How to Generate Consistent

Income with Options

There are many ways to trade options or use options in trading.  Many people
trade options for the sole reason that they are much cheaper than trading stock. 
It is kind of interesting that it is rare to find an options trader that would ever buy
a stock, or a stock trader that would ever buy an option.  I believe that both
camps are wrong.  You need to be able to trade both, or at least take advantage
of both.  The reason for this is that if you trade stock, you can minimize risk and
maximize gain using options.  If you trade options, you do not get the full benefit
of the stock’s move if you are right, and you “run the risk” of being assigned the
stock, which scares option traders, and it shouldn’t.  I’m not going to get into the
fundamentals of options, but let’s digress for a paragraph or two to get some
understanding before we talk about the strategy I want you to learn.
Buying is the opposite of selling.  Long is the opposite of short.  Bull is the
opposite of bear.  There are only two things that matter in options; if buying an
option, it must go beyond strike (in the money) for you to be paid on expiration
day, and if selling an option short, you can end up long or short the underlying
stock at the strike price.  If you keep these to things in perspective, your option
trading will go a little smother. 
If you buy a call option, you are buying a right, not an obligation, to purchase a
stock at a specific price (the strike price) on or before a specified date.   When
buying a call option, you want the stock to go higher.  If you buy a put option, you
are buying the right, not the obligation, to sell a stock at a specified price on or
before a specified date.  When buying a put option, you want the stock to move
lower.  Now the opposite side.  If you sell a call option (going short the option)
then you are selling the right to buy to another party, and if they exercise their
right to buy, you must sell to them (you are taking on an obligation) and you
could end up short the stock unless you already own at least 100 shares of it. 
Selling a call option when you do not own the stock is called a naked call, but if
you own the stock it is a covered call.  If you sell a put option, then you are
selling the right to sell to another party, and if they exercise their right to sell, you
must buy from then.  If you are short the stock, you will buy it back (this is a
covered put), but if you are not short the stock, then you could end up long the
stock.
Now that we have that out of the way, let’s use these concepts to try and make a
little money.  Let’s make the assumption that we want to buy a stock.  Let’s pick
an expensive stock to prove a point and then we will look at a “normal priced”
stock.  Everyone has heard of Amazon, so we will start with it.  Below is a daily
chart of Amazon (AMZN).  You can see back in January  when their earnings
came out.  Notice since then that Amazon moves up to the 860 area and then
back down to the 840 area.  So let’s say we want to buy AMZN when gets back
down to 840.  Now we can put a buy limit in, good till canceled,and wait for
AMZN to sell back off and exercise our limit order.  Then when it gets back up to
860, sell it and make $2000 for every 100 shares we buy.  If we buy the stock,
we will need to put a protective stop below 830 (notice that is when earnings
came out), so we will risk about $1000 to make $2000.  Nice trade, pat yourself
on the back.  Now let’s do it using options.

Daily AMZN Chart

Same trade with a twist.  Instead of putting in a buy limit, let’s sell a 840 naked
put option.  Now this does two things; a) if AMZN gets to 840 or lower at
expiration, you will end up long the stock (that is what is desired in this case),
and b) by selling a put option, you will bring in money.  In other words, the market
is going to pay you to place a buy limit on a stock (that is pretty cool).  Below is
an option chain for AMZN.  Based off the chart, AMZN is trading at 848.96, so
AMZN is going to have to drop 9 points to exercise us.  So it would probably be
good to wait a while before selling the put to get more premium, but since we
cannot put extended time in an article, we will use what we have (the concept is
the same).  Look at the Mar 31 ’17 options.  The 840 put is selling for around
4.10 (Last Trade).  So if we put an order to sell at 4.10 and are filled, we will bring
in $410 of credit.  If by Mar 31, AMZN does not get to 840, we keep the $410 just
for trying.
Note: if AMZN drops to 848 from 840, the put option will increase in value and
your account will show that you are losing money on the option.  This is not the
case unless you buy it back at a loss.  Remember the end game, you want to be
long the stock from 840.  AMZN will have to be below 835.90 for you to start to
lose money (840 – 4.10 (premium brought in from the sold put) = 835.90).  Let
them exercise if they can, that is what we want.
If we get exercised, then we will put a stop below 830, around 829.89 (just below
830 by a little bit), Risking $1,011.  We will then sell a 860 covered call and
probably get another 4.00 or so.  So total premium brought in will be $810.  If
AMZN drops and stops us out, we will need to buy back the covered call (that
now has turned into a naked call), but since AMZN has dropped, the call will
decrease in value and we will probably be able to buy it back around 1.00 or so. 
So we get $700 in premium and lose $1,011 on the stock for a total of $311 loss. 
Now, if AMZN goes up, and we get called away at 860, we get $2000 off the
stock and $810 off the options for a total of $2810.  So in this case, we are
risking $311 to make $2810.  Which scenario do you like best, a 1:2 risk/reward
or a 1:9 risk reward?  This is the luxury of options.
 AMZN Option Chain

AMZN is a bit extreme since it is an expensive stock and is quite volatile.  Let’s
go to the blue chips and grab a stock like Caterpillar (CAT).  Below is a daily
chart of CAT.  Notice it has support around 92 and resistance around 95.  Next
support is around 90.50, so we will use 90.19 for a stop if we get filled.  Using the
same technique let’s look at selling the 92 put.  In the option chain below, the 92
put is going for around 0.80.  Again, if it does not get there we get to keep the
$80 and try again.  If we get exercised, we place the protective stop at 90.19 and
sell a Apr covered call at 95 for around 1.21.  There are weekly options on CAT,
however, we want to be able to finance the protective stop the best we can.  By
going out to the monthly option, we can get there.  If we add the two options
together (0 .80+1.21=2.01) we will bring in about 2.00.  If we are long from 92
and need to risk to 90.19, we risk 1.81 on the stock.  The premium we bring in
will cover the protective stop.  If we get stopped out, we buy back the short call
and will probably lose around $25 or so depending on how much time is left in
the option.  If CAT moves up and we get called away at 95, we pick up $300 from
the stock and $221 from the option premium for a total of $521.  Again we can
have the standard 1:2 ratio, but the 1:20 ratio of this trade seems much better.

