Good day all. The last few weeks of this blog have been dedicated to one of my favorite strategies and we have extolled the virtues of this particular strategy and now it is time to see how to put it all together. Just like the picture above we have to start with an idea put it through all the steps to see if in the end it will spit out a good trade idea for us.

The following is a run down of the steps we use to find a decent diagonal trade.

First – Outlook – are we bullish or bearish? We need to determine this first and we do that by looking at what the overall market is doing before deciding what way to go. You can go either way but it usually works better if you match the flow of the market. Think of it like a fish swimming upstream, it can be done but it takes a lot energy to go against the current.

Second – Sector Outlook – This is similar to the above but we are drilling down a little to make sure that we arent swimming against the tide.

Third – Chart setup – We are looking for a nice steady slow climb or fall. If the stock moves too fast in one direction then there are better trade types to use and if it moves too slow then it can hurt the longer-dated option. Think of this as Goldilocks, it has to be just right.

Fourth – Trade Setup – We need to give ourselves time to collect the money as we said above it is going to move at a certain pace and we want to be around when it goes our way.

Fifth – Rules for Trade Management – This is where we decide what kind of trade we want this to be and what we will do if this doesnt do what we expect. (Hint – This is super important!)

This week we are adding a video showing how we go about finding a good trade and then putting it on. Check out the video below and see if this helps you identify good diagonal trades.

We will put this trade in and follow it along in subsequent blog posts.

Happy Trading All,

Coach “Old Money” Holmes