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June 15, 2022
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How To Identify Modest Stock Bottom Bounces In Order to Seek Out Potential Gains

Tuesday, June 21st at 3:30pm CT

In this webinar, guest speaker Alan Knuckman joins us to demonstrate how to look for modest stock bottom bounces to help seek out potential gains.

Hailing from the home of options trading in Chicago, Alan has worked with all aspects of the options market for past 30+ years. A regular contributor on major financial news outlets like CNN, BloombergTV, CBNC, and Fox Business, Alan joins us to share his knowledge.

You'll also receive a free gift from Alan just for signing up, so make sure you Register Now!

Make sure to register even if you cannot attend live so you may receive the recorded replay.

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Dealing with Disaster
by Oliver Velez

Holding trades overnight has certain benefits and risks. I consider it necessary for a trading plan to have a Wealth Building Account for swing and core trades, which would all be overnight holds. So, following your trading plan and playing the proper share size are very important. If you are careful, over time the benefits should outweigh the risks. However, no matter how careful you are, you will have a morning where a position you have is gapping open against you.

Remember, there are not stops overnight. Let us say you are long on XYZ at $30.00 and, at 7:00 AM EST the next morning, company XYZ makes some announcements. Let’s say they are going to miss their next earnings number, the CEO just resigned, and they suspect they have accounting problems.

There is a good chance (about 99.99 percent) that when trading starts the next morning at 8:00 AM EST (pre-market trading starts with Electronic Communication Networks - ECN’s at this time) that your stock will be trading much lower. Let’s say at 8:00 it starts trading at $26.00. From 8:00-9:30 it ranges from $26.00 - $25.00. Then at 9:00 it opens at 25.10. It will not matter that you have a stop in place at $28.50. During pre-market, stops are not in effect. Then when the market opens, your stop will be filled (if it is GTC or it you re-entered it at open) at the best price at the time - $25.10 – not your desired price of $28.50.

So, how do you handle these disaster situations? Here are some tips to better manage these situations in the best way over the long term.

First, do not panic. Easy to say, but hard to do unless you have a strategy in place.

Second, ignore the pre-market trading. From 8:00 – 9:30, only ECN’s are trading; some stocks don’t trade at all. If you r stock is gapping down like this, it will likely be trading, but trading erratically.

Third, when the market opens officially at 9:30 EST, do nothing for five minutes. That’s right, just watch it. After five minutes, make off the low and put a stop for half your shares - $.05-.10 under that 5-minute low.

Fourth, let it trade for 30 minutes. Then put a stop for the other half of your shares - $.05-.10 under that 30-minute low. At this point, if the stock did not violate the 5-minute low, you will still have all your shares, half with a stop under the 5-minute low, half under the 30-minute low.

You will often find you still have all of your shares, or at least half. Often, after a large gap, the opening half hour puts in the lows for the upcoming days. If your shares do stop, usually you are risking a relatively small amount extra.

From there, you can treat the trade as a swing with a one-day trailing stop, or the stock may rebound to prior levels and you can follow your prior plan. While the example given was for a gap down on a long position, the same rules hold true for gapping up on a short position. Use 5- and 30-minute highs as stops.

Such a disaster plan will help you minimize the losses over the long term.

 
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