Daily CAT Chart

 CAT Option Chain

We do have to throw the glass half empty theory in here since there are those
who are pessimists and will ask, “what if CAT is at 85 when you get exercised, or
what if AMZN is at 830 when you get exercised?  What will you do then?”  You’ve
got to love those people.  First, panic never solved anything so please get that
out of your mind.  But think about it very quickly.  We did bring in premium when
we sold the put, so we have reduced the risk somewhat.  Next question is, if you
just put a buy limit in and is sold off to that level, what would you normally do? 
You could sell a covered call at entry (90 on CAT or 830 on AMZN) and if you get
called away, then you will make nothing on the stock but get to keep the premium
from the options, still not losing anything.  You could sell at the money calls and it
will reduce your loss considerably, especially on AMZN but not as much on CAT.
Another thing, what if you end up long the stock, it does not stop you out, but is
not called away from you.  Even better in my opinion.  You brought the money in
from the naked put and the covered call, and now you get to sell another covered
call.  Before selling the same strike price, however, look at higher strikes, you
may be able to get the same premium as before if the stock has moved higher.
There are many ways to scan for stocks.  Many have their own favorite stocks
that change over time.  You will find some stocks that do not have options.  I do
not like stocks that don’t have options for the simple reason that I cannot
minimize my risk and maximize my gain.  The key is to trade stocks that have
some volatility so that the option premium is higher.  Coke (KO) has options but
since the stock does not move much the option premium is low and therefore you
cannot finance the protective stop.  Below is a scan for stocks out of the DTI
RoadMap™ software.  It scans for optionable securities that are between $50-
$600, and are recommended buys/sells between Mar 23 and May 8 (it is sorted
buy highest P&L).
Starting in the middle to the end of April, stocks begin to move again after the
“when in May go away” occurrence is over.  Look at the Standard Deviation (Std
Dev) column.  The higher the standard deviation, the more volatile the stock.  So
I will look at these to see if they are trending with the overall markets, and if so
then they are prospects for trading.
Market direction is also important.  You can do this same strategy on the short
side  as well.  When markets are bearish like we saw back in 2008-2009, selling
calls many times did not get exercised, however, if they did, then sell a covered
put to use the premium to finance the stock.  But direction is important.  First look
at the year open, month open, and week open, and compare it to the current
price of the stock.  If the stock is above all three it is strong, if below all three it is
weak.  If it is between some of them then look at the indexes (S&P, Dow 30,
NASDAQ) and see if they are doing the same.  If they are, then wait until a
clearer picture can be seen.  Below is a chart of the S&P and 3M.  Notice on the
left chart that the S&P is above the year, but not the month and week open. 
However, 3M is above the year open,  month and right at week open.  If the
market rallies from here, 3M would be a good candidate to sell puts on and see it
runs faster.  But the S&P will need to begin to rally and take out some resistance
levels before doing that.

S&P and 3M chart

The same can be done for futures contracts if you have experience with them.  I
like using options on bonds to help pay for the utilities each month.  Utilities, no
one likes to pay for them, but they are necessary.  To help pay for the utilities,
trading bond futures options seem to work well.  Let’s discuss bond futures and
their options a bit before we get to trading them.  Bond futures are a commodity
that trades in 1/32 increments and are worth $1000 per point and $31.25 per tick
(1000/32 = 31.25).  It controls a $100,000, 30 year US treasury bond.  It is traded
by the bond price, not the interest rate of the bond, though, it is interest rate
sensitive.  So if interest rates go higher, bond price goes lower, and if interest
rates go lower, bond prices go higher.  Bonds open at 17:00 and close at 16:00
CT. The price is displayed in decimal form or with a dash; 147.23, or 147-23, and
sometimes 147’23.  The 23 is in 32nd.  So the price is 147 and 23/32.  If you
multiply that by 1000, the bond is worth $147,718.75.  Par value is $100,000, so
in this case you would be paying a $47,718.75 premium.  Economic new will
affect bonds, as they look for inflationary (rising interest rates) or deflationary
(falling interest rates) indications.
Options on bond futures trade in 64th increments.  They trade as long as the
bond futures are open and trading, so you can actually get out of your trade in
the middle of the night, if need be. They are still $1000 per point but since they
are half of a bond future tick, then they trade $15.625 per tick.  The option are no
different than equity options except the price per point/tick is different and you
are only controlling one bond futures contract, as opposed to 100 shares of
stock.  You will also notice that the strike prices are every point.  This should give
us enough back ground to discuss the Utility trade.
There are weekly options on the bonds.  Some platforms only offer the monthly
options, so beware of that.  We are looking for income, so we will be selling the
options to bring in premium.  We want the option to deteriorate over the time of
the option.  So if we sell a bond option at 16 (16/64) we will bring in $250.  If we
buy back the option at 5 (5/64), we pay $78.125 for it.  The difference is the
profit, 250-78.125 = $171.875.  If we do this 2 to 3 times per month, this will
generate $400 - $500 per month, per contract, to help pay the utilities.
To set up the trade, first we don’t want to risk more than $300 per contract in any
trade.  So if we sell an option at 16, then if it doubles or goes 19 ticks against us,
then we will get out of the trade.  If using weekly options, we will not be bringing
in much premium, so we will look for something between 10 and 20 ticks on the
options ($150 - $300), and look to get out between 0-5.  Next we need to look at
the trend of bonds.  Here is a daily chart on the USM17 (June 2017, 30yr
Treasury bond future):
Notice bonds are in a downtrend.  So selling call options will be the safest play
since bonds will have a tendency to go down.  We will try to sell options at the
resistance point (R1 or R2).  Of course, the closer it is to the resistance point the
more premium that will be brought in and the further away from that point brings
the least premium unless we go out further in time.  If your platform only does
monthly options, then I’d use resistance point further back, but if using weekly
options, use the closest.  Another thing to keep in mind, find out when the big
economic news is coming out since bonds will react to it.
Look at the option chain below. Our R1 is around the 151-16 (151.50, since 16 is
half of 32) strike.  The Mar 31 call option is trading at 63/64.  The 152.50 is at
15/64.  The 152.5 is between the R1 and R2 on the chart and a little less risky
since bonds have to rally another point to get to that strike.  So you have to make
a decision on which option to sell.  Let’s be a little more conservative  and do the
152-50 strike.  The current bid and offer are 14/64 – 16/64.  If we put an order to
sell at 15/64 and get filled, we will bring in about $234.38.  If today is Mar 27 and
bonds are trading at 150-27, we will have to wait 5 days for the option to expire. 
As long as the bond futures stay below 152-16 then the option will lose value
each day.  If there is a big economic news day this week, we will need to either
get out and take the profit we have, or be ready to exit if the bonds rally off the
news.
Doing this trade a couple of times a month can cushion the blow of the bills that
come once a month.  We can’t win them all, but remember, we will not risk
anymore than $300 per contract.  So one loss will scratch one win and a half for
the most part.  If you have never traded options on bonds, paper trade it for a
couple of weeks to see how it goes.  Once you get the hang of it, start paying
some bills. 

