Crypto Trading 101 | Surfing the crypto and stock market

It has been a crazy trading week – the global stock markets are crashing everywhere – except gold and silver – which we’ve been recommending here on this show. What am I talking about? I’m talking about Trading the Brexit After math. 

 

There have been some big headlines surrounding the UK’s Brexit vote to leave the European Union. The Briitsh pound fell 9% to 30 year lows, the stock market crashed with Dow down over 600 points (800 points at one point)

The Brexit Vote

 

What is Brexit? You may ask.

 

Brexit the term itself is a blend between Britain and Exit -so Brexit.

 

On Thursday, June 23  going into Friday morning June 24 – there was a vote within the UK on whether they should stay in the European Union – or whether they should leave. 

 

We won’t go into the exact details of the vote or the economics of it –as you can find those by reading any news channel. But what we’re interested in here – is what implications this has on you as a trader and what it was like trading during this Brexit vote.

 

Well, as any trader who was trading that day — or I should say — that night — can attest to — it was one of the craziest trading experiences ever–stressful and thrilling at the same time. There were people who said trading this market was more exciting than a Game 7 of an NBA finals. Really dramatic. Your account would’ve gone through wild swings.

Pre-Brexit Trading

The day before the vote, the market was around 2075 and as the day of the vote arrived, the market rallied towards 2095 and closed that day at 2098. That’s already a 20+ point rally. The expectation was that everyone would vote to stay in the EU instead of exit. People were saying the odds were roughly 5:1 according to some sources – meaning a high probability that Britain would stay in the European union.

But the crazy part happened after the 4pm market close — between 4pm and 6-7pm EST – the markets rallied even more. Usually after the market closes, not much happens in the futures market. It usually stays where it is. But this time, it moved like crazy and faster up than it did during market hours. It went from 2098 to 2118 — another 20 points until around 6:30pm — that’s when the initial vote counts came in.

Trading the Brexit Vote

Instead of the votes showing an overhwhelming majority to stay in the EU, instead, the votes showed a super close tight race between stay and exit — and actually, the exit voters were winning 51% to 49%.

Holy krap – that’s definitely not what everyone else thought was going to happen.

The markets began reversing dramatically — within minutes — dropped all the gains from since the market close and dropped from 2118 to below 2090 — then it rebounded.

The Brexit Stock Market Crash

You see, the voting numbers kept coming in and as new information came in, the market would move drastically in one direction and then reverse.

The market dumped and continued dumping as the voting numbers came in.

The weeks and weeks of gains that happened in the market — all gone within an hour or two. Between 6:30pm EST and 1am — the market dropped from 2118 down 120 points all the way to 1999 — so much to the point that circuit breakers — which are designed to prevent the market from falling more than 7% in a given day — those circuit breakers kicked.

Another week gone by – another $1,000 per week goal reached by LST subscribers worldwide.

 

In fact, this week, we made $4,500 on 3 out of 3 wins! – well surpassing our goal of $1,000 per week.

 

We bought the E-mini S&P’s at 2086 and sold at 2116

 

We bought call options on the GDXJ junior Gold minors – sold a portion today for around 150% returns — buying at $.65 and selling at $1.55

 

We bought silver at 16.03 and sold a portion today at 17.29. For more info, check us out at www.lifestyletrading101.com

 

 

Today we are going to talk about changing market conditions and how YOU have to adapt your trading strategy as the market changes as well — otherwise, you’re going to fall into the ocean.

 

 

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Adapting to Changing Market Environments

OK – now onto today’s topic of adapting to changing market environments.

Just like when you’re surfing in water, when you’re surfing the markets, you need to adjust the angle of your board and how much weight you put on which areas of the board as you surf the waters so you can adjust and adapt to how the strong the waves are.

 

The stock market is ever changing – and so you need to adapt in order to stay a profitable trader.

 

The strategy that we used over and over again in January, February, and March — that made us thousands of dollars — is now not as effective as before — and we’ve adapted using slightly different strategies.

