Hey traders,
Everyone wants fireworks. Big green candles, big red candles, drama.
But most of the money I’ve made has come from understanding what’s happening when the market goes quiet — specifically when price trades inside a prior bar while the bigger trend is still intact.
That’s where we are right now:
On the show, we walked through SPY and pointed out three things:
- We had a big red day that dipped under the short term 23-day EMA.
- Since then, price has been inside that candle — not trading outside that prior range.
- And it’s all happening within the context of the uptrend (the uptrend is still intact)
Translation: the market exhaled, then tightened up. No breakdown. No new up-leg yet. Just compression.
Here’s how I handle that.
Step 1: Respect the State, Not the Headlines
Inside action isn’t a sell signal or a buy signal by itself. It’s a state — and states have tendencies.
- In an uptrend, inside weeks often end up going higher.
- Inside a downtrend, inside weeks often end up going lower.
We’re still in an uptrend on my dashboard. That doesn’t mean I chase. It means I assume we’ll see a continuation unless price proves otherwise.
My rule: the burden of proof is on a breakdown. Until we take out the prior week’s lows with momentum and follow-through, I’m not treating this as a top.
Step 2: Let the Range Do the Work (Two-Trigger Plan)
When we’re “inside,” I mark two levels from the bar we’re sitting inside of:
- Inside-bar high – that’s my potential upside trigger
- Inside-bar low – that’s my potential downside trigger
Then I wait for one of two things:
- Break + Retest: If we pop above the inside-bar high, I don’t chase the first tick. I’d rather see a quick retest — where that “ceiling” is now a “floor” — then look for continuation.
- Fail and Flip: If we break down through the inside-bar low and can’t get back above it (the “floor” has how become a “ceiling”), I respect the shift and consider moving to defense.
This is purely mechanical. Let price pick the side, you manage the risk.
Step 3: Use Options to Get Paid While You Wait
Inside periods are tailor-made for options sellers because time decay keeps working while everyone else argues.
Here’s the simple toolkit I use:
- Naked Puts (cash secured or on margin) below the inside-bar low in names I want to own. If we never break down, those puts decay fast. If we do, I own them at a discount and can start selling calls.
- Covered Calls on strength as we push into the inside-bar high or prior resistance. If we don’t break out, I get paid for the stall. If we do break out, I can manage the roll.
- Credit Spreads to define risk if you prefer smaller capital and hard floors. Bull put spreads below support and bear call spreads above resistance. Keep them short-dated while the market’s compressing.
Tip: distance beats greed in compression. I’ll often take the slightly smaller credit in exchange for strikes placed well outside the “noise zone.”
Step 4: Size Like a Pro (Because the First Break Can Fake)
Inside breaks will sometimes fake out on the first push. That’s normal. Professionals plan for it.
- Keep your first position smaller on the initial break.
- Add only after a retest holds.
- For options, be willing to take a base hit — I’d rather book 30–50% on short premium in a few days than try to wring the last nickel and get whipped.
Remember, we don’t get paid for calling the exact price move. We get paid for controlling risk while tilting the odds in our favor.
Step 5: The EMA Is a Guardrail, Not a Religion
We dipped under the 23-day EMA on that big down day. That got everyone in a panic. For me, that EMA line is a guardrail, not a cliff.
If price is compressing around a rising EMA and can’t drive lower, that’s usually digestion — buyers absorbing supply.
If we slice below the EMA and stay under it while expanding range lower, that’s a different story, and I’ll tighten up fast.
Right now? We’re still inside. The market hasn’t picked a direction. So I don’t pretend to know it. I get paid to wait well.
The Bottom Line
Inside action within an uptrend is not “nothing happening.” It’s the market loading the spring. Your job is to:
- Mark the inside-bar high/low.
- Let price choose the side (break + retest).
- Use options to monetize the waiting — puts below, covered calls above, or defined-risk spreads outside the range.
- Size for a possible fake-out and book base hits.
You don’t need fireworks to make money. You need a plan for the quiet.
Trade well,
Jack Carter
P.S. Why trading options the traditional way is Wall Street’s favorite trap: Here’s how to turn the tables
