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April 6, 2022
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5 Things Even Smart Traders Have WRONG About Options

Dear Fellow Trader,

If you want to profit safely in today’s crazy market…

Grab this eye-opening special report and read it cover-to-cover now.…

FREE Special Report:
5 Things Even Smart Traders Have WRONG About Options

My name’s Alan Knuckman. I appear several times a week on CNBC, Fox News, Bloomberg, and the like… where I give my opinion on current market conditions and hot stocks to watch.

And from questions we receive, I’ve come to realize even smart traders have an awful lot wrong about options.

So, I decided to do something about it… Now, when you need it most!

Download your FREE special report now:
5 Things Even Smart Traders Have WRONG About Options

Wishing You Trading Success,
Alan Knuckman
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Options: Technical Qualifications for Bullish Chart Patterns
by Ray Frazier

For bullish chart patterns, the following technical qualifications should be met before considering an options position or a stock position based on the chart pattern.

On a daily chart of your potential stock or option position, MACD (Moving Average Convergence Divergence) should be at or above the zero line, or at the very least, very near to crossing the zero line to the upside. This would indicate a positive for the stock or stock options, as many investors are technical analysts and look for this indication when deciding on whether to buy the stock. MACD is an indicator that determines changes in the trend of a stock. MACD consists of two moving averages, one fast and one slow. When the fast moving average crosses the slower moving average, it means that a possible change in the trend is about to happen. However, when the fast moving average crosses the slower moving average and moves through the zero line, this is an indication of a true change in the overall longer term trend of the stock. So then, if MACD is above or about to cross above the zero line, the trend is bullish for the stock.

The second confirming indicator is stochastics, which should be used on a two day bar chart. For your potential bullish stock or stock option position, stochastics should be below the 80 line at the time you spot the chart pattern. This is to insure that the stock has a minimum of two days to move upward in price before the stock goes into the overbought territory. Stochastics is also a set of two moving averages, one fast and one slow. Stochastics tracks the movement of a stock over a period of time. After the fast moving average crosses the slower moving average, a short term change in trend is indicated. When the fast moving average crosses the slower moving average to the upside, it indicates a new short tem uptrend. When the fast moving average crosses the slower moving average to the down side, this indicates a short term downtrend or resting period. The stochastics indicators have a horizontal line at the top and one at the bottom. The top line is the 80 line and is an indication of the stock being overbought in an uptrend. The bottom is the 20 line and is an indication of the stock being oversold.

The last qualification that I look for in a stock before actually purchasing an option or stock position is whether or not the stock price is at or above its 10-day exponential moving average. When you have spotted a stock that you feel qualifies for a potential options play, the stock’s closing price must be at or above its 10-day exponential moving average.

If you feel that your stock pick will break out of a chart pattern or break above its current resistance line, the closing price must be at or above the 10-day moving average. The reason for this is that technical analysts consider a stock to be strong when it is trading above its 10-day moving average, technical analysts (most investors around the world use some technical analysis in their stock selection) will begin to accumulate the stock and take the stock price higher. The 10-day moving average then acts as support as the stock price moves higher in the future.

The following chart is an example of a flat base pattern of Broadvision, Inc. On November 18, the stock looked to be ready to cross its resistance line. Stochastics was below the 80 line at 59.4, MACD was just above the zero line at 0.5 and the stock was trading just above the 10-day moving average at 16.20. The buy point for the stock option or the stock would have been as the stock price crossed the resistance line at $18. As you can see, the stock price went from $18 on November 19th to $44 on November 27th. A very nice profit, wouldn’t you say?
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