Using Keltner Channels to Find

Low-Risk Options Setups
Chuck Hughes, ChuckHughes.com
One of the simplest but most effective entry timing indicators are the Keltner Channels
which can quickly and easily be downloaded from investing websites such as
www.StockCharts.com. Steps for down loading the Keltner Channels follow.
The Keltner Channels function as an overbought/oversold indicator that can help us
select a buy point for stocks and call options that are on a EMA System ‘buy’ signal.
Overbought is a term used to describe a stock that has been increasing in price over a
period of weeks or months with very few price pullbacks. Oversold is a term used to
describe a stock that has been decreasing in price over a period of weeks or months
with very few prices increases.
Stocks in a price up trend do not advance in a straight line. There are always price
corrections or retrenchments along the way. Like the tide there is an ebb and flow in the
price movements in stocks. This is the natural order of the markets . . . stocks advance
and then the price declines inevitably as profit taking occurs.
Stocks can remain in an overall price up trend as these price declines occur as long as
the price decline is not severe enough to cause the 50-Day EMA line to cross below the
100-Day EMA line which signals a trend reversal from a price up trend to a price down
trend. When this occurs a stock should be sold.
The Keltner Channels are a valuable timing tool as the channels can help us prevent
buying stocks when they are in an overbought condition. When stocks become
overbought they are vulnerable to profit taking and minor price declines within the
context of remaining in a price up trend. The Keltner Channels can help us avoid buying
stocks when they become overbought and instead buy stocks and call options when
they become oversold.
Let’s take a look at an example of the Keltner Channels and how they can help us select
our entry point. The price chart below displays the daily price movement for Apple stock
along with the three Keltner Channels. There is an upper channel, middle channel
(which is the dotted line) and a lower channel.
When a stock trades near the upper channel it is an indication the stock is becoming
overbought and will most likely encounter selling pressure and then trade back down
towards the middle or lower channel.
When a stock trades near the lower channel it is an indication the stock is becoming
oversold and will most likely encounter buying pressure and then trade back up towards
the middle or upper channel.
If you are considering buying Apple stock or weekly call options, you don’t want to buy if
the stock is trading near the upper channel as there is a good chance the stock will
encounter selling pressure near the upper channel and then decline in price.
It is better to wait until the stock trades near the middle or lower channel before buying.
This results in a better entry as the stock most likely will trade back up towards the upper
channel.
Note: Apple trade examples were taken prior to the Apple 7 for 1 stock split and prices
are not split adjusted.
Circled below are examples of Apple stock trading above the upper channel. When a
stock is trading above the upper channel it is better to wait for the stock to decline
towards the middle or lower channel before buying.
When a stock is trading near the middle or lower channel there is a good probability that
it will rally back towards the upper channel.
In each of these examples, after the stock traded above the upper channel it declined
back towards the middle or lower channel within a week or two except for the example
that occurred in mid-July. In this example the retracement took a little longer as the stock
traded near the upper channel in mid-July and did not retrace back to the middle channel
until mid-August. This happens occasionally in strong bull markets.
Currently Apple is trading above the upper channel and has stayed above the upper
channel for several weeks not presenting any buying opportunities. In our experience
this is very rare. Currently Apple stock would have to decline to about 236 before it
touches the middle channel.
Identifying the Keltner Channel Price Levels
Whenever you download a Keltner Channel price chart, the price chart will list the price
levels for the Lower, Middle and Upper Channel. Currently the Lower Channel price level
is 229.39 (circled below). The Middle Channel price level is 236.01 and the Upper
Channel price level is 242.64 (circled below).
Lower Channel Currently at 229.39 Price Level
Middle Channel Currently at 236.01 Price Level
Upper Channel Currently at 242.64 Price Level
If you are considering buying Apple stock or weekly call options, you would want to wait
until the price of the stock declines to the middle or lower channel price level which is the
236.01 to 229.39 price level in this example.
Actual Trade Examples Using the Keltner Channels
Our brokerage account trade confirmations below list purchases we made for Apple
stock. The confirmations list the date of purchase and purchase price.
We used the Keltner Channels to help select our purchase entry point. We bought Apple
stock and call options when the stock was trading near the middle or lower channel
which lowers my entry risk of buying stock when it is overbought and due for a price
correction. These actual entry points are circled below.
You can see from the price chart that Apple stock did not decline in price much below
our entry points. Using the Keltner Channels to help time our entry points reduced the
risk of our stock purchase. With Apple stock trading near 249 we now have a substantial
profit for our stock purchases.

