As an option trader, I am always looking for an edge on a trade. Quite often, and especially with the market moving higher, multiple bullish bases present themselves. A quick definition of a bullish base is when the underlying is in an uptrend and then levels off but does not pull back much from recent highs. Sometimes the underlying is extended before doing this, and it is like it is taking a break. But buyers have not let the underlying move much lower. This is usually a strong bullish sign.
UAL Example
Take a look at the recent daily chart below of United Airlines Holdings, Inc. (UAL).
The stock moved from about $38 to about $75 in a few months. But notice what happened around the $74.50 level. The stock leveled off and pretty much traded sideways. Then on Monday, Oct. 28, the stock gapped up and moved higher early in the session. We talked about this in MTM’s Group Coaching that morning. I said to be patient and let buyers prove they want to continue to move the stock higher before just jumping in. A bullish base does not always mean the stock will go higher. As you can see by the last candle on the chart, which was that Monday, the stock failed to close in a bullish manner.
Wait Till Tomorrow
I told the class that the stock had a better chance to not close in a bullish manner because resistance is always more likely to keep the underlying from moving through that level. So, in this case, sitting on our hands and reassessing the position the next day was the best way to go. Be patient when you trade!
