SIMPLE METHODS FOR STOCK OPTION TRADING SUCCESS

By: Billy Williams..

Having been a student of the stock and option markets for 17 years and seeing new traders enter the market each year seeking there fortune only to see them wind up broke and bitter a year later I find myself wondering why this is with all the advances in trading. At the beginning of the 21st century I see more computer models, software programs, news commentary, new trading methods, etc. come into the marketplace than ever before being promoted to helping traders make millions yet aspiring online stock and option traders struggle even more than when I started out. After giving this much thought I believe now more than ever that trading success doesn't come wrapped in a pretty box with bows on it but from implementing effective methods that stand the test of time.

In my own trading style I use several trading techniques including one which helps me spot trend reversals in a stock. If I see a stock that has been range bound but remaining near it's all time highs while the rest of the general market has been selling off for several days and declining in price then I'll make note of it and continue to watch it. After the general market bottoms and the stock begins to come off the bottom of it's price range and approach moving past it's old highs I"ll take a position to ride the new momentum to higher heights with stock options or a stock position. If a stock is strong enough to resist a market sell-off then it has the potential to reverse course when the general market recovers and starts a new rally.

One of the stock option trading methods I use is a pullback method that targets stocks for call option plays that are near there all-time highs in price, in a flat base pattern for at least two months, have a Relative Strength of 90 or more, and above there 200 day SMA(simple moving average). Once the stock begins to move up and out of it's flat base I watch for a pullback and compare it to it's 10 and 20 day SMA. Once price pulls back evenly to its 10 day SMA without violating its 20 day SMA(which acts as a stop for a position once entered) I wait for price to trade over the high of the previous day's price high to enter. This allows me to trade high-flying stocks at the beginning of a big rally with stock options while controlling my risk with an adjustable stop in place (the 20 day SMA).

Seasonal patterns in the general market help me determine which strategy to use at different times of the year. Many funds will begin to run the market up starting around September in order to improve there funds year end returns. This gives me the potential to make huge gains with stock option trading and taking positions in the strongest momentum stocks all the way into the end of December. It also shows me that the market tends to cool off and sell down near the beginning of the year so I know to sell my longs and look for short candidates to use with put option trades.

Gap explosions in either direction are also very powerful moves to take advantage of with a combination of call or put option strategies. A gap explosion is where a given stock is trending in a given direction or is range bound but then suddenly the stock gaps significantly higher than the previous day's closing price in the opposite direction. You can measure the reaction by using a variety of indicators like moving averages, price channels, or my preferred method which is to use Bollinger Bands. When using this method you can catch incredible moves as you are getting in on the beginning of a new trend. I have made incredible gains on Goldman Sachs, Apple Computer, Chicago Mercantile Exchange, and others using a combination of stock investing and option trading with this trading technique.

I have been in this game a long time and as I take my steps into the new century of trading observing all of the tremendous advances presented to aspiring traders I wonder if this does more harm than good. Fancy indicators, trading systems, complicated economic theories, ad nausea do not make for successful trading. Instead, real trading is finding a few trading techniques that stand the test of time and when combined with good trading sense as well as discipline you discover success in the markets as well as consistent results in stock and option trading.

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