Stock Option Class

EDCE: Bearish, Day, Continuation, Early

Bearish Stock Trade

  • Focus on stocks that are in powerful short-term downtrends.
  • Look for stocks that have steady (not choppy) downward price movement.
  • The stocks should not have rallied back more than 5% off of their recent low. Ideally, they have been moving side ways and appear to be resting.
  • The stocks should be below their 20-day moving average.
  • Sell-offs should be accompanied by higher volume.
  • A weak market may apply additional downward pressure to these stocks.
stock chart Bearish Day Continuation Early

Day or Swing Trade

  • The powerful down trend may lose its steam quickly. Get in, place protective stops and as the stock drops, trail the stops lower.
  • If the stock produces nice gains, take partial profits and reduce overnight exposure.
  • Seek small, quick, consistent profits.
  • Exit the trade if the market drops and the stock does not.
  • Exit the trade if the move does not materialize by the end of the next day, or the stock looks like it is finding underlying support.

Continuation

  • Look to join a short-term sell-off that is in progress. The stock should have good momentum.
  • The search will identify weak stocks that are moving sideways or have rallied slightly.
  • Avoid stocks that are trending lower but are very volatile.

Early Option Trading Opportunity

  • These stocks are close to breaking down below a critical price level. Some of them are “tanking” and the critical price level might simply be the low for the last two or three days.
  • Be prepared to look at many stocks that are very weak during the current trading day.
  • The drop may be overextended and the stock may not follow through the next day.
  • The risk/reward ratio for carrying overnight trades is high.
  • Don’t get greedy. If large profits materialize, take them.
  • If these trades move through the critical price level they will “confirm” and will be classified as: Bearish/Day/Continuation/Confirmed.