 

Why? What changed?

 

Well, because the market change – as it constantly does. 

 

How so?

 

Well, Implied Volatility — or the VIX index — has dropped a LOT — and that’s largely because the market has rallied a significant amount since the 1800 lows — we are now over 2100 — that’s a 300 point gain in just a few months.

 

With that S&P rally came a significant drop in volatilty.

 

If you’ve been paying attention, in the first few months of 2016, we’ve been talking about credit spreads — in particular, put spreads –betting that the market would stay above a certain level and collecting money every single week.

 

That strategy worked well because volatility was high. If you look at the VIX — it was mostly over 20 during those few months. 

 

Ideally, you want to sell credit spreads when volatility is high — ideally when VIX is above 20. Well, guess what — VIX is now at 14-15 —implying less than 1 percent move in the S&P on any given. How did I get 1%? 

 

Well, the general rule is you divide by 16. 16 represents roughly 1% move — so if VIX is at 14-15 — it means the market expects small moves of less than 1 percent each day — and that’s implied volatility.

 

Usually, actual realized volatility is historically lower than the levels that are implied.

 

So we’re talking about really low levels of volatility.

 

Trading Psychology: The importance of reflecting on your mistakes.

We are aware of greed and fear when we talk about trading. Gordon Gecko said the famous movie quote line “greed is good” in Wall Street the movie. But what exactly greed and fear mean and how does it affect our trading psychology.

Well, this past week was a perfect example of these emotions playing out for me. Luckily, I was able to spot these emotions, correct them, and profit $1,600 from this initial mistake.

If you’re interested in the making money in the markets, you will know how important trading psychology is to your account. This past week was the perfect example of that.

This past week, the Fed Chair Janet Yellen opened her mouth on Tuesday. Now this is different from the typical Wednesday 2pm Fed announcement on interest rates policy — this was more just a speech she made on a Tuesday.

Still, it had drastic implications on the market.

But before we get to the Fed speech, let’s talk about trading psychology.

Trading Psychology: Greed and fear.

Greed for more money.

But fear of what?

Usually it’s fear of losing money. But in this past week, it was fear of missing out.

You see, every chartist and chart technician was calling for a massive crash this past week — and for good reason. The market had already rallied from 1800 all the way over 2000 and we got to 2047 — that’s almost 250 points of pretty much nonstop rallying. A lot of fund managers and technicians were calling for a top — shorting heavily.

And for a day and a half, things went their way. The market drifted lower and lower for a full day — and even overnight, it could not even get a slight bump on the upside. Everything was down.

Maybe all the bears were right this time. I haven’t seen such continued downside in a while. Maybe that WAS the top.

Everybody who was short the market — if they were right and we were going down big — then they would stand to make A TON of money.

Already, people were messaging me talking about how much money they made.

And I thought, I can’t miss out on this opportunity of a lifetime to short and make it a big–a big short.

So I went short — even though I could not clearly understand the structure of the wave pattern.

You see, I was going against my own rules of only trading if I clearly see a wave structure.

Instead, I was entering a trade because of my emotion – in this case fear of missing out.

Of course, when I entered this trade, I did not know this was a fear of missing out.

Oftentimes, when you’re into what you’re doing, you won’t see things from an outside perspective.

And this is where it helps to talk with someone else.

In my case, I had my daily walk with my fiancee around the lake – and we talked about the mistake I had made.

Why did I make this mistake?

After talking it through — she helped me spot my mistake. My mistake wasn’t necessarily that I went short — although that’s how the mistake manifested itself. The real mistake was that I fell into the trap of having a fear of missing out.

A fear of missing out on money that everybody else was about to make and that I wouldn’t make if I didn&#...

We have an extensive written article on what is the S&P500 that accompanies this episode and we encourage you to read/reference.

What exactly is the S&P500?

