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Plans, Audibles and Simple Charts - Part I


Got a problem with trading ranges bro?


As I was throwing together Wednesday's buzzes, while keeping an eye on the markets' pasting, the urge to follow my instincts and pile onto Boo's wagon was almost irresistible. Until a few months ago - scary but true - I would have caved in to my emotions and would have shorted and bought puts on the first ticker that hit my fancy. The odds of such plays were usually 50-50 at best. As part of my post-homies-debacle "rehab program," I swore off putting on trades that jumped at me in the middle of the day. In other words, I adopted what uber-Minyan Steve Shobin at MIM2 would later describe as the "No-Audible Rule": no trades that were not on the radar screen before the session started.

A by product of this rule is that in my buzzes I refrained from tossing out playable ideas, much as I know that Minyans are as hungry for this type of commentary as anyone, myself first and foremost. Given my "No-Audible Rule" though, if I had tossed out some tickers and a Minyan had called his/her own "audible," it would have been . . . well un-Minyanlike.

All this is a long winded way to revisit the dusty concept of having a plan ready for several contingencies, before the action starts. As Sammy dragged us through the hellish trading range of the last several months, I found trading with a "plan" painfully difficult because there was no rhyme or reason to much of the action - or lack thereof.

Perhaps Tuesday and Wednesday were just aberrations, and the range is widening a bit but ultimately we will revert back to the old dreadful pattern. But if the market is beginning a new phase, IMHO prepping the trading plans ahead of time will be an absolutely essential element to success.

With that in mind, here are bits and pieces of my plan:

Indices: I currently have net short positions in the IWM and QQQQ. (I also have some scalping positions in other stuff, but those are irrelevant to this discussion). The QQQQ's are medium term, out of the money, highly speculative puts, which I purchased for nickel and dimes during Hoofy's party days. They are cheap lottery tickets bought in fairly large size. I was prepared to take the full loss when I initiated the positions.

The plan here is to ride the position to a double - to go from .05/.10 to .10/.20 a couple of good spikes is all it takes - sell half the position, and then scale out of the rest in nickels increments or until the QQQQ's reach clear oversold and/or support areas. Once the index bounces, the premium will get sucked out of these options faster than you can blink and to expect two bites at the apple (two swoons) would be piggish. Here is the chart I am looking at, with the blue rectangle describing the area which I consider meaningful support. I know the 200DMA is in the way, but I am inclined to ignore it primarily because it will likely be downward sloping by the time price gets there, which weakens its support role. Stochastics are OK right now, but how the price works off an eventual oversold condition will likely influence my game plan.

In Part II, the IWM and the XAU. In Part III a couple of individual stocks.

Position in QQQQ, IWM, XAU
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