Trade Breakdown: Copy My Winning Trade

Overview

A few days ago, I shared with you my first winning trade of the year.

I entered it on Tuesday, January 2nd — and just 3 days later, I logged a winner.

If you’re not doing this strategy yet, I imagine you want the details of how I do this kind of trade each and every week.

So here you go. This is exactly how I do it.

  1. Gauge the direction of the broad market
  2. Find a stock trading in the same direction
  3. Make sure you see a nice, long trend on that stock (4-6 months)
  4. Place a special kind of trade that lets you win whether that trend continues, goes flat or even starts to retrace a little bit.
  5. Sit back and let the trade close out 3 days later, with (more often than not) a winner.

Let me break down each of those steps for you, so you can paper trade these and see just how powerful this strategy is.

Step 1 – Gauge the direction of the broad market

I covered this in detail previously in this article (scroll down below the video on that page).

In short, you look at all 3 indexes and set up a chart to determine where they are in relation to their 20 day, 50 day and 200 day moving averages.

If all 3 are above all 3 of those averages, you’ve got an extremely bullish market. If all 3 are below them, you’ve got the opposite: an extremely bearish market.

Anywhere in between and you’ve got varying levels of mixed signals.

Step 2 – Find a stock trading in the same direction

This step involves finding a stock that is trading in the same direction as the broad market, which you determined in step 1.

I previously covered the exact criteria I use in this article.

If you are trading a in a bullish market, it also helps to filter out “noise” by only looking at stocks that are hitting new 52 week highs.

If your trading platform doesn’t make it easy to do that, you can get an up-to-the-minute list from this Wall Street Journal page.

Step 3 – Confirm a 4-6 month trend

Make sure the stock you are looking at trading has been in the trend you’re trading for 4-6 months.

This means if the broad market is bullish and your stock is hitting a new 52 week high, zoom out on your chart and make sure it’s consistently been making new highs for the last 4-6 months.

This is so that you filter our the junk stocks that suddenly spiked up on news, rumors, earnings, etc.

Step 4 – Place a trade that ups your chances of winning

At this point, a lot of traders would just take the stocks they’ve found using the process and either go out and buy some shares or buy some call options.

But I’m not a fan of directional trades. Because with directional trades, you pretty much have to be “exactly” right to win.

For example, if you buy a stock at $30, you need it to go up enough to make the trade worth your while.

Or if you buy a call option, you need to stock to move far enough to hit your strike price — and it must do it BEFORE the option expires!

Instead, I prefer to place trades that put time on my side. I basically sell time. I covered the details of how I place these trades right in this article.

Step 5 – Sit back and let the trade expire worthless

When you trade the way I do, you don’t have to watch for an exit.

As an options seller, our goal is to pick a good trade and let it expire worthless. I often place these trades with just 3 days left to expiration.

So I’ll place them on a Tuesday and watch them expire worthless by Friday, as I did with the AVGO trade I talked to you about a few days ago.

I hope I’ve managed to give you a detailed view of how I place these winning trades.

But don’t just go out and start trading them right now. If this is the first time you’re reading about this strategy I urge you to paper trade it for a while.

See how the strategy works with different stocks and in different markets.

And if you want to take the next step and trade this strategy right along with me, watch this video. I’ll go deeper into the strategy and how it’s worked for me time and again.

Trade well,

Jack Carter

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