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Rookie Corner: Markets, Systems, and Conditions. Part IV: The Trades Part III

June 6, 2019

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The volatility continues! This week brought us more of the crazy movement that we saw last week. Last week we saw that even though the markets had great fluctuations that our mock trade was still in decent shape. We went over all the reasons why cash flow trades like the naked put can work well in the congestion phase of the market. So what did this week do to our trade? Well, you will have to wait for me to finish rambling on to see what it is this weeks video. Well you could just skip to the video but that wouldn’t be any fun now would it?

The are several keys to our naked put trade that give us the ability to overcome market fluctuations and we have gone over those in the last two weeks and that only leaves one thing to discuss and that is what phase of the market is our chosen equity in this week? If it has broken out to the trend in the wrong direction then our trade could be in jeopardy of being stopped out. This is very much ok, that is the whole essence of using stop losses, if we are wrong we want to be gone…from the trade with as minimal of damage as possible.

So what phase are we in? Check out the video to see if our mock trade is still alive or whether we have chalked it up to an expense trade. Also, this week we are hunting for another equity that is in the congestion phase so that we can throw on our next mock trade the covered call. This trade has a few differences that should be explored so that one understands that even though the covered call and the naked put are both bullish trades that are not exactly the same. The naked put has less of a cash commitment at the start of the trade than that of naked put as one is not required to buy the stock unless an adverse event occurs whereas the covered call requires the cash commitment up front. This changes the ROI in a big way. Each trade needs a quality trade plan in place before using so that the hard decisions, namely the ones that have to be made when the trade goes against you are made in advance with logic and not emotion.

There are many more differences between these trades even though the start at the same place. Dive into the video and check out the plan for the original trade and that of the new trade as well.

Trade well and Rock On!!

Coach Holmes

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