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Tales of a Technician: The June that was

July 19, 2017

By | 7 Comments

With the Cash Flow Condors launch now settling down it’s time to return my monthly retrospectives. It’s already the middle of July and I’ve yet to give June its due. If you’re a newcomer to my home then welcome, friend! I’m the Technician and these are my Tales.

Each month I look back at my prior month’s trading to identify the highlights, low lights and everything in between. The intent is to let no lesson go undiscovered, no mistake uncorrected. This has been an immensely helpful exercise and I highly recommend it for you.

As a reminder, these monthly retrospectives fall into four categories – the monthly theme, what I did right, what I did wrong, and my trade of the month.

Shot Across the Bow

Amid an otherwise sleepy month, tech stocks finally received their comeuppance. It was long overdue and served to wring out some of the excess in the space.  As shown in the accompanying chart of QQQ (the Nasdaq-100 ETF), tech experienced a 5.6% pullback on heavy volume.

I  hadn’t been playing much in the tech sector at the time so was largely unaffected. I did however capitalize on the second downswing ( 6/26 to 7/6) with a bear play on QQQ. Rebounds after high volume sell-offs like June 5th are usually sucker rallies (dead-cat bounces, in other words).

The past two weeks of rallying by QQQ has healed much of the damage inflicted during last month’s tech wreck. And it goes to show how difficult it’s been trying to call a top to this bull market. One of the newsletter writers I follow actually did just that in his last monthly missive. So far he’s early, but time will tell. I commend him for the gutsy call, but trading off of top picking (or bottom fishing) is a low probability venture.

Anyways, tech has been saved for now, but let’s see how she fares during the upcoming earnings season.

What I Did Right (aka why my mommy should be proud)

First off, my overall performance bested May’s. And that means June was actually my second best month of the year. The superior profits were due in large part to increased activity. I had more opening trades in June than any other month so far. And most of them won. In case you’re curious, here’s a list of tickers I played: XME, MS, BBT, RUT, SLV, XOP, IWM, XLF, EEM, DIS, EWZ, SNAP, MU, WMT, NVDA, BABA, FDX, XRT, DAL, C, USO, BA, AMD, QQQ, NKE, MA, NUE, X, COST.

One of the principles illustrated well by my trading frequency last month was velocity, or turnover. If a trading system has a positive expectancy, then one of the ways you make more money is by increasing the quantity of trades. It’s far easier to do that than increase the quality of trades. Because I was quick to take profits – the average trade duration was 9 days even though I’m usually selling options 30 to 45 days out – I was able to turnover my capital more and end up raking in more profits.

Now, I’m not completely in control of how long I stay in a trade. It depends on how favorable the stock moves and how quickly I reach a good enough profit to justify early exit. Last month I simply had a lot of trades move quickly in the right direction.

Another side benefit to this approach is you get comfortable taking a lot of trades. This helps combat the fear that creeps in every time you’re getting ready to pull the trigger on a trade.

What I Did Wrong (aka my last vestiges of stupidity)

Another theme last month was the long-awaited awakening of financials. XLF had been underperforming through March, April, and May. I had short puts in a few financial stocks that I had to sell calls on to hedge. Since the sector finally popped last month I got hit on a few of the short calls. Unfortunately, I waited a bit too long to cover some of them and that really killed the profits from the short puts.

Next time I need to bail on the short calls quicker when the underlying breaks resistance. This is always the trickiest part of hedging – exiting when the hedge is no longer needed.

Trade of the Month

I executed a nice little contrarian play on Boeing this month. Since the stock was overbought I thought we’d see some consolidation or a pullback. So on 6/23 I sold an Aug $210/$220 bear call for $1.80. I suggest look at a chart to follow along. The pullback struck immediately and on 6/29 (four trading sessions later) I was able to buyback the spread for $1.00. That means I captured 44% of the potential profit on a two-month trade in the first six calendar days. Had I stayed in I’d be hurting right now since the stock popped right back up and is now approaching $210.

With countertrend trades like this I’ve learned to take profits quick. With this one I was lucky and nailed the top and bottom of the swing. Boom shakalaka!

Check out the entire 2017 retrospective series:

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7 Replies to “Tales of a Technician: The June that was”

  1. Avatar RichardBlanchard says:

    Great insights Tyler. What you have been saying about taking profits quickly when they appear quickly is beginning to sink in for me. It really makes a difference.

  2. Avatar CHUCKHAUGER says:

    Thanks Tyler. I need to learn to take profits sooner if the opportunity exists.

  3. Avatar HIROABABON says:

    Thank you for another great article.

  4. Avatar ROBERTBREWER says:

    Thanks Tyler .. I really enjoy and try to take in your thinking & approach .. a goldmine of information

  5. Avatar scrane001 says:

    Thanks Tyler…I too need to learn to take profits sooner. I’ve been continuing to sweat it as some I failed to take profits early go right to expiration which can have me sweating it til the end. All because I hate giving back credit of any kind. I have to learn to focus on profiting and not trying to be right.

  6. TylerCraig TylerCraig says:

    scrane001 – The old saying is you can be right or you can make money:)

  7. TylerCraig TylerCraig says:

    Richard – glad to hear it, my friend. Here’s another example. I sold a COST Aug $160/$165 bear call for 49 cents on 7/17 due to the small bear retracement setup. Today, (7/20), I closed it at 25 cents. When I entered the trade there were 32 days to expiration. So in 4 days I made 50% of potential profit. Why not take it?

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