One of the most challenging aspects of options trading is timing.
Whenever you turn on the TV, you see a different expert telling you that it's impossible to time the market. Or you see another giving you THE fail-proof strategy for timing the market perfectly.
This leaves retail investors and traders scrambling to buy their stocks at the absolute lowest prices (the bottom) or sell their stocks at the absolute highest prices (the top).
And they usually fail.
Now, I'm not saying that you can't buy stock at the lowest price or sell it at the highest price…
But if anyone tells you they caught the absolute top or bottom in a stock, that person is lying to you.
So how do you know when to jump in and out of your trades?
Today's lesson will show you exactly when to jump in or jump out of the market… when a stock is going to turn from its current high or current low point… and how to profit handsomely.
This is the best way to time your trades…
To make money trading options, you need to know when a stock's price is going to turn, or pivot, and you need to understand stochastics.
This may sound challenging, but I'm going to tell you everything you need to know.
Let's get started.
The Pivot Point Tells You Which Direction a Stock Will Turn
The pivot point is used for determining the overall trend of the market over different time frames. In itself, a pivot point is the average of the high, low, and closing prices from the previous trading day.
A pivot point on a chart is formed by three bars or candlesticks (for those who prefer this type of chart). A pivot high occurs when a middle bar is sandwiched between two bars that have lower highs than that of the middle bar.
A pivot low occurs when a middle bar is sandwiched between two bars that have higher lows than that of the middle bar.
You can see what a pivot high and pivot low look like in the chart below.
Now let's talk about what it looks like when a pivot high or pivot low starts reversing. This is called a pivot high reversal or a pivot low reversal.
For a pivot high reversal to occur, the most recent bar (or candlestick) should have a lower low and a lower closing low from its previous trading day (middle bar).
For a pivot low reversal to occur, the most recent bar (or candlestick) should have a higher high and a higher closing high from its previous day (middle bar).
Trading above the pivot point indicates a bullish market sentiment, while trading below the pivot point indicates a bearish market sentiment.
Stochastics Will Tell You When the Tables Are Turning
Now that you know how to tell which direction a stock is turning, let's talk about when the stock will turn.
This is when stochastics comes into play.
About the Author
Tom Gentile is one of the world's foremost authorities on stock, futures and options trading.
With more than 25 years' experience trading stocks, futures, and options, Tom's style of trading systems and strategies are designed to help individual investors propel themselves past 99 percent of the trading crowd.