usefulness of charts by providin...
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How I Pay My Small Bills Each Month With Options

If there's one thing I love about options trading, it's the ability to make money just about anytime. One powerful strategy involves making what I call "gas money" trades, where I can make a small amount of money, but safely and often thanks to the options market. In this video, I'll share with you how that's done and walk you through two examples.
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