Swing Trade Setup by a 3-5 Day Pullback

OPTIONS
Swing Trade Setup by a 3-5 Day Pullback
Objective
The objective of this strategy is to minimize time spent in the market by observing market movements and following
retracements. This document defines the entry and exit parameters of the 3-5 Day Pullback strategy and which options are
correct for trading.
Minimize Time Spent
Suitable trade candidates can be traded Monday through Thursday with entry made in the last five (5) to ten (10)
minutes of the market. Scan the market for stocks that match the ‘Pullback’ criteria during the last half-hour of market. Typical
exits for this strategy occur during the first half-hour of market the following morning. Exits are acceptable Tuesday through
Friday.
Define the Entry Trigger
This strategy is defined by observing the Wizetrade charts and anticipating approaching movements. Clues given by
the charts will allow this strategy to succeed.
Build the trade on a strong Long Term chart. A ‘strong’ chart is one that is trending either bullish or bearish with
increasing angle and separation. The Mid Term chart needs to support the Long Term chart by confirming the trend. The
Short Term chart needs to display at least three (3) days trading reverse to the Long Term trend direction.
If the Long Term trend is going up: Look for at least three (3) days of lower intraday highs.
If the Long Term trend is going down: Look for at least three (3) days of higher intraday lows.
The entry within the last 10 minutes of the market depends on the strength of the 30 Minute chart. If the 30 Minute
light is displaying stair-stepping volume within the last three (3) time frames, strength is building. Another indicator could be
the last half hour’s volume twice the preceding half hour’s volume and the green line displays strong angle in the direction
of the Long Term chart. At the time of entry, the short term chart should be traveling against the Long Term trend by at least
three (3) days. The trigger starts at the end of the third day. If the trigger does not occur on the third day, check the following
day up to the fifth day for entry. The point is to wait for the retracement to become exhausted and turn around to follow the
Long Term trend.
Exit Criteria
The exit criteria is simple. Exit the trade when the profit goal is reached, stop loss has been executed, or choose to
close the position based on new chart conditions.
Choose the Right Option
The following criteria is imperative for choosing an option that compliments this trading strategy:
• The option DTE (Days Till Expiration) should be at least 45 days.
• The intrinsic value should be at least twice that of the option time value.
• Delta .70 to .85 for long calls; -.85 to -.60 for long puts.
• The preferred open interest of any traded option contract should be at least one thousand (1000).
• Keep the option spread to .30 or less.
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www.wizetrade.com
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OPTIONS
Additional Information
• Average True Range: The ATR must be high enough to meet trade goals within a personally set time frame.
• 52 Week High: The current stock value must be at least five (5) points below the 52 week high. If the stock broke
above the 52 week high ‘today,’ the value of the stock at close must be very close to the new high.
• 52 Week Low: The current stock value must be at least five (5) above the 52 week low. If the stock broke below the
52 week low ‘today,’ the value of the stock at close must be very close to the new low.
• Stop Loss: The stop loss value should be outside the daily ATR (Average True Range) times the delta of the option
contract. This calculation will help prevent the trade from being ‘stopped out’ too early.
• Earnings Announcement: Stocks that will report earnings information within 30 days should be avoided. Earnings
periods create unpredictable stock movement and irrational trading of the equity.
• Stock Splits: Check to make sure a potential stock traded does not have a pending stock split. Do not be ‘in trade’
the day of the split.
• Avoid Stocks at 50.00: The fifty (50) point level is a psychological level that may throw ‘snags’ in the trade time line.
To show the stock’s intent to break through the fifty (50) point level, it needs to close above fifty (50) for ten (10) straight
trading days. This rule is inversely true for the stock breaking down below fifty (50); the stock must close below fifty (50)
for ten (10) straight trading days.
Example
The following example is a stock that followed the 3-5 Day Pullback Criteria.
ADBE Long Term Entry Criteria.
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©2008 The Wizetrade Group, LLP. All Rights Reserved.
OPTIONS
ADBE Mid Term Entry Criteria.
ADBE Short Term Entry Criteria.
©2008 The Wizetrade Group, LLP. All Rights Reserved.
www.wizetrade.com
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OPTIONS
ADBE 30 Minute Entry Criteria.
ADBE Long Term Exit Criteria.
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©2008 The Wizetrade Group, LLP. All Rights Reserved.
OPTIONS
ADBE Mid Term Exit Criteria.
ADBE Short Term Exit Criteria.
©2008 The Wizetrade Group, LLP. All Rights Reserved.
www.wizetrade.com
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OPTIONS
ADBE 30 Minute Exit Criteria.
Wizetrade®, Option Hunter® and Wizetrade TV® are registered trademarks of The Wizetrade Group, LLP. Wizetrade Options
and Option Hunter software are analytical tools only and do not predict price trends. User is solely responsible for all risks
associated with use of all products, services, underlying data, scans and strategies. The predefined Strategies/Scans and
the Community Strategies/Scans included with or accessible from Wizetrade Options and Option Hunter or posted on any
Wizetrade or Option Hunter Web sites are provided for reference and informational purposes only and are not general or
specific recommendations or investment advice. The Wizetrade Group, LLP, its owners, subsidiaries, employees, affiliates, and
agents (collectively the “Company”) do not test, screen, recommend, or make any representations with respect to any strategy
including, without limitation, as to its effectiveness or appropriateness, and does disclaim and shall have no liability or user’s
selection, modification, or use of same. Trading stocks and options involves substantial risk of loss. Investors should only use
risk capital they are prepared to lose. The purchase of, sale of, or giving of advice regarding a stock or stock option can only be
performed by a licensed, registered, or exempt person. The Company does not give investment advice and is not registered
as a broker or advisor with any federal or state agency, and encourages consultation with a licensed representative prior to
making any particular investment or using any investment strategy. WF1
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