Timing Our Stock and Call Option Purchases

We have found the Keltner Channels to be a valuable timing tool that helps us select a
low risk entry point for our stock and call option purchases. Buying a stock when it is
trading near the lower or middle channel may help prevent buying stocks when they are
in an overbought condition and are vulnerable to price declines.
We like to buy a stock when the stock is trading near the middle or lower channel and is
oversold. When a stock is oversold there is a good probability that it will rally back
towards the upper channel providing us with a lower risk buy point.
We avoid buying a stock when it is trading near or above the upper channel and is
overbought. When stocks become overbought they are vulnerable to profit taking and
will most likely encounter selling pressure.
The price charts that follow show examples of entry points for call option purchases
using the Keltner Channels. The stocks in these examples were giving is an EMA ‘Buy’
signal and retraced near the Middle or Lower Keltner Channel.
Our brokerage account Transaction Reports show the date that we purchased a call
option and that date is circled on the price chart above.
Notice how the Keltner Channels allowed us to get low risk entry points for our call
purchases as the price of the stock rallied after our call option purchase.
AMZN Retraced Near Middle Keltner Channel
Which Enabled a Low Risk Entry Point
Stock Rallied After Entry
 Wells Fargo on EMA System ‘Buy’ Signal

Retraced Near Lower Keltner Channel

Which Enabled a Low Risk Entry Point
Stock Rallied After Entry

Timing Bearish Entry Points

The Keltner Channels can also be used for timing bearish entry points. The Keltner
Channels indicate an overbought condition for a stock/ETF when the stock/ETF is
trading near the mid to upper channel or above the upper channel.
Stocks in a price down trend do not decline in a straight line. There are always price
rallies along the way. Stocks can remain in an overall price down trend as these price
counter trend rallies occur as long as the price rally is not strong enough to cause the
50-Day EMA line to cross above the 100-Day EMA line which signals a trend reversal
from a price down trend to a price up trend. When this occurs short positions should be
closed out.
The Keltner Channels are a valuable timing tool as the channels can help us prevent
establishing short option positions when the underlying stock/ETF is in an oversold
condition. When stocks become oversold they are vulnerable to counter trend rallies
within the context of remaining in a price down trend. The Keltner Channels can help us
avoid establishing short positions when the underlying stock/ETF becomes oversold and
instead establish short option positions when the underlying stock/ETF becomes
overbought.
The price charts that follow are examples of stocks/ETFs that are in confirmed price
down trend but became temporarily over bought when the stock/ETF price rallied back
up to the middle or upper channel presenting numerous low risk entry points for
establishing short option positions.
 Yes, the Keltner Channels clear the clouds of confusion and pave the way to clear
decision making. Once you understand the channels of success it will become very clear
when you should establish bullish and bearish option positions.
The Keltner Channels are a great tool that can help you establish low risk entry points
for your option trades which in turn can increase the profit potential and accuracy of your
option trades!
On the following page we will show you how to download the Keltner Channels and
make them yours! For us, the Channels are the end all. There is no better guide to help
me push away confusion and doubt. Securing a low risk entry point in trading is huge!
This tool is invaluable! Learn it, embrace it, and use it!
In summary, we have experienced many years of success using the Prime Trade Select
process to select option trades with the best profit potential. I hope you learn and
embrace this valuable trading tool.

