How to Trade the 3 Trending Stocks — And Why You Should Look Closely at the Charts

December 6, 2024

Hey Traders,

Yesterday, among other things, I shared three solid stocks that are trending right now: BN, ENB, and FFIV.

Today, I wanted to dig into what you can do with these stocks.

And no, I’m not talking about just jumping in and hoping for the best. I want you to really look at the charts and understand what I call “the “the secret life of stocks.”

The Secret Life of Stocks

If you’ve been following me for any amount of time, you know I always say, “Nothing goes straight up.”

That’s the secret life of stocks: Even the best trending stocks have their ups and downs.

They tend to go up for 3-5 days, then take a breather. A lot of the time, that breather brings them down to their green 20-day trendline before they bounce and go higher.

Knowing this little nugget will help you avoid getting caught off guard by a stock that looks like it’s breaking out but ends up retracing its steps.

Let’s Dig In To BN

I’m going to be using BN in the following trade examples, but that doesn’t mean I think it’s better than the other two stocks I mentioned.

As I write this, BN is trading at around 59.67.

I want you to pull up a daily chart with the 20/50/200-day moving averages. If you don’t have those indicators on your platform yet, I explain how to do it here.

Once you’ve got those indicators installed, what you’ll notice is that BN has gotten a little too extended above its 20-day trendline.

Here’s how that looks on my TrendPoint platform:

This week, we’re seeing it come back down, and that’s exactly what I’d expect.

I’d bet BN is likely to meet up with that 20-day line around $59.00 over the next few days — and once it touches that line, it’s likely to bounce back and continue trending higher.

Here’s where the fun part comes in: Knowing when to buy and when to hold off.

How You Can Trade BN (Or Any of The Trending Stocks I Shared)

Now, once you understand how trending stocks behave, you can decide what kind of trade you want to place.

Here’s a couple of thoughts.

These are NOT official trade ideas. I’m just giving you an idea of how to think about trading trending stocks.

Covered Call on BN

You could buy 100 shares of BN right now for $59.67 each (around $5976 for 100 shares).
Then, you could sell a $65 covered call expiring January 17th which brings in about $45 (or $045 per share).
If BN reaches $65 by the expiration date, you’d be called away — meaning you’d sell your shares at $65. Here’s the math:
- Buy at $59.67 – minus 45¢ by selling the covered call brings your cost basis to $59.22
- Called away at $65 = $65 / 59.22 = 9.8% profit in 6 weeks.
Even better, if BN doesn’t reach $65 by the expiration date, you now own BN at $59.22 and can sell another covered call. Do this a few times and your profit really starts to skyrocket!

Sell a Naked Put on BN

Or, if you don’t want to buy the stock right away, you could sell a naked put.
Right now, you can sell a $55 naked put expiring January 17th and collect about 50-60¢ per share (or $50-60 per contract).
If BN continues its upward trend, you pocket $55 for doing nothing — seriously. Sell a few contracts, and that’s money in your pocket.
- If you’re doing a cash-secured put, you’ll need $5,500 in your account to cover the position.
- If you’re using margin, you’d only need 20% of that amount ($1,100) to get into the trade.

The possibilities are there. You just need to take action. And remember, the more contracts you sell, the more you make.

For example, $55 might not sound like a lot for selling the naked puts. But if you trade 10 contracts, that’s $550 in your pocket. Now we’re talking real money.

What To Do Next

If you’re new to these kinds of strategies, the best way to learn is by paper trading these ideas first.

Start clicking through the motions, getting familiar with the charts, and practicing placing trades. You won’t be risking any real money, and it’s a perfect environment to test out your strategies.

With paper trading, you can make all the mistakes like I did early in my career — except it won’t cost you an arm and a leg!

If you want to dig a little deeper on the pros and cons of covered calls, naked puts, or credit spreads, check out this article I shared a while back.