We hear about it all the time. Amateurs and professionals alike throw around the term in all kinds of discussions related to the economy and perhaps their personal portfolios.

But what exactly is it? Who invented it? What does it consist of? And why does it matter? Most importantly, what do you use to trade it?

Here are some of the topics we address in this podcast:

* What is the S&P500?

* S&P500 Definition

* S&P500 Names and Sectors

* How are companies chosen to be in the S&P500?

* Adjustments to the S&P500

* Usage of the S&P500

* The S&P500 SPY ETF

* Leveraging the S&P500 (leveraged ETFs and Futures)

* Why S&P E-minis?

Learn why we trade the S&P500 here.

S&P500 Sector Breakdown

 

Before We Discuss Credit Spreads – Daily Update

What a crazy week this has been with a monstrous rally.

Last week in our podcast, we talked about overnight and 3 day weekend risks — and how we bounced from 1800 all the way to 1930 in the S&P500.

This week, we dipped below 1900 towards 1890 – before rocketing even higher above 1940 – towards 1950+.

This week we had a very profitable week with a total of 4 trade – primarily credit spreads.

Our trade from last Friday reached close to max profit this past monday. We had ether MOnday or Tuesday to exit that trade and on Tuesday, we posted on our blog the potential for downside before upside — and that’s exactly what happened.

We were able to re-enter our bullish plays Wednesday morning and we ended up putting on 3 different bullish plays on Wednesday and Thursday at various times. The rally rocketed up even faster than it did from the 1800 lows — our trades reached max profit. We also have some trades expiring next week – so we are holding those over the weekend to take advantage of time decay.

We finished the futures ending at 1944.

In yesterday’s post Thursday, 2/25/16 S&P Hits 1950ES, As Predicted All Week!, we said ES hit 1950 – it actually kept going higher overnight all the way to 1968. However, during the day, it turned back down below 1950 all the way to 1942.

Yesterday’s S&P500 Hourly Chart

Today’s S&P500 Hourly Chart

This is a funky looking b-wave down. It doesn’t look like how it should if that were the top. I have to be open to the possibility that I could be wrong, but given the size of the big wave A and the big wave B – it would be a bit awkward if the size of this big C is just less than 2 days. So I’m leaning towards a little bit more. Let’s see how Sunday night trades.

3 Best Answers to What Is A Credit Spread

For a beginner starting to learn about credit spreads as they relate to options trading, it can be difficult to  really understand credit spreads and how they are useful — why traders even bother with something that’s more complicated than a simple buy or sell.

A credit spread is simply a paired option trade that results in your account receiving (rather than paying out) a net credit.

 But that doesn’t really help you understand what it actually is and how it is useful for options traders.

 What you’re missing is this: Credit spreads allow you to bet where the market won’t go.

 Betting where the market won’t go is my favorite definition of a credit spread.

 But just so you get the big picture of it, we’ll start with why the credit spread was even “invented” which stems from the problems of traditional short sale of options (short calls and short puts). We’ll then show how “credit spreads” helps solve that problem. Then we’ll dive deeper into the mechanics of a credit spread from 3 perspectives on what a credit spread is – starting with a theoretical take, then a practical trader’s take, then a broker’s take. Once you know these, you can use credit spreads strategically to help you make money.

Today’s morning downward movement towards 1900 and subsequent bounce rally was expected.

Yesterday’s S&P500 Hourly Chart

As we predicted yesterday, the B-wave should go down towards the 1900 region before resuming uptrend. Today’s low was at 1899. We initiated our trade of the week for next week near those lows at 1903/1904

Today’s S&P500 Hourly Chart

Zooming in to S&P500 5min Chart

My S&P 500 2016 Prediction So Far On Track:

At the end of 2015, I posted this blog entry: S&P500 2015 Year in Review and 2016 Outlook – which included the following chart prediction:

Well, guess what – today about 2 months later – the weekly chart looks like we got that yellow wave 1 down and are potentially in a wave 2 retrace:

I thought we might break 1800 with wave 1 – but it’s also possible that it holds as support. Either way, we did get what looks like a wave 1 down. At this point, either the wave 1 down is followed by the recent wave 2 rally — or that wave 1 down was actually a wave C down and we will continue to rally beyond where we expect it to go – potentially to new highs. I am open to both possibilities and it really depends on how the pattern morphs on a daily basis.

