Revisit and Reset

Wanting more profit performance out of a winning investment is not GREED if trading discipline supports further gains.  Sometimes repeated experience with a particular stock and its patterns creates familiarity that can instill that all important confidence.

That said, a trading loss sometimes creates a “REVENGE” emotion that is detrimental to success.  Trade what you see in the charts or indicators, not what you feel should happen, and your personal volatility will decrease.

It’s also important to realize that previous profits have no impact on new investment selections.  The process should be the same to identify candidates, execute with risk control, and manage position exits, to maximize the trend.

Reset

That’s it; the discipline needed to bank gains on a consistent basis never changes.  The time frame, market directions, and dollars at risk can be adjusted based on changing conditions, but the process is the same every trade.

The Quiet Money approach combines patterns with the OVI to make sure the internal action in the stock match’s price performance.  Breakouts are only bought or sold when those in the know, as viewed by this indicator, raise the profit probability to the highest level.

The OVI Indicator

An indicator called the OVI measures options transaction data and plots it as a simple line that bobs up and down between 1 and -1.

When the line is positive, we’d be more inclined to focus on bullish chart patterns; and when it’s negative we’d focus the more bearish chart patterns.

We only use the OVI in combination with a chart pattern such as a consolidation or flag.  We do not use it in isolation.

The OVI is an oscillator derived from options volume, open interest and implied volatility.  It has nothing to do with the stock price, and yet the correlation is often astounding.

In many cases, the OVI will actually precede a breakout, and this is the key to our strategy.   So, used correctly together with specific chart patterns, the OVI demonstrates that the options markets can often be ahead of the stock market

The January 12 Absolute Wealth article “Golden Metal Options,”  http://www.absolutewealth.com/golden-metal-options/ , discussed the GLD sector setup and three Golden stocks that had attractive setups.

AUY January 12 Set up BUY

Yamana Gold had inexpensive shares relative to other metal stocks.  The Bull Flag pattern supported by the positive OVI trend was a breakout set up on a move above $15.50.  The December double bottom at $14 had built a solid price base.

The 16% breakout blast happened in just a few short weeks.

The resulting rally peaked January 31^st at $17.97.  The individual exit varies from person to person as the position remains in the black for those still long.

P.S. The OVI crossed back to the negative temporarily when prices were around $17.50.

AUY February 16

Reset Redo

Another classic Bear Flag has formed to watch once again.  The OVI does not YET show the strength needed just yet, but this is something to watch closely.  This indicator needs to show us more before it becomes a viable candidate.  Stay tuned.

Another AUY breakout rally projects a multi-dollar move that is significant in an inexpensive stock.  A $2 move is more than a 10% gain with share prices under the $20 level.

Gold Watch

Back to the broad sector analysis, the metal itself shows the internal OVI power to move higher on a breakout run.   A Buy could be triggered when GLD overcomes the February and December resistance above.

Discipline is the key to success.  When you can repeat your profit plan, you have the skill to be a long term winner in the markets.

Remember, Plan you Trades and Trade your Plan!

Guy Cohen

Related posts:

1. Options Transactions Data: The “Dark Side” of the Stock Market
2. A Trading Plan Must Be Simple
3. This Is How It’s Done!
4. OVI At Work – Stock Selection with Simple Indicator
5. Selective Stock Search

Other posts by Guy Cohen