Stock Option Class

BWRE: Bullish Week Reversal Early

Bullish Stock Trade

  • Focus on stocks that have corrected more than 10% in the last few months, but still have a two to three year up trend.
  • Look for recent relative strength to the market.
  • The potential up reversal should be forming above the two-year trend lines and ideally above the 200 day moving average.
  • The pullback should be the result of sector rotation or a drop in the overall market. Avoid stocks that are relatively weak within their sector and have recently released material negative news.
  • Rallies should be accompanied by volume increases.
  • Look for signs of strength by using technical indicators like RSI and Money-flow.
BWRE trading chart

Week Trade or Long-term Trade

  • Look for fairly deep troughs within a two-year up trend. The trough will provide the stock with plenty of “head room” to move higher over the course of a week or two.
  • This trade may take days to unfold. Try to scale in and average your entry cost.
  • Give the trade some breathing room and don’t place protective stops too close. Longer-term support levels can be used for protective stops.
  • The profit/loss percentage per trade will be larger than it is for Day trades. You don’t want to get “shaken-out” of a sustained move so you must be willing to give the trade more latitude.
  • If overall market conditions are deteriorating, consider reducing the position.
  • If the move has not materialized in a week, exit the position and keep the stock on a watch list for future consideration.

Reversal Pattern

  • A bullish reversal can only occur if the stock has sold-off. Be prepared to trade against a recent down trend.
  • These stocks have reached a critical juncture. They may be in the beginning stages of establishing a downtrend, or they may be consolidating and preparing for the next leg higher. Focus on good stocks in strong sectors. Get intimate with the stock and determine which camp it is in.
  • The overall market should be stable to bullish. 75% of all stocks follow the market. These positions are carried for longer periods of time so they will perform best when the macro environment is conducive.
  • Move the protective stop higher as the stock moves up and take partial profits at prior resistance levels.

Early Option Trading Opportunity

  • These searches identify set-ups that have been forming during the last few trading days. The stock may have reached a support level and it is starting to form a base.
  • Technical indicators have flattened out and the “bleeding” seems to have stopped.
  • The stock has not moved through a critical price point (as determined by the system) and it has not legitimized (confirmed) the Set-up.
  • Be willing to look at many opportunities with the intent of establishing the first leg of a larger position (scale-in)
  • Higher risk/reward ratio.
  • If these trades move through a critical price level they will “confirm” and will be classified as: Bullish/Week/Reversal/Confirmed .