 

S&P500 Overnight and Weekend Risk

 

Before I talk about today’s topic of overnight and weekend risk — particularly over 3 day weekends, i wanted to talk about what some of our subscribers have been bugging me about–the urge to get into a trade.

 

So as I’ll discuss in a bit, this week we had a profitable max profit trade as our trade of the week. We promise 1 high probability trade each week and that trade made good money this week. We initiated the trade on Tuesday and it expired on Friday for maximum profit.

 

In fact, within 1 day, this trade reached 50% of max profit and within 2 days, it reached 90% of max profit.

 

Now, some of our subscribers are constantly bugging me — where’s the next trade? As if there’s this constant need to be in a trade.

 

Well, let me clarify, this is podcast and service is all about LifeStyleTrading — these trades are designed with the intent that you can put on the trade and carry on with your life –whether it’s your day job  or something else — and by Friday expiration, the hope is that you will collect your max profit. There’s no guarantees it works out as planned – but that’s the goal we aim for.

 

The goal is NOT to generate trade idea after trade idea after trade idea — it’s not about quantity — it’s about quality. Our goal is to help you generate a few thousand dollars per month with just 1 trade per week. Sometimes we might give bonus trades — in fact, oftentimes we do more than 1 trade per week. But those are bonuses. 

 

Also, we care about high probability trades — so we don’t do large quantity of trades. We want to be able to put on the trade and relax. Now yes, many of our subscribers are day traders who are constantly in and out, in and out — constantly looking for the next trade. But you don’t have to be so neurotic to make mon...

 

S&P500 Daily Chart February5

Zooming In, Here’s S&P Hourly Chart

Zooming Out, Here’s S&P Daily Chart

While my expectation is that we go below 1800 at this point, I need to also be open to the possibility that we can still rally from the mid 1800s  back up to 1960 before completing the wave 4 as suggested in the above daily chart. So I will need to see more clues in Monday or Tuesday to figure out which one is more likely.

Trade of the Week (Net >$2k in profits for the week)

On Tuesday, we cashed out a $1.2k profit. On Wednesday, we exited $3,000 worth of puts at roughly 75% gain — so a little more than $2k in profits.

On Friday, our bear call spread expired for max profits — selling the 193 call strike that netted $1.4k in profit  (I personally doubled the size so had $2.8k in profits, but I recommended half the size to subscribers).

This could have been gains of more than $4k, but I had a mistake.

Mistake in Gold

However, our mistake was on the gold trade, where we lost more than $2k on the rise—still positive for the week ($1.2k + $2k + $1.4k – $2.4k = >$2k in profits) but definitely painful and unusual since we didn’t follow our own trading rule of exiting if it exceeded the morning’s high. This is a lesson on the importance of staying disciplined to rules.

 

This is the only way of counting it that makes sense if these two requirements are true:

* if we have not bottomed yet

* if we rally towards 1200

However, if we exceed, 1240-1250 — then I have to accept that the bottom is in, even if the pattern does not look complete to me.

But the pattern above allows for the possibility of Gold reaching 1200. Typically, with metals, we should see 5th wave extensions, rather than short 5th waves, but we haven’t seen that extension — plus the rally from the bottom is not immediately violent enough to typically be the start of a massive 5th wave. It looks corrective to me. But corrective doesn’t mean it can’t go up a lot as it clearly has shown. It can even exceed the prior fourth wave (iv) by a little bit. So I had a lapse in judgment here, but i think drawing it out here helps me see it more clearly.