How to Trade the Opening Range to 

Identify Breakout Opportunities
Geoff Bysshe, MarketGauge.com

Bigger Profits Are Easier When Your Trades Are Immediately Profitable
Welcome, if you’re a day trader, swing trader or options trader this article is for you
because…  
You’re about to discover a focused approach to anticipating the markets’ next move, along
with trading tactics that lead to immediate profits and trade entries you can be confident in
trading whether you are a new trader or have years of experience.  
Think about how you feel, and how you tend to trade, when a new trade is substantially
profitable immediately after you enter it.  
Now contrast that feeling with how you feel, and tend to trade, when the market is about to
close and you’ve been in a trade for a few hours that is trading at a loss.  
If you’re like most traders, the immediately profitable trade creates a desire to “trade this one
right.” Your thoughts are on how to make the most of the apparent opportunity. You’re also
enjoying trading.  
The losing trade scenario, on the other hand, is disappointing. You’re more likely to be
thinking about how to change the trade, rather than confidently sticking with your initial plan.
This is common even among experienced and disciplined traders who know that losses,
when managed properly, are not a problem.  
Regardless of our trading style or instrument (day trading, swing trading, investing, stocks,
ETFs, options, forex, etc.) I believe that we all enjoy trading more when our trades are
immediately profitable.  
More importantly, I also believe that immediate profitability makes it easier to be more
disciplined, which in turn leads to more trading success.
Immediate profits are only one important result of having great entry
strategies and tactics. 
Even more important than immediate profits is having enough confidence in your trade to
ensure you trade with discipline. When you have enough confidence in your trade,
“immediate” profits becomes a relative term. This means that even if a trade initially trades at
an unrealized loss, you won’t have that feeling of disappointment.  
How To Create The Confidence In Your Trade That Eliminates The
Frustrating Feelings Of Unrealized Losses And Reduces Real Losses!  
Successful traders confidently believe they are doing the right thing when they take a loss.  
Since beginning my trading career in 1990 on the floor of the New York commodities
exchanges, and spending years in a multi-billion dollar hedge fund, I’ve worked with
hundreds of professional traders and thousands of active individual investors. In this time
I’ve found that confidently taking a loss is a common theme among successful traders at
every level – floor traders, fund managers, and active individual traders.  
One goal of this book is to show you how you can have the confidence of a pro in
determining and executing on your stop losses, so you can improve your profitability. There
are several ways to accomplish this level of confidence, but this book is narrowly focused on
a very specific way of identifying great trade entries with stops you can have confidence in.  
A great trade entry is one that has a risk level (a stop loss)and three important qualities:  
1. You believe that you should exit the trade when the stop level is hit. This leads to
consistently executing your plan.  
2. The potential loss is small relative to the expected return when profit targets are hit. This
leads to more profitable system.  
3. The frequency of getting stopped out is in line with frequency and expected return when
profit targets are hit. This leads to a     more predictable equity curve and more confidence in
trade execution. 
A simple starting point for selecting a stop level that can provide all three of
these critical qualities of a great trade entry is to have your stop loss be
outside of the current day’s range.  
The low or high of the day creates an emotionally powerful “line in the sand” that seems to
naturally command the respect of traders. Think about how you feel when markets make
new highs or lows. Are you more inclined to pay attention and respect the “trend of the day”
at this point?  
In my experience of working with successful traders, most traders are more likely to feel
confident that their stop is safe when it’s beyond the current day’s trading range. This alone
can improve your trading because it leads to less second guessing and moving stops
prematurely.  
Additionally, traders tend to feel more accepting of the fact that their trade is not working and
exit the trade as they planned when it corresponds with a break of the current day’s range.
This leads to more disciplined trading and less second guessing your stops when they are
hit.  
However, better trading is not simply placing your stop below the low of the day if you’re
long, or above the high of the day if you’re short! You need more of an edge to determine
when the high or the low of the day has been put in, and which days you should use this
tactic.  
In other words, you must identify the RIGHT DAY and TIME to use the day’s
range as your stop.  
You’re about to discover a reliable way to determine the day’s high or low early in the day.
This creates powerful opportunities for all trading styles to use these levels for great stops
that are quick and easy to identify and, as discussed above… leads to less second
guessing.  
For example:  
If you’re a day trader… when you are able to buy near the low of the day, you’ll find many
opportunities for trades that will have very profitable reward-to-risk ratios that don’t require
the market to do much more than simply return to the high of the day!  
If you’re a swing trader… you’ll be able to pinpoint the exact days to take very low risk
trades that are more likely to enable you to avoid holding positions overnight that are not yet
profitable. In addition to having more of your first days in the trade be profitable, you’ll be
able to identify trades that have multi-day or more trend potential, creating huge profits
relative to your initial stop level.  
If you’re an option trader… you’ll be able to identify market turning points for precise timing
of directional option strategies, and enjoy the benefits just listed for the day traders and
swing traders.  
Use This Floor Trader’s Secret Charting Tactic To Anticipate The Market’s
Highs, Lows, Trends & Reversals  
It may seem hard to believe, but this trading tactic can be so simple that I used it to “chart
the market” without a computer! I didn’t have a computer standing on the trading floor in the
early 1990’s.  
Despite its simplicity, the principle works because it is based on the driving force behind the
most important price points of any trading day. That force is human emotion – fear and
greed.Remember your feeling of excitement when the market in which you hold a position
goes racing your way right as the market opens? How about the feeling when the market
gaps open in the direction of your position? Nice way to start the day.  
And have you also had the frustrating experience of the excitement from a market open in
your direction turn to disappointment as the market suddenly reversed? If you’ve traded for
any period of time then you’ve certainly felt the anxiety of a profitable trade swinging into a
losing position in the opening half hour of the trading day.  
Fortunes and egos are inflated and burst during the opening several minutes in many
markets all the time. Even if you have or don’t have a position in the market, the opening
minutes of the trading day can be an emotional roller coaster. This is exactly why the first 30
minutes of the trading day turns out to be very statistically reliable in determining the day’s
high or low.  
In fact, 50% of the time the S&P 500 will make its high or low of the day within the first
30 minutes of the trading day. 
I’m using the S&P 500 as the example, but you will find other markets (stocks, ETFs, and
futures) to have a similar statistical bias that you can profit from and here’s how…  
Stop and think about some of the implications of this data.  
● The first 30 minutes is only 8% of the trading day, yet 50% of the time it determines the
day’s high or low. This makes it a           very significant time of the day for anticipating
reversals and setting price levels that will likely remain as the high or low for         the entire
day.  
● If you are going to set your stop below the low of the day, you give yourself a big statistical
edge by waiting for the first 30          minutes of trading to finish.  
Plus, you can make this statistical edge even stronger by combining it with a few simple
indicators.  
We’ve found easy ways to identify market conditions that indicate with 83% accuracy that the
high or low will be determined in the first 30 minutes of a particular day. Even more
impressive is that when these same criteria are used, you can determine that the low of the
day has been set after the first 30 minutes 62% of the time. These are the best days to use
the low of the day in your stop.  
The Opening Range Defined  
From this point forward in this book I’ll refer to the high and low of the first 30 minutes of the
trading day as the “Opening Range” or the “O.R.” The Opening Range can be calculated
using other time frames as well. Common time frames include 2, 5, and 15 minutes, and
even the first hour.In our trading at MarketGauge we focus on the 2, 5 and 30-minute
Opening Ranges. They all serve specific purposes. For example, the 30-minute O.R. is the
best place to start for buying against the low of the day (or selling against the high) for day
traders and swing traders.  
Of course you’ll use charts on your computer to figure out the day’s Opening Range, but now
you can see how floor traders could use this tactic even without access to a computer. As
illustrated in Chart 1, the OR high is simply the high for the day after the first 30 minutes of
trading, and the OR is the low of the day at that time.  
Chart 1: O.R. Defined

How To Objectively Evaluate Any Trading Day To Anticipate the Day’s

Trend 
For Bigger Profits & Avoiding Losses
Every day in the market is different. It presents its own trend, opportunity and challenge
depending on your perspective. The direction and magnitude of the market’s moves from
day to day can seem random to the untrained eye, but the market does follow patterns and
leave clues indicating its most likely direction.  
The Opening Range is a trading tactic that pros have used for decades to read the market’s
mood so they can anticipate and profit from the market’s intra-day moves.  
When you “chart the market” or look at it through the lens of the Opening Range, you’ll have
an objective perspective on whether the bulls or bears are in control on any given day. This
perspective begins with a very powerful understanding that the O.R. high and O.R. low
levels will be critical support and resistance levels for the rest of the day. 
With this understanding of market behavior you can anticipate that these levels will also
represent levels where markets will reverse or accelerate into big moves. If you look at the
trading day with this process you will be on the right side of the biggest market moves, and
avoid getting hurt by them. 
How To Read The Market With The O.R.  
To begin using the O.R. to anticipate the market’s next move follow these simple rules.  
First, let the market establish its 30-minute O.R. high and low. Even after the Opening Range
period, keep a neutral bias while the market trades within its O.R.. As you learn more you’ll
know if an O.R. has a bullish or bearish bias.
Don’t Miss, or Get Hurt By Trend Days  
Next, wait for the market to attempt to trend by breaking the O.R. range. A successful
breakout beyond the O.R. will indicate a trend day is forming. For example, if the market
breaks below its O.R. low, you should consider it a trend down day unless and until it rallies
back over its O.R. low level.  
Too many traders lose money in big down days because they don’t have an objective
method like the O.R. rules to determine that the market is in a down trend which should not
be bought, and in fact, it should be expected to continue lower. 
Chart 2: Downtrend Day
You will NEVER GET CAUGHT IN A MAJOR MARKET DECLINE if you only initiate your
long trades above the O.R. low and stop out if a new daily low is hit. Buying markets that are
under the O.R. low is equivalent to trying to find a bottom when the bears are in control. 

