My Trading Licks

Dr John once said “I been in the right place, but it must have been the wrong time.” Traders can relate. Even if you can predict the right direction, long or short, you won’t make money if your timing is off. It doesn’t take long to realize that to do well in the market you not only need be in the right place but also at the right time.

For most investors and the general consensus at large, last year’s election of Donald Trump felt like just the wrong place at an even worse time to be in the stock market. The exact opposite turned out to be true, of course, but while so many folks threw their hands up in disbelief, our options account grew +34% since last November. And while some of those folks were still touting to “sell everything” or waiting for a pullback to get in, our account managed to grow another +12% since the start of 2017.

How did we do it? By tuning out news headlines, ignoring price data and focusing entirely on volume and internals we were able be in the market at the right place and at just the right time.

Here’s Part 1 of all the signals and setups from TVO, our “Total Volume” Oscillator system that we used (are still using) to trade the MAGA rally. Details of each trade can be found in our Trade History.

1. On 10/25 just 2 weeks before Election Day, TVO reversed at -2.6 so the next day at the close we bought SPY 213 calls at 6.67. When TVO signals, it often foreshadows a 5-10 week move… in this case a welcome break out of the multi-week trading range that started in September. A few days later IO, our Issues Oscillator, triggered as well, so we added more calls anticipating a shorter swing within the larger move.

2. The first week in November we got the move (thanks to Comey’s election surprise), which to the dismay of many bears turned out to be a massive pre-election shakeout. How do you know it’s a shakeout and not just the start of a bigger correction? Well, you can’t always tell. But because we limit risk on options through position sizing, the potential gain far outweighs the possible loss, and in a system that works 65-70% of the time (in real-life trades and backtests), it makes far more sense to ride it out.

Sure enough the market gapped up on the Monday before the election and never looked back. At the time many traders were faced with difficult decisions: Should I buy the gap up? Should I “sell everything” like they said on CNBC? Who should I vote for? With TVO, none of that mattered because we don’t use stops and we were already in the trade.

Some have asked why don’t you just go in and out of the position? Cutting losses when you don’t need to will slowly cut into your gains down the line. And the effort and time spent watching for the perfect re-entry can be much better spent on non-trading stuff (like going for a hike, playing guitar and even deciding who to vote for).

3. As the first leg of the rally took hold, IO was already on the rise, so on 11/11 we sold our shorter term SPY calls for a +25.71% gain while still holding our TVO calls for the potential of further upside. Have you often wondered when you should take profits? IO, with its shorter time frame, has got that covered automatically without any guesswork.

And who would have guessed there would be another 2 weeks of solid upside? Ask TVO. With another reversal at -5.2 in the oscillator values it was becoming clear the big institutions were getting on board for the long haul. When volume from the big boys starts to settle in, prices will soon follow.

4. The pullback that nobody thought would happen finally did, and as usual it caught most folks off guard. The typical setup here would be to wait for a break of the previous high… but why wait? On 12/2, IO signaled the reversal and allowed us to beat the crowd and buy the breakout on 12/5, 2 full days before it happened. We sold our SPY calls on this trade into strength a few days later for a +65.42% gain.

5. And just when you thought we were going to hit Dow 20,000, they pulled it back in once again. The general market was still a bit overbought as our IO trade on 12/20 quickly fizzled out on 12/22 for a -10.34% loss. When bear sentiment sets in, our system often triggers an exit right before things can get a whole lot worse. And sure enough we got out in just the nick of time right before the year-end sell-off… But on 12/23 we were also able to sell our TVO long-term SPY 213 calls (remember those from October?) at 14.02 for a +110.19% gain.

In Part 2 we’ll take a look at the trades in Q1 of 2017. -MD

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