This Market is Moving a Lot … And Going Nowhere… How to Trade It…
Three weeks ago, I mentioned that we’re witnessing a market showing momentum in both directions—lots of movement and, yet ultimately, it’s going nowhere. And that’s exactly what I’m seeing right now.
This kind of chart action brings with it two major problems.
First, which stock do you pick? With tech stocks surging and plummeting (mostly on the downside lately) and sectors whipsawing wildly, finding the perfect stock is nearly impossible. There’s no consistency in this market.
Second, even if a stock initially moves in your favor, it can quickly snap back in the opposite direction. A stock that’s red hot on Monday can be ice cold on Tuesday… And then switch back just as fast. These volatile swings can occur within hours—or even faster. The implied volatility (IV) and the expected move already baked into option prices make it exceptionally hard to stay in a trade. Even if your market predictions are spot-on, you can still lose money if the stock doesn’t move quickly enough.
Directional calls work best when a stock makes a decisive move right away. But if the stock stalls or moves sideways, these trades often fall apart.
This is one of the reasons I think so many traders struggle. We live in a “stock picker” world. Every headline or youtube video is about “picking a hot stock”.
Listen, there is nothing wrong with finding good stocks – I am all for that. I happen to like “boring” stocks that are long term winners like PGR, AJG, GOOG, WING, LLY, AAPL, etc.
So I am certainly not suggesting that picking good stocks isn’t important.
However, there’s something even more important than which stocks you pick in conditions like this: The kind of strategy you employ.
If everything we attempt is based on a “stock picking” directional bias, we’re in deep trouble when there is no direction in the market.
And currently, the S&P has moved less than 1% in 80 days…
That’s 80 days of most purely directional trades being at a huge disadvantage – even on good stocks.
And that’s why I try to encourage all of my students to understand and develop TACTICS not just stocks.
Whether it’s using option structures to increase your odds, using pair trades to capture volatility, or maybe using the type of earnings trade I am teaching in our session today…
These are methods to use the market to our advantage even when it’s not behaving exactly how I want.
And that’s how I try to build all my methods.
Take Overnight Options that I’ve been obsessing over lately with the hot streak we’re on:
This strategy is directional by nature, but using structure and timing, we’re able to escape a lot of the pitfalls most traders run into the face of.
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Bypass Stock Picking:
Instead of agonizing over which stock to choose, I trade an index. Trading an index means far less volatility and gives me the opportunity to capture the ebbs and flows of the entire market vs an independent stock. -
Limit Risk with Short-Term Trades:
I keep my trades very short— just overnight. This approach lets me get in and out quickly while still capitalizing on the tiny moves that occur outside regular market hours. -
Set Targets:
Having a clear profit target is crucial. By setting targets, I can secure my gains before the market shifts its mood and turns against me.
If you don’t like the way the game is going, change the game. Better yet, modify the game to suit your style and protect your capital.
This is exactly what I do every week in my Overnight Options strategy.
If you’re not taking advantage of this strategy, you can watch my full presentation on it here.
— Nate Tucci