But the focus needs to be on making money, rather than on picking bottoms. So for the time being, I will stay away from Gold and allow it another week or so to see if the pattern can complete in the 1175-1210 region before deciding to re-enter.

Transcript

This is a recap of the trading week Feb 1-5, 2016

Another week in the markets, another week of profits for lifestyle traders around the world. The S&P futures ending the week at 1874 –it went as high as 1940 on monday, down to 1865, then popped up to 1922, then back down to 1865.

On monday we initiated a bear call spread trade and our timing was pretty much impeccable — right when the S&P futures were in the 1935-1940 zone — the local top was 1940 on the dot.

Yesterday, I posted a blog post called Volatile Coiling in S&P Market— and that coiling basically led to today’s big rally that I predicted!

30 min Chart from Yesterday

Notice the pink i? ii? and iii? suggesting a rally overnight. We got that rally overnight — and continued follow through in wave 3 below:

30 min Chart For Today

While the chart only shows a rally towards 1921, we actually closed around the ES1930 region – so an additional 10 points on top of what’s shown above.

Last Tuesday, I posted:

“If wave A was from 1804 all the way to 1904 — basically 100 points, and wave B fell to 1851 — so basically 53 points, we could get potentially another 100 points up ideally. That would bring is to 1951. However, something tells me it won’t get that far — so if we take the golden ratio of 61.8% and apply it to that 100 points, then that gives us 62 points up from 1851, which would be 1913 – which is reasonable as a target (assuming we break the resistance).”

So we just exceeded the 1913/1915 minimum target region and we hit 1932 at the close. At this point, I am inclined to say that we may reach the 1950-1980 region I originally expected. The reason is because it took so many days this whole week to set up this 3rd wave — and the 3rd wave was just today. i would imagine it should go on for a few more days — so we should allow a little more room to the upside — so 1950 seems reasonable. I would like to see 1980 hit, but do not know if will actually get there.

This Week’s S&P500 Hourly Chart (Jan 14-Jan29)

 

Compared to Last Friday’s S&P500 Hourly Chart (Jan 7-Jan 22)

Status of Trade of The Week: Collected Max Profit of $2,700!

We closed out our SPY short put spread  of 186/181 as well as the 184/179 strikes to collect $1,800 and $900, respectively — combined for $2,700 for this week.

Our bet was that SPY would stay above 186 this week, and expired SPY this week well above 192. So even though there was a lot of up and downs during the week, our subscribers banked thousands of dollars this past week. Congratulations to our subscribers!

As recommended to our subscribers last Friday:

 

 

The Russell

Out of all indexes, the Russell rallied the most – particularly in the last 30 minutes of the trading day.

From 1 week ago (Before)

Today’s Chart (After)

We are now at the 1034.5 mark – which is what I was expecting – however the Russell’s performance earlier this week was fairly weak compared to S&P and Nasdaq. Yet, all of a sudden, starting from just before today’s market open, the Russell just took off.

What Happened Yesterday And Our Forecast For Today

Yesterday, I posted this chart – saying that we were coiling up for a rally in the S&P— and really all indexes.

 

Well, today we got that rally – really from the chart yesterday — that was the beginning of the rally from 1855 up to 1900.

What Happened Today

Here’s what the chart looked like today:

We got an overnight rally towards 1890 at the open this morning and then we went up to 1900 – failed that test — and went down to 1883 — found support — and then went back up towards 1900. I’m expecting to see a break over 1900 into the 1910-1915 region. Ideally, I would love to see 1950 hit, but can’t be sure about that. Let’s see how the pattern plays out.

How did Our Trades Do?

We profited roughly $1,200 this week from a short put spread on the 183 strike as well as the 180 strike for the SPY. Since we expired today with the SPY well over 190 — each of these 2 trades resulted in max profit.  While we did reduce the position size of the 183 strike in half on Wednesday due to the big capitulation that exceeded where we imagined — we also initiated a new trade shorting the 180 strike that more than made up for the small loss. We still kept half of the position on the 183 strike – but we were full size on the strike.

