Monday, September 21, 2015

Low Risk Trading - $ORLY $CLF $JOY $ABX $ACI $FCX $PBR $EMES $APA $CHK $COP

Low Risk Trading

Lately, I have been talking to quite a few traders and students that I mentor and most of them express to me that they lost money in their stock positions during the market correction on August 24th. Some of them have just given up because the market has been just trading sideways since March of this year. I often talk about "Low Risk Trades" but I have gone further by explicitly showing them what exactly a low risk trade looks like.

On Friday Sept 11th, I established a Virtual Trade on $ORLY for my students.  As this is not a good time to be taking a stock position and putting a lot of money at risk, I felt it was best to show them what a  low risk trade actually looks like.

$ORLY has been trading along its 8 day ema (exponential moving average) for the last 8 months and making a move of 7 points up on average per month. It is strongly supported by the institutions as well. Instead of buying 100 shares of this strong up trending growth stock and exposing $25,000 to market risk, I decided to buy at the money (ATM) 250 strike call option for October for a debit of $3.75 per contract. There was a trade plan in place to make a profit of 100% with a target for the stock to move from $245.85 to $252.85 in the next 15 sessions. Within 3 days of placing the Low Risk Option trade, the stock maintained its momentum and we closed out the position for a 100% return on our investment. The stock had moved less than 3% but our low risk trade made a 100% gain.

Opportunities Under Current Market Conditions

In my blog on June 1st, I was preparing my readers to stay in cash mostly and only approach the market with a low risk trade - stock or options - and harvest profits from their positionsMedia was frantically talking about Greece and Euro zone than. Now we are talking about China ... China ... China or Janet Yellen.

This week media will once again talk about elections in Greece or Russian troops and missiles in Syria. That is just market noise. I look at the data and it was just glaring at us for 2 years that we are headed for a major correction in the market world wide. It is good to look at the stock charts but one has to dig deeper and look at the performance of the commodities as well as world major currencies and etf's to get a clearer sentiment of the market.

Emerging markets such as China, India, Brazil, South Africa and Turkey depend on raw mining materials to produce things that the developed economies of US, Japan and Europe consume. Look at the weekly stock charts of the following mining and oil related companies for the last 4 years and you would think we are in recession already!

Mining companies

$CLF
$JOY
$ABX
$ACI
$FCX

Oil Related companies

$PBR
$EMES
$APA
$CHK
$COP

Some of these companies have lost 50% to 90% of their stock value since reaching their all time high. These were the signs that there is lack of demand from the developed countries of Europe, Japan and US.

Currently the worst segment of our US economy is retailing, energy related oil and gas, rail transports and chemicals. All this data is my confirmation that we are headed for a 5% correction in the next several weeks with 3 digit moves in the $DOW - up or down - with regularity.

It is Sunday evening as I am writing this blog and I am totally at ease and I know I will sleep well tonight. I hope my readers are mostly in cash and any positions they take will be a very low risk trade. Have your trade plans in place for profit, loss or time exits. That is one important lesson that we all learnt with my Virtual Trade on $ORLY this week.

Happy trading!

DISCLAIMER



Do not take a position unless you are prepared to sustain a TOTAL LOSS. Your loss could include the money you invested as well as commissions and transaction charges.


The Information I provide is for education and informational purposes only. The Information provided is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice. The Information provided is general in nature and is not specific to you or anyone else.


YOU SHOULD NOT MAKE ANY DECISION, FINANCIAL, INVESTMENTS, TRADING OR OTHERWISE, BASED ON ANY OF THE INFORMATION PRESENTED WITHOUT UNDERTAKING INDEPENDENT DUE DILIGENCE AND CONSULTATION WITH A LICENSED PROFESSIONAL. You understand that you are using this Information AT YOUR OWN RISK.