Choppy markets are not the enemy!
Truly, every market condition has its opportunities. I say that with a warning…“If, you know where to look”. Guys, there is a strategy and tools for every market condition. My goal is to teach you how to look at different market conditions so that you can succeed when, quite frankly, many traders are getting crushed.
Building your watchlist and defining what to trade and equally, what not to trade, is the first step to succeeding and avoiding common pitfalls, especially in choppy markets.
Keep in my mind, nobody wins all the time!
The goal is to win more than you lose and watch your P&L grow steadily year after year.
Let’s look at some recent winning strategies for choppy markets. We’ll talk about a couple interesting examples that you can model in order to build the kind of watch list that doesn’t require the S&P, the NASDAQ, or the Dow to consistently go straight up to higher highs.
You’ll be able to identify those pockets of the market, either at the sector level or the stock level that allows you to take advantage of plenty of the trends that are out there. Yes, this is what we do in the Sector Secrets Mastery…over and over again.
Let’s take a look at the XLY.
You may be asking why? We can see there’s not a lot of confidence that’s being expressed in terms of price of the direction of the consumer discretionary sector. That’s okay, because we want to go below the surface. Maybe there’s something else waiting there.
The easiest way to do this is to look at the stocks that are not the heaviest weighted within the ETF. In this scenario, you’ll notice that Amazon and Tesla are the two heaviest weighted stocks within the XLY. Because of these two stocks, XLY looks quite choppy, if not quite bearish. They are likely influencing the chop due to their weighting.
Take a look a little deeper down the list of holdings in the XLY. You’ll see that there are some lower weighted names like GM and Ford, the automotive stocks within the XLY. With a closer look, we were able to identify two stocks that have solid up trends although they are substantially less weighted within the ETF.
Top 15 Holdings of XLY
|HD||Home Depot, Inc.||8.79%|
|NKE||NIKE, Inc. Class B||4.17%|
|LOW||Lowe\’s Companies, Inc.||3.75%|
|BKNG||Booking Holdings Inc.||2.57%|
|TJX||TJX Companies Inc||2.16%|
|GM||General Motors Company||1.99%|
|DG||Dollar General Corporation||1.34%|
|F||Ford Motor Company||1.33%|
|ROST||Ross Stores, Inc.||1.17%|
|CMG||Chipotle Mexican Grill, Inc.||1.12%|
In this case, what we did was ping away at opportunities that may not seem obvious to the markets at large. Most traders are looking at the index level, the sector level, or the few heavily weighted headline stock names within an ETF.
So here, in this case, we bought Ford (F) on a pullback; 11June F Calls for $1.45. We then sold those calls for $2.80 on June 12th.
Almost a 2X move!
I think we’re also going to have another opportunity to do this trade all over again.
What about the counterpart, General Motors (GM)? We also bought GM on a pullback; 18 June GM Calls for $5.35. It’s so important to capitalize on that secret, if you will, of options, which is to use momentum to your advantage, but make sure you’re not paying for that momentum.
Just a couple of days later, we had nice bullish momentum again. Learn to capitalize on momentum, $11.40 on the 12th.
Another near 2X move.
The difference between a trader who can take a $5.35 option to $11.40, is that they are taking advantage of liquidating into that momentum timing, gang, timing matters. When you get your watch list focused on trends, then you can capitalize on timing.
These two factors (knowing which stock to trade, along with understanding timing) together will separate you from the pack because most traders are doing the exact opposite.
Hope this helps!