We also initiated a new trade-of-the-week today with a max profit of a few thousand dollars.

LifeStyleTrading101 Podcast Transcript (Episode 6)

It’s Friday expiration January 22, 2016 – and we are closing the E-Mini S&P futures at 1899.25 –with SPY at 190.49.

 

So roughly speaking – you can think of it as 1900 in the S&P and 190 in the SPY.

 

Since December 30 when we were at 2075 in the S&P futures – we dropped all the way to 1804 — almost a 270 point drop that bottomed this past Wednesday, January 20. 

 

The market definitely dropped below where we thought it would – we were betting that the SPY would stay above 183 by expiration Friday January 22.  And indeed – it stayed above 183 with SPY closing above 189 today.

 

There was a point on capitulation Wednesday when the SPY went to the low of 181.02, but by went of the day, it went back up to the 186 region.

 

On that day, we got lil spooked, so we reduce our position by half, but we also initiated a second trade that was higher probability given the move down in the markets — so we basically shifted a our 183 strike down to the 180 strike to increase our odds and still collected a decent amount of premium.

 

Today, both those trades expired at maximum profit — the gains from the 183 short put spread effectively cancelled out the loss from the rollover. But the 180 strike gave us a good amount – around $1200 in profits this week from that 1 trade that required a trade adjustment.

 

In case you didn’t have time to login to your account during the day, if you placed the trade with us, you could have done nothing and collected max profit since our bet that SPY would stay above 183 today turned out to be good as SPY is above 190 today at expiration.

 

In lasts week’s episode, we talked about why selling we would short a put spr...

S&P Daily Chart (Nov2015 to Jan2016: Past few months)

Here’s Friday’s red candle bringing S&P Futures to 1876.5 on the S&P500 daily chart (zoomed out(

Between December 30, 2015 and January 15 — the S&P500 dropped from 2075 to 1849 — a roughly 226 pt drop in just two weeks. Here’s a summary of what happened — starting off with:

1)a leading diagonal,

2)a 3rd wave drop that finished A wave down—

3) a B-wave triangle —

4)a 3rd wave that ended with a truncated 5th wave,

5) an ascending 4th wave triangle —

6) a clear 5th wave down —

7) a hero 4th wave that fell apart overnight into what might be capitulation 5th wave with a V-shape bottom.

S&P Hourly Chart (Dec 30, 2015 – Jan15, 2016: Past 2 weeks)

Zooming in, the intraday 5 minute char began at the at the market open 9:30am at 1860, went as low as 1849 at 12:40pm, and then closed at 1876:

S&P 5 Min Chart (Just Friday, Jan 15, 2016 7am to 5pm))

 Last night, I was expecting a B-wave drop – did not expect us to break yesterday’s low at 1871 at the open.

Yesterday’s 5 minute chart (Hero Rally that Failed and dropped from 1917 to 1849)

S&P500 Intraday January 14, 2016 – this pattern would eventually drop straight down to 1860 overnight – and then bottom at 1849!

Instead, today (really overnight, we had an A down to 1912, a B up to 1921, then the C-wave down supposedly — but that extended way beyond what I expected. I’m also having trouble properly labeling the drop.

The V-shaped bottom at 12:40pm EST was also an unusual pattern.

New Trade

We did initiate a new trade for next week to take advantage of the elevated volatility level in options and time decay over the weekend. Good thing we shorted calls at yesterday’s high and cashed out half of our trade up there. With elevated volatility, you never know what happens overnight.

Looking at the overnight S&P500 Drop Thursday night into Friday close

The markets had a turbulent week – markets down 8% for the year and it’s only two weeks in.

 

The VIX futures reached up as high as 28.3. The first day of the New Year, VIX was jsut below 20.

 

Most notably, there was a huge drop overnight from Thursday’s rally high down belo...