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First, we do not engage in Technical Analysis. We advocate for Chart Evaluation. Most might say that this is just semantics. Let us take a look at a definition of Analysis: "The separation of an intellectual or material whole into its constituent parts for individual study" or "the separating of any material or abstract entity into its constituent elements ". Analysis implies disassembling something.
Now let us look at the definition of Evaluation: "Evaluation is a systematic determination of the merit, worth and significance of a subject, using criteria governed by a set of standards" or "Careful valuation or appraisement". Edge Chart Evaluation uses overlays/indicators to perform a "systematic determination" of price change and the following overlay/indicator change to determine its "merit, worth, and significance" as a candidate for price movement that results in positive return on risk in well regulated financial markets.
____________________GLD Position Summary: opened 07.02.2021; closed 07.22.2021_________________
Charts 1-9 explain the charting methodology; Charts 10-12 explain the option strategy; Chart 13 contains trade management updates. The overall cashflow for the GLD July Ladder Rungs A.1-3 was $123; Total ROR = 123/157 = 78%. This position provided cashflow for each of the last 3 weeks with a maximum closing price change of ~ 2%.
When this Public Chartlist was posited on July 2nd 2021, we had no idea what the future held. We made daily decisions based on what price did each day. The option spread strategy that was employed lends itself well for weekly profits.
Please stay tune for our next example of "Right Now Trading" using "Edge Chart Evaluations".
Thanks to all that participated.
All good entry points need filtering. We began filtering by overlaying the lime Professional Line.
When the slope of the Professional Line is up, price tends to make higher highs and higher lows. If you check the slope of the Pro line at Points B & C, we see that the Pro Line slope is down. This continues the argument that Points B & C are not the result of a shift in order flow.
When more buy orders than sell orders occur at a price point, price will rise looking for more buyers, since we like to sell high. This is called demand. Demand causes price to rise. The reverse is called supply. Supply causes price to fall looking for buyers, since we buy low.
If we check slope of the Pro Line at Point A, we see that the Pro Line slope is up. The Pro Line agrees with the Purple Cloud upper edge violation. Demand controls the market and an up-Channel has begun.
When an anchored, Purple Cloud upper edge is violated and the Pro Line is rising, right then and now, demand is controlling that market and the "Smart Money" is buying, and so should we.
There is one more overlay that we add to our chart. Please continue to the next Chart.
This final overlay is the Non-Professional Line. The Non-Professional line lags the Professional Line. Also, its relation to the Professional Line and its slope tells us something about the highest probability trade direction.
When the lime Professional line is greater than the pink Non-Professional Line, prices tend to make higher highs and higher lows, and vice versa.
The chart above shows that on Friday, July 2nd, the lime Professional Line crossed up above the pink Non-Professional line. This crossover agrees with the slope of the Professional Line & the Purple Cloud upper edge violation.
The highest probability chart configuration is a rising Professional Line above a rising Non-Professional line with an Orange Cloud anchored, Purple Cloud upper edge violation.
Point A does not show a rising pink Non-Professional Line. Therefore, 1 item does not reflect the perfect configuration. Many anchored, Purple Cloud edge violations will not display ideal setups. This requires "Right Now Traders" to be good risk manager by following our money rules.
Charts 10, 11, 12, & 13 describes the option strategy that we used to participate in GLD%27s upcoming price action. Page 1 charts 1 thru 9 are static. These first 9 charts stress chart evaluation & overlay function. As such they will remain static. This is done to drive home the point that entries are made on the right hand edge of the chart, without the benefit of future price action. The 13 charts in this presentation were developed on July 2nd, without the benefit of knowing what GLD%27s future will be.
Please join us as we manage this trade day-by-day. Most days there is nothing to do.
Position Strategy: 1 to 2 to 3 rung In/Out Option Spread Ladder Strategy
Strategy Explanation: A 1-rung ladder only has spreads for one Friday; a 2-rung has spreads for two consecutive Fridays; a 3-rung ladder has spreads for three consecutive Fridays. Usually an equal number of spreads are purchased for each expiration Friday.
It is noted that some Securities have options that expire on Mondays, Wednesdays, & Fridays. We only used options that expire on Friday, since the close of the week carries significance for professional traders. The willingness of professional traders to carry positions over the weekend is reflected in the weekly close. This significance is not present in the Monday & Wednesday market close.
1. Option Type Selection: when participating in an up-Move use call options; when participating in a down-Move use put options.
2. Expiration Selection: we select options that expire the next 1 to 2 to 3 Friday%27s. We do this even if our entry point is on Thursday.
3. Strike Selection: the strikes are chosen to straddle the existing price: Buy to open the strike below current price, and sell to open the strike above the current price.
4. Spread Width Selection: Ideally 1 point. For this GLD position, we BTO the 167 strike call option and STO the 168 strike call option. 1 point strikes usually cost from $0.40 to $0.60 [$40 to $60 for one spread]. Sometimes, the 1 point strike is not available due to the price level of the underlying. We have used this strategy with 0.5 point strikes, 1 point strikes, 2.5 point strikes, and 5 point strikes.
5. Risk to Reward Selection: We will not open a position with a max risk to reward ration less than 0.50. What this means is if a 1 point spread width is selected, then the spread must cost less than $0.67, since the max return on a 1 point spread is $1.00.
Position Ladder/Rung identification: We uniquely identify our positions. The identification symbology is as follows: symbol, entry month, Alphabet designation identifies 1st, 2nd, 3rd, ... position for this market move with A denoting 1st position, B denoting 2nd position, ... . Finally, the .1, .2, or 3 identifies if the spread is for the 1st Friday, 2nd Friday, or 3rd Friday.
This GLD position is identified as follows: GLD July Ladder A.1-3.
1st Rung A.1: 167.5/168.5 expiration call spread [the 167 & 168 strike options were not available] @ $123/$0.76 respectively for a cost of $0.54/spread [Total cost is $54.00/spread, plus fees]
2nd Rung A.2: Jul 16th expiration 167/168 call spreads @ $2.05/$1.52 respectively for a cost of $0.53/ spread [ Total cost is $53/spread, plus fees]
3rd Rung A.3: one Jul 23rd expiration 167/168 call spread @ $2.17/$1.67 respectively for a cost of $0.50/ spread [ Total cost is $50/spread, plus fees]
Remember that the goal of this ladder option strategy is to generate cash flow on the next 3 Fridays.
This position will collect its maximum return if GLD closes above 168.00 on the next 3 Fridays [July 9th, 16th, & 23rd].
The goal of Right Now Cloud trading is to establish low risk, low volatility, high reward, high probability positions and to book profits regularly.
This Option Spread Ladder Strategy has the potential to generate weekly cashflow [book profits weekly].
The Anchoring aspect helps to establish entries that are relatively low on the Price Curve, thereby being low risk and low volatility.
Often times price move well beyond the upper option strike, which reflects the high probability & high rewards of this entry process.
We will post daily updates thru July 23rd. Then we will post weekly post and posts when further market actions are taken.
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