I got a question the other day about one of my trading strategies:
“Why haven’t we had trades lately? The scanner finds tons of whale orders every day!”
It’s true, we’ve had a bit of a dry spell lately. But it’s all for a good reason.
First, let me back up and explain the strategy:
I have a strategy I use that is great because it uses a proprietary scanner to find some of Wall Street’s biggest options bets.
When Wall Street places huge options trades, it’s usually because they have a pretty good idea that the underlying stock is going to move in their favor.
I mean, why else would you place a trade for $100,000, $300,000 or even $3,000,000?
But here’s the thing: The scanner spots dozens of these hidden Wall Street trades every single day.
And not all of them work out. That’s just the nature of the market. Even might Wall Street places a bad trade once in a while.
Here’s the important part:
The key thing that has given this strategy such a high win rate is that my team validates every single one of these trades by making sure the underlying stock is trending strongly
If the stock isn’t in a strong trend, we don’t trade it. I don’t care how big the order is.
Because in nearly 40 years in the markets, my experience has taught me that following the trend is the surest way of having my trades close out as winners.
I don’t want to make the scanner seem unimportant, because it is…
But the scanner is almost secondary. It’s validating what I already see in a trending stock — a strong trend that has a high-probability change of continuing.
So back to why we haven’t had a trade in this particular strategy…
If you’ve read some of my posts the last few weeks — especially this one from the middle of April, you’ll know that markets began to lose their steam around that time.
When that happens, a lot of individual stocks that have been in strong trends suddenly break their trend.
I think you can see where I’m going with this…
Once the trend is broken, I don’t care how big of an order I see on my scanner. I simply don’t trade it.
So right now we’re in a holding pattern. Because earnings has been a bit of a mixed bag.
And because the Fed announcement had a lot of traders sitting on their hands.
Now that the Fed has announced no change to the rate, we need to watch and see if markets can start gaining traction again.
So for now, we’re watching markets and if I see a trending stock that also gets a mega-sized Wall Street order, we’ll be in business.
Until then, remember: sometimes doing nothing is the best thing you can do for your account.
Trade well,
Jack Carter