This is much riskier than finding a bottom when the market is in a neutral to bullish mode (i.e.
over the O.R. low).
Additionally, any rally from below the O.R. low will have to get through the resistance of the
O.R. low (see chart 2).  
As you now know, the O.R. low is often significant support until it is broken, and becomes a
significant area of resistance once broken.  
As a result, it is very common for rallies during a down trending day to roll over at the O.R.
low, and resume the day’s down trend.  
Use Opening Range Reversals To Buy Near The Low, Or Short Near The
High  
When you combine Opening Range Reversal tactics with the emotional benefit, and
statistical edge of placing your stops outside the day’s range as discussed earlier…  
You have a very effective approach to entering low risk trades that have a high
probability of working consistently!  
An Opening Range Reversal (ORR) describes a condition when the market has reversed
against an O.R. high or low sufficiently to anticipate that the low or high of the day has been
set, and it can therefore be used effectively as a stop for your trade.  The basic ORR trade
setup that I’ll cover here occurs when the O.R. low is touched or broken followed by a rally
back over the O.R. low. As you become more familiar with how markets trade near their O.R.
lows you’ll discover many profitable trading patterns, but to get started you only need to
know one simple pattern. 
A Simple Pattern That Puts Money In Your Trading Account Quickly
Because It Pinpoints Reversals 
Chart 3: Higher Candlestick Close
This pattern is so effective at spotting intraday reversals that I use it for more than
identifying O.R. Reversals, but right now our objective is to understand when to buy
markets near their low of the day using the ORR and this pattern.
I use 5-minute charts for this pattern.  
At MarketGauge we call this pattern the Higher Candle Close (HCC). It occurs when a 5-
minute bar closes over the high of the prior bar.  
Yes, the pattern is that simple, and it works extremely well. But the secret to why it works
so well is that we’re using it when it occurs near the O.R. low!  
WARNING: Like most good trading tools, this pattern works well when used in the right
market conditions. If you use this pattern randomly it can be frustrating, and even be as
annoying as turning on your car’s windshield wipers when the sun is shining! You must
combine it with the O.R. Reversal setup.
When I share this secret setup I’m often asked… 
Does it work on 1-minute charts? (probably because traders are always looking to act
quicker, and cut risk tighter).
Well, at MarketGauge we also trade with, and teach how to use 1-minute charts for more
advanced O.R. patterns along with price and time confirmation, but we DO NOT use
this HCC pattern on 1-minute charts.  
So, to get started all you need is a 5-minute bar chart or candlestick charts, which you
can find on any charting platform, and the next step - a simple way to identify the best
Opening Range to trade with the HCC.  
The Best Opening Range Conditions For Consistent Profits  
When you’re looking at an O.R. for a potential trade think of it like finding a place to live.
You’ll ask yourself 3 basic questions.  
1. What does it look like?  
2. Where is it located? 
3. What’s the price?  
A “good looking” O.R. for an ORR trade has a well-defined O.R. low price
level. Remember from earlier in this article, the O.R. works best when the market is
active and emotionally charged with either fear or greed.

This is demonstrated in the charts by the existence of volatility and/or big volume.
Therefore, a welldefined
O.R. low is one that has multiple 5-minute bar lows near it, or a big range bounce from it,
or big volume near the O.R. low level. All of these indicate that traders are reacting to
the O.R. low, and imply that if the market breaks the O.R. low, and then begins to rally
(as defined by the HCC), it is time to trade! Chart 3 above is a good example of this.
“Good location” for an ORR has two considerations 
1. The low of the day should be close to the O.R. low. The reason you want the low of
the day to be relatively close to the O.R.     low is because a good ORR trade defines its
risk with a stop under the low of the day, and its entry over the O.R. low. In an       ideal
situation the distance from the entry point to the low of the day should be a fraction of
the market’s average daily               range. 
2. The O.R. low and/or the low of the day should be in a good location relative to
important daily chart key reference points.           This is very easy criteria to use to filter
out the best ORR trades, and one of the most powerful determinants of the                    
predictable profit potential.  
Simply put… The best ORR trades occur in the direction of the daily trend and at support
and resistance levels that can be identified on the daily charts.  
Chart 4: AMZN’s location lined up with support from the prior day and the
important key reference point of the Floor Trader Pivot (not visible on this chart).

