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The Market Taker Take: Option Trading Blog

Big News From the Fed This Week

The Federal Open Market Committee has a mandate to promote full employment and keep inflation in check. It raises interest rates when the economy is overheating, and it lowers rates to promote spending or increase economic activity. Lately, Fed Chair Jerome Powell has taken a dovish or more accommodative stance. Many economists

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Know Average Daily Range and Average True Range

Around holidays, especially in the summer, the participation rate often decreases, and subsequently so do volume and ranges. The typical seasonal lulls and end of each quarter are ideal times to do research and update statistics. I keep a spreadsheet with statistics covering average ranges over the most frequently analyzed time frames:

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How to Improve Trade Entry and Exit

One of the more difficult issues traders face is choosing prices that are apt to be extremes, or highs and lows, over a given time frame. Pinpointing daily entry and exit levels, also known as support and resistance areas, requires a view of recent history of the market you are trading. When

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How to Trade This Options Market

This is just a little blog to remind you about your options trading management. Everyone needs reminders, especially option traders. I will often say in my Group Coaching class to know exactly what you will do no matter what happens before you enter any trade. The same can be said about the

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Trade Talk and Tweets: the New Fundamentals

Fundamental data are also known as event risk. Professional traders keep a close eye on the economic calendar for events or reports that could alter a trend or start a new one. A treasury trader might hedge a long position by buying 10-year note puts or selling calls just before employment or

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How to Save Time Analyzing Markets

Since leaving the trading floor at the Chicago Board of Trade I’ve been tethered to my desktop computer. My office is my workshop, and all the tools I need for trading market analysis are there. Since the futures markets virtually never close except on Saturday, the leash to my tools is short

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How to Catch Directional Moves

One of my chores is to write a weekly piece that enlightens traders. At times my interpretations are spot on, almost prophetic. And sometimes I am clueless. My 30 years of experience in the futures markets has taught me to accept, almost embrace, being wrong. Traders must embrace risk. No one likes

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A Bullish Trade Setup to Consider

The market remains predominantly bullish, and we have considered potential bullish trade more than a few times in our Group Coaching class. One setup I continue to love is the 2-bar bullish break from a bullish base. When a Bullish Base is Created? A bullish base is created when a stock moves

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How to Become a Successful Trader

I was fortunate to spend most of my career at the Chicago Board of Trade as a broker in the 30-year bond pit. The ’80s and ’90s were the heyday for interest trading pits. Most days were filled with big swings and lots of volume. The pits were packed and often became

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Think Like a Pro Trader

Spend time with a broker or pit trader from the era when all trades were executed at an exchange and you will learn about the auction process and the information it provides. Pits were created to facilitate trade. To an untrained eye a trading pit looks like a mess of mad, aggressive

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A Reminder to Review Your Trades

I have mentioned this before and will continue to mention it as much as I can: Please record your trades and review them often. Simply put, there is no better way to see what you are doing wrong and doing right. To me, it has always been an eye-opening experience to go

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Trading Time – How to Read Open and Close Clues

Monitoring the trading time of day when extremes (high and low) are made can be helpful when timing entry and exit of a position. Liquidity is king. Large orders from professional traders are likely to be executed when volume is at a peak. The first hour of trade is frequently the highest

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Traders Often Need to Be Reminded

Well over a year ago, I wrote about several of my favorite sayings that of course apply to trading. Well this is a short blog to remind everyone how important this one particular saying is to me and most likely to you. With the volatile market we have encountered over the past

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Key Economic Sector and ETF Watchlist

Most days in futures class we review direction indicators for the major sectors of the economy. These sectors often correlate either directly or indirectly. For example, a rise in interest rates may affect currencies, which might have an impact on stocks or precious metals and energy. A small move in one of

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This Is a Rough Time for Many Option Traders

The gist of this blog is you don’t always have to trade. Market volatility has been crazy as of late. The market had its most bearish Christmas Eve ever, and then on the next trading session the Dow closed up over a thousand points. And then the session after that, the market

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Protecting Profit During Volatility

This year has been quite volatile, possibly the most volatile ever for stock indexes. The first and fourth quarters saw average day ranges that spanned nearly twice the norm. Day ranges have been closer to the length of a historic average week. When the moves are so extraordinary, risk doubles, as does

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Option Trading Is Always a Trade-Off

Here is just a quick reminder that everything you do has consequences in option trading. In other words, everything is essentially a risk/reward trade-off. Just think about it for a second: If you give up potential profit, you get a better risk/reward and vice versa. Let me go through an example with

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Watch Trade Truce’s Impact on Price Action

Last weekend Argentina hosted the G20 summit, which comprised 20 leaders from around the globe. There were three agenda priorities: the future of work, infrastructure for development and a sustainable food future. Trade and tariffs may not have been listed as priorities, but they certainly were. When the commodity markets opened Sunday

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How to Gauge Trade Patterns

In the first of the two SPY charts below, we see a steady rally in 2017 where the average month range spanned about 8 points. Then in January 2018 the range more than doubled the average bringing on an overbought signal. It was the last thrust higher that ended the nearly nonstop

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Comparing Bearish Vertical Spreads

As an option trader, vertical spreads are most likely an integral part of your arsenal as a swing trader. What makes them so worthy of your consideration is the wide variety of risk/reward scenarios depending on one’s outlook. Let’s do a quick comparison of two verticals with bearish outlooks. Verticals One of

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How to Select Strikes

Recently I have been reeducating myself with option strategies. It has been over 15 years since I executed an option order at the CBOT. After joining the MTM team, I viewed many of the teaching videos and listened to Dan and John K. talk option strategy with students. Thus, I am eager

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