New puts and pattern recognition

In the momentum options last week was a great profit week as I sold all my puts for boat loads of cash. Many were well over 100% returns and a few under. As a result this week started out with few positions in play, which was nice. Yesterday I placed 10 orders for new puts in some stocks that saw a rally to test previous levels. I managed to get into 8 of 10 based on nickel or dime lenience on my orders.

Today even my gold company call came back and is sitting at over 50% gains at days' end... although it was over 100% earlier and I considered closing it... but chose to hold. Gold is cranking after all.

We also have some new puts in the day trading account, all of which are being held overnight. Two from yesterday and two from today. Yesterdays' I added to this morning as well so it is more like having 6 positions not just 4.

I am starting to notice (well, I noticed this right off but now it is more prevalent) that the day plays are setup based on the daily patterns of various shapes of breakouts. This puts me in mind of my old CTP trades that I was trying to get working quite a while back with a day trading twist.

Previously I was playing a wedge pattern where I would plan to buy the stock as it tested the bottom trend line, sell and short at the top as it tested the top and keep doing this as the wedge tightened or got narrower. The idea was that near the apex I would be long as the price tested the close bottom and, if it broke out, I would be in the position already for the move. The reverse would be true for the break down if that happened.

What we are doing different is that, while using the same breakout patterns, we are trading intraday (more or less) and using the back test AFTER the breakout has already occurred. The exception is that we may also play the test of the wedge limits assuming that the price is not going to breakout.

In the momentum trading it is similar with a longer view of the move. Day trading we will play the front month options, currently May with a bit of June, and in the longer term we use the next month or later, June or July. This provides higher volatility for day trading and quicker profits and longer time to fruition for the longer term momentum trades.

Now the patterns are all well and good but also knowing how to apply a lot of the background information to determine which stocks and which options to play is far more complicated than just looking at the charts.

If I had time I would do some of my own work... things are working out well enough now, and I am busy, that I think I will leave well enough alone and just do the trading. Over 60 trades this month so far...perhaps I don't need anymore.

Jeff.