Technical Analysis. |
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Highlight Investments Group |
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Best Short-Term Trade
February 22nd, 2004
This week's “best trade of
the week”
is a continuation of the
previous week’s best trade,
where we left a QQQQ Call position open.
This trade was closed with
32% of profit.
NOTE: We discuss our “best trades of the week” here mainly for educational purposes. The trading examples we illustrate are based principally on our volume indicators and market commentaries. Our main intent is to show you how you can apply our volume indicators and to explain the specific correlations that exist between volume spikes and the movement of the indexes. We do not mean to imply that you should follow our exact trades, but rather wish to suggest that you may make use of our volume analytics to develop your own trading style. We also urge you to paper trade before committing your money to the markets.
| Security | Return |
| Call #3 (QQQQ April) | +32.14% |
| Call #4 (QQQQ April) | 0.00% |
|
Total Profit: |
+$2,700 |
Even though the trades shown above were not entirely without risk, they resulted in a profit of $2,700
Recommendation:
If you trade options, we recommend you invest only a small portion of your assets - an amount that will fit your personal trading needs and risk tolerance. In our opinion, that amount should be about 10% of your total portfolio; it should never exceed 30%
At the same time, we do not recommend that you commit more than 30% of your options portfolio to a single trade. If the market doesn't move in your favor, but indicators remain strong, you may choose to invest another 30% of your options portfolio on a second signal, and perhaps even on a third signal. By proceeding in this way, each time you enter the market in a better position, and usually the profit from the last trade will more than compensate for the loss from your first trade.
What is a 'VMA spike to the upside' (resistive volume)?
In the following, we would like to show you the motivating factors that led us to take above trades. For this purpose, we have created what we call a 'Table of Trade Motivators':Simply put, that means that most of the volume spike was connected with the index while it was moving up.
| Trade | Volume Motivation | Market Commentary on Members Home Page during the trade |
| Buy Call
#3 02/13/2004 Was left opened last week |
A large VMA spike to the downside occurred at 10:45, but this supportive volume brought only a temporary reprieve, as by 11:45, the decline resumed, although not quite as pronounced as earlier in the day. A large supportive VMA spike to the downside appeared at 12:30. | We expect a move lower in the short-term followed by a strengthening of the ongoing mid- and long-term uptrend. |
| Sell
Call #3 02/18/2004 |
During the rally, the market encountered a large amount of resistive volume to the upside, which peaked at approximately 12:30. | The upcoming options expiration will likely lend some volatility and instability to the short-term market. |
| Buy Call
#4 02/20/2004 |
In the morning today the market greeted us with what seemed like a continuation of Thursday's sharp afternoon decline, with a large supportive VMA spike to the downside shortly after opening. | After options expiration we expect that the market will continue its mid-term and long-term bullish uptrend. |
| Sell
Call #4 02/20/2004 |
During the afternoon rally rally, a large resistive VMA spike to the upside occurred, peaking at approximately 14:15. | Yet despite the large amounts of supportive volume seen of late, we believe there is room for a continued move lower in the short-term, especially in light of the resistive VMA spike seen around 14:15. |
The principles discussed above also apply when trading the NASDAQ 100, the S&P 100, the Dow Jones, as well as other indexes.
These are the trades which netted the returns shown above:
|
Date |
Trade | Strike | Expiration | Contracts |
Contract Price |
Amount | Profit |
| 02/13/2004 | Buy Call #3 | $37 | April | 60 | $1.4 | -$8400 | |
| 02/18/2004 | Sell Call #3 | $37 | April | 60 | $1.85 | +$11100 | +$2,700 |
| 02/20/2004 | Buy Call #4 | $37 | April | 60 | $1.3 | -$7800 | |
| 02/20/2004 | Sell Call #4 | $37 | April | 60 | $1.3 | +$7800 | $0 |
|
Total: |
+$2,700 (+32.1%) |
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To see any of our past best trades, simply select from the list below.
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QQQQ Trading System QQQQ, SPY and DIA trading signals for conservative mid- and long-7 term traders ...
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