I just got an alert for a trade that looks like it will be a big winner. All I have to do is enter it and everything will work, right?
Well, yes and no. Let’s take a look at some of the issues that get between a great trade and a great executed trade.
Timing
The great thing about the market is that when it’s open it is always moving. The worst thing about the market is that when it is open it is always moving. Even the fastest process for finding and entering trades can have a lag. Technology has come a long way but it still takes time to look up a trade, do the homework to confirm the set up is valid and then get it entered into a brokerage platform. Whether you are finding the trade yourself or it is an alert you received, be sure to confirm the trade still makes sense. Ideally, an approach or system will have multiple levels of confirmation to make sure the move the trade is based on is valid. Be sure to understand those confirmations and use the before you finally execute. The latest move in Home Depot is a great example. If you looked at it before it gapped down and thought it might be actually finding support and just bought in, the next day you wouldn’t be happy. Or if you saw the plunge and then sold, you may have gotten out of what looks like a potential rebound.
Volume
Another key factor, especially for options trades is volume. If the option you are looking to trade doesn’t have a lot of action it can be tough to get filled at the price you wanted. It always helps to look for stocks or ETFs that are more heavily traded so you can get a quick fill and get in where you want and also get out. Long term options can be very effective trading tools but they are definitely subject to lower volume. Sometime, if you don’t see the volume on a specific strike or expiration, look at others close to your target to see if you can find the liquidity to get good fill. This is one of the factors that makes the big ETFS like QQQ and SPY favorites for options traders.
If you have ever watched a top athlete perform or a true craftsman you probably don’t notice what they choose not to do. Their training and experience has helped them recognize the opportunities and paths that best fit their style and ability and increase their chances of success and reduce failures. Trading really isn’t that different. An good trade with high probability is almost always better than a great trade with a slim chance of success.
Keep learning and trade wisely,
John Boyer
Editor
Market Wealth Daily
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