“The price” is your entry price and your risk! It doesn’t take long to become good at
quickly
identifying good looking Opening Ranges in good locations.  
This is a skill and tactic you can apply to almost any market and easily adopt into your
existing trading rules, or simply trade it as described here, which is to apply the HCC
pattern to determine the trade entry.
The Simple Entry Trigger That’s Been “Hidden” in Your Charts All
Along 
As you start looking at the markets using the O.R. along with the HCC pattern in the way
I’ve described in this book, you’ll find that some trades are such obviously great
opportunities that you’ll want to be more aggressive, and get into the trade as quickly as
possible.  
You’ll also find trades that look great, but you’d like to have a little more confirmation
before entering (i.e. general market conditions may be bearish).  
Now that you know what the HCC pattern is, and where to best apply it, we can focus on
the actual “entry price” trigger point for what I’ll describe as the HCC-ORR trade.  
There are actually 3 potential trigger points for an entry. They are all slight variations of
the same basic pattern of trading over the prior bar’s high, but they give you the ability to
be more aggressive vs. waiting for more confirmation that the market has turned up.  
IMPORTANT: For the purposes of this lesson, it is assumed that any entry trigger point
described here is also above the O.R. low.  
Maximum Confirmation  
The entry trigger with most confirmation, and the one I’d start with, is to wait for the 5-
minute bar to close over the prior bar’s high, AND then enter when the market trades
over the HCC high. This means your entry trigger is actually a trade over the high of the
HCC bar.  
I will almost always use this trigger if the close of the HCC is not convincingly above the
prior bar high, or if the high of the HCC bar is very close to the closing price. In these
cases you’re not increasing your risk by very much, yet you’re getting some extra
confirmation the price is moving your way.  
Chart 5 below shows an example of a big range HCC reversal with confirmation.  
Chart 5: A good wide range HCC with confirmation
No Confirmation
There are times where you will not want to wait for maximum confirmation described
above. In this case the trigger is simply the close over the prior bar high and the entry is
on the open of the following bar.  
This is can be used for situations where the HCC bar’s close is significantly above the
prior bar’s high, and it may even have good volume. In other words, the market has
clearly demonstrated a reversal.  
In fact, sometimes you will get this pattern, and have the opportunity to wait for a
pullback in price to the high of the prior bar to be able to enter a lower price.  
However, if you do not have a good demonstration of range expansions and or volume
this can be risky. Chart 6 above is an example of a HCC at the ORR that did not confirm
and continued lower. 
“Jumping The Gun”  
As the subtitle “jumping the gun” suggests, this is getting in before the HCC is complete.
With some experience in trading ORR patterns you’ll be able to get away with this, and
get in early on some trades, but be careful. I would prefer to have unusual volume in
situations where I use this approach.  
The trigger when you jump the gun is to enter when the market trades over the prior bar
high. So you’re not waiting for the close in what you expect to be a HCC bar.  
6 Steps To Identifying and Executing Low Risk, High Profit Potential
ORR Trades With Confidence  
It’s time to pull everything together, summarize the key steps to initiating an Opening
Range Reversal trade.  
1. Let the 30-minute O.R. form.  
2. Focus first on the Opening Ranges that are in a good location relative to the daily
chart’s trend and support levels.  
3. Identify the Opening Ranges in a good location that also look good for an ORR trade.
This means they have well-defined           support at the O.R. low.  
4. Use the HCC as your entry trigger.  
5. Define your risk as being under the low of the day. Give the market room to break the
low of the day by a small margin and       reverse without stopping you out!  
6. Set your initial profit targets. If you are a day trader, take at least partial profits near
the high of the day, and move your stop       to no loss after the market moves in your
favor. If you’re a swing trader, you’re initial target may be higher (and your stop        
may be lower). 
Identifying Trade Opportunities In Seconds With This Simple Chart
Display  
In my charting platform I have a window that shows both the daily chart and a 5-minute
candle chart with volume. As you know the candles on the 5-minute chart are not
required, but they make it easier to see where a bar closes relative to the prior bar high.  
With these two charts in plain view it only takes a few seconds to spot when the O.R. low
lines up with key daily levels, and when a HCC forms. 
Don’t Sabotage Yourself By Setting Your Trades Up To Fail  
You can evaluate every day’s price action with the perspective of the O.R. to anticipate
the market’s next move, but the key to profiting from it is knowing how to spot high
probability setups like the one I’ve revealed in this article.
Remember my analogy from earlier – You don’t use your windshield wipers on a sunny
day!  
The ORR combined with the HCC entry is an incredibly powerful pattern, but every O.R.
low will not reverse. However, you now know how to select good looking ORR patterns.
And you know that the location of the O.R., in the context of a bullish daily chart, is the
easiest way to identify the most reliable and highest potential ORR trades for both the
day trader and swing trader.  
Be selective! If all the trade ingredients are not there, wait for the next one.  
Chart 7: With a daily chart display next to the 5-minute you can see “good
location” easily.
The "Rabbit Trail" Channel Trading
Strategy
Ben Lositer, TradingStrategiesGuides.com

This is the complete Rabbit Trail Channel Trading Strategy GUIDE.

This guide will give you in depth details and plenty of examples to help you learn this
strategy and implement it into your trading arsenal.
My goal is to get you understand how important channels are in trading, and why this
strategy will make you some great returns once you perfect it.
I also want you to enjoy your time reading this guide so I will try not to go on too many
rabbit trails while I teach you this great strategy.
Let me give you a little background as to how I have developed this strategy..
I learned very quickly that what happens in the past on charts, means a lot as to what
will happen in the future.
Just check out the chart below.
Its an obvious uptrend but something it happening along the way..
You saw the price levels were hitting certain points and bouncing straight back up ↑ or
straight back down↓ during this uptrend.
And would you look at that..

Line #1 and Line #2 are Parallel to each other. The price would hit a line and then either
go straight back down or up into what is called the channel.
And what happens when the price movement breaks this channel is huge!!
Which is why I took the time to developed this simple trading strategy for you..
And I am now going to share this with you because I want you learn this strategy and
implement it into your trading system!
 So let’s get down to the basics of this strategy..
And learn why I called this the: The Rabbit Trail Trading Strategy. 
What is a Channel and why is it important for this strategy?
A channel is simply a price movement that uses support and resistance in the past to
validate what it will do in the future. The price movement will hit these points (resistance
or support) and “bounce” back into the channel.
...

