That's a good question. I think the best way to answer that is through experience and chart patterns. I do consider the overall market sentiment and I like using a mixture of technical and fundamental analysis such as looking at support/resistance and matching that with expected events like fomc meetings or at the moment trade talks/wars etc. More importantly, I will look at the individual stock's chart for the past 6-month, 1yr, 2yr, and even 5yr (weekly). In these charts I look for repeating patterns whether there are 3 day rallies, post earning reversals, or simple cup base breakouts and see how often that occurs throughout it's chart. For my positions, once they reach about 200% in gains, I'll take a closer look for an exit quick should things reverse. I don't know why, but through all the trading I've done, that 200% gain seems to be a magic number for everyone else too, so I keep that in mind. Otherwise, I do look at previous patterns to see how far a certain stock will run before stopping. Here are a few examples of what I'm talking about. I played a call spread on INTU heading into its May earning report. Fundamentally, I expect everything related to taxes to be all online soon, and INTU plays that entire business online. Looking at chart patterns, I saw that INTU has dropped post earnings in Aug and Nov 2017. The initial drop didn't last long and INTU rallied back to a 7% gain from the bottom right after reporting its earnings. Playing the call spread, I can leg out of the short side near the bottom and then let the long side run until INTU reaches about 7% from its bottom. In May 2018, it did just that and I took the short out near the bottom while playing the long side up to about $200. This is the reason my favorite quote is "history repeats itself." It's because we're all human, and sooner or later we end up repeating history. The same can be applied to stocks, and that's why you get these chart patterns that repeat forever. Sure, it may not be continuous, but you can bet that a certain pattern 5 years ago will reappear. The key here is to figure out which patterns belong to which stocks. I do look for an exit if there are wild swings in the positions I hold. If the rate of increase on a certain stock slows dramatically and volume decreases after a huge run, I will look to exit that position if the gains are high enough. I'd say if the gains on my options are about 100% are higher and I can see that volume has decreased and the rate of climb has decreased, then I will close out the position if it was a short term position (1-2 weeks). On something where I'm holding a longer dated option like what I did with HES earlier this year and I still like the chart's pattern, then I'll close out some of the calls (about 30-50%) and let the rest ride through the storm.
OI, it will be interesting to see if the Dow30 bounces off the 400ma (grey line) or fails? [Dow30, 2 days, 5 minute candles, 400ma, pivot points]
That was a wild finish. I wouldn't be surprised if the DOW hugged that line at 4pm. I wasn't home at 2-2:30pm so I didn't see what news came out around that time, because looking back at my retail positions, they all started to drop around 2pm and then just steadily declined and never recovered into the close. I think the only thing that can derail this rally has to be tariff/trade related. I know the markets were lower last night on Trump's tweet/talk of 25% tariffs on European cars. Even if that was old news, the continued rhetoric will continue to affect the markets even if it was only momentarily.
OI, your right, on the 5 minute candle chart, the Dow closed right on the 400ma. [Dow30, 2 days, 5 minute candles, 400ma, pivot points] ________________________________________________________________________ Closing daily charts for Dow30 & SP500 for Wednesday 8/22/18. The Dow30 closed below yesterday's low. To traders that use classic candlestick charting, that is usually a sell trigger after the prior 4 days up and finishing with a topping tail. [Dow30, 1 month, daily candles, 20ma & 40ma] _______________________________________________________________ Today's daily candle chart on the SP500 chart didn't close below yesterday's low. No sell trigger yet. [SP500, 1 month, daily candles, 20ma & 40ma]
The DOW opened lower this morning, so it's below your gray line, but SP500 and Nasdaq are leading. FANG's back in play with AMZN testing highs again. I'm too heavy in retail right now to add, but I'll look to jump back into FANGs. I did close out the WSM trade locking in +$3870 on that trade. I'll move over to ROST for earnings today. I like the ROST Sept 95 call and have started adding already. Other than that, TJX and KSS are holding, ETSY is back above $48 (last time was right after its earning report about 2-3 weeks ago), SQ is at new highs, and NTAP is holding up well. The DOW is more sensitive to trade talks, and I believe that's why it's down. The banks (JPM and GS) are down slightly this morning, but it was BA -3pts and MMM that were keeping the DOW down at the open. Both have come back, so we'll see how it plays out today.
SP500 looks ok so far on the 5 minute chart, still above the 400ma (grey line) micro uptrend. [SP500, 2 days, 5 minutes, 400ma, pivot points]
Thanks vanz, I've been adding a bit more new positions here this morning. Started adding FL Sep 52.5 calls and ROST Sep 95 calls both earnings play. I'm practically using WSM's profits on these trades. In addition, I'm adding ROKU Sep 60 calls playing this on a momentum. I might be a little late to the addition here, but I'll take the risk. I remember the earnings play and that was a solid profit for me, so I'm betting on ROKU's momentum above $60 now.
I'm going to get back into NVDA. I know I took a -3400 loss on this earning trade just last week, but that momentum is there. I believe NVDA breaks $270 and runs. I've already started a position in NVDA Aug wk5 $270 calls. I'm also back into AMZN using AMZN Aug wk5 $1920 calls and the position on AMZN is big at about 10% weight.
The SP500 just dropped down to its 400ma. I believe that the Dow30 leads the market slightly ahead of everything else and when the Dow gets a daily candle sell signal (like it did yesterday), the other indexes will follow a day or two later. I could be off on this, but I have seen several other cases of this behavior in 2018 using the daily candle charts. [SP500, 2 days, 5 minute candles, 400ma, pivot points]