There are three different types of channels:

Ascending Channel
Descending Channel
Horizontal Channel
There needs to be at least two support and resistance levels to validate
a channel!
The support and resistance points are marked on the pictures above.
You can see in the three examples above that they all have at least 2 levels of each of
these .
This is a diagram of what support and resistance looks like.
When the market moves up and then pulls back, the highest point reached before it
pulled back is now resistance. The same concept can be applied for support but only the
opposite.
When constructing these channels, ALWAYS remember that both lines need to be
parallel to each other.  Do not force trend lines to look like a channel.  If they aren’t
parallel then it is clearly not a channel that formed.
Helpful information: If you are completely new to this type of trading dive into some
charts and do some channel work. Simply go back in time on the charts and draw
yourself some channels. If they match what you see above, perfect! Keep doing them!
Once you did about 100 of these it should be fresh on your mind and you will be ready to
master a trading strategy that mainly focuses on these channels.
So now since you are the master of channels let’s look at what this strategy is all about..
Rule #1: Draw a channel on a 4 hour or 1 hour chart.
The first thing you need to do to get this strategy started off is you need to find a channel
on a four hour or one hour chart. Remember there must be two resistance and support
points to validate a channel.
This strategy can use many currency pairs. Make sure you search through all of them.
Many say that they “only trade EURUSD.” There is no reason for that..
 Get in the charts and see for yourself! There are channels everywhere. This strategy will
work with any currency pair. The opportunities are endless..
Sorry for that rabbit trail, let’s get back to this strategy!
So below is a prime example of a horizontal channel. This is a AUDNZD chart taken on
a 60 minute time frame.

Not too bad. So basically all you are doing here is drawing parallel lines on the tops and
bottoms of the price movement. This example hit a quite a few resistance and support
levels which means that when it breaks this channel it has the potential to make a huge
move!
I added the color where the channel is highlighted. You need to make sure that both of
your lines are parallel to each other.
Rule #2 Identify If there is a Breakout on a 1 hour chart.
 The way you find the trade is to find a breakout of the channel that you drew on your
chart..
 In a perfect world the support and resistance levels will hold on forever..
But the world isn’t perfect..

So that’s why we have what is called a breakout.

Below the breakout candle is marked. This was taken on a one hour chart.  In this
strategy the one hour chart is what we use to find a breakout.
This breakout happened on the top of the channel. So that means you will BUY.
If the breakout happens on the bottom of the channel then you will SELL.
Great! We have breakout candle let’s get in the trade and follow the rabbit trail to pip
glory!
Not so fast..
Rule #3 Wait for a Pull Back on a 15 minute Chart.
Why wait? Because the market is money grabbing machine, and they want your hard
earned cash!
You wait because sometimes the market does a “head fake” and turns against you.
Look at the example below  for proof of  this.
So if you would have got in this trade right when it broke out of the channel you would
soon have got stopped out.
That is why it is so important to Wait for it to pull back.
So back to our original example, you see below the pullback we are talking about.
This is where many people struggle. They see that it broke out so they want to click BUY
or SELL right now!!!
Think about the sayings you have heard since you were a child, “Patience is a Virtue,”
Or “Good things in life take Time”
Just be patient and wait…
This trade would not have burned you, but countless other trades would have!
Think about the pull back as the candle that closes towards the channel. So if the pull
back is above the channel you are looking for a bearish (red) candle. If the pull back is
below the channel you are looking for a bullish (green) candle.
*We only need one of these pull back candles on a 15 minute chart. Once this happens
move on to the next step.
Rule #4 After Pull Back, Make Entry.
We are getting so close to getting on our rabbit trail to make some serious pips!
Our lines are drawn, we identified the breakout, and waited for the pull back. It is now
time to make our trade.
The criteria  to make an entry after a pull back on a 15 minute chart to enter a trade is
that there must be two 15-minute candles that support our trade.
If it is a BUY trade we want to see TWO bullish (up) candles after the pull back.
If it is a SELL trade we want to see TWO bearish (down) candles after the pull back.
In our example we are using we would need to see two green bullish candles after a pull
back to enter a trade.
Below is where we would enter.
Enter after the two bullish 15 minute candlesticks close.

So again, we WAIT for a pullback candle to close and then we need two BULLISH
(green) candles to close to many an entry.
The chart above clearly shows you that there was not a clear
two consecutive bullish candles until it came back down and then made its aggressive
move upward which resulted in 4 consecutive bullish candles.
REMEMBER this is a 15 minute time frame chart.
*If you plan to use this strategy as is and not choose to tweak it then save this
chart above as a guide for your entry criteria!
I recommend you use the color candles for this strategy that way you can easily see
which candles close bullish or bearish.
Trust me it will help you a lot when you are looking for your entry point.
So now since we have our entry point down let’s find the stop loss placement.
Rule #5 Stop Loss Placement
This is probably one of the most important rules of the strategy.
You always need to place a stop loss somewhere for a reason. If you are throwing in
stop losses 5 to 10 pips from your entry order just because someone you read that
somewhere, then you are without a doubt treading some dangerous waters.
In a Buy The stop loss will be placed in the channel below the last support point.
In a SELL The stop loss will be placed in the channel above  the last resistance point.
In our example you can see where the stop loss was placed.
That way if it does come back in the Channel it will hit the support level and end up
going back up in a bullish movement.
Rule #6 Ride The Rabbit Trail to 50 pips!
The last thing you need to do is know when to exit the trade.
This strategy goes for a 50 pip target.
So when you make your entry, you calculate 50 pips take profit mark and place it.
The price movement to your target is now called the rabbit trail.
The rabbit trail may be 2 hours, or could take as long as two days. You have your target
so really you have nothing else to do but sit back and watch your trade make you some
money!
Stay in the trade and remember your rules. You are going for a 50 pip breakout trade!
So to recap, here is what needs to happen in order for you to enter a trade with the
Rabbit Trail Trading Strategy:
If you need to, Copy these rules down in front of you when you are using this strategy. It
really makes it easy once you get this system perfected.
Rule #1: Draw a channel on a 1 hour chart.
Rule #2 Identify If there is a Breakout on 4 hour or 1 hour chart.
Rule #3 Wait for a Pull Back on a 15 minute Chart.
Rule #4 After Pull Back, Make Entry.
Rule #5  Find a Stop Loss Placement.
Rule #6 Ride The Rabbit Trail to 50 pips!
I Hope you find great success with this strategy and always remember to only be risking
no more than 2% of your account.at a time per trade.