Research Essay
Phase 3-Learning Day Trading: Options
Understanding stock graphs serves the crucial purpose of determining optimal entry and exit points to maximize profits and minimize losses. Various approaches to deploying funds in the stock market exist, such as options trading and traditional investing. Options trading can be likened to a form of speculation, akin to gambling, where timely entries and exits can lead to substantial gains, but delayed decisions may result in significant losses. On the other hand, investing is a more gradual and secure strategy, involving holding onto a company’s stock for an extended period, anticipating long-term exponential growth. In comparison, investing is generally considered the safer path, while options trading entails higher risks and rewards. In this research essay, we will talk about the style of trading called options.
The sources you can utilize are a YouTube playlist and various websites that break down everything you need to know about reading graphs of stocks. Both sources communicate the various techniques and strategies that you could utilize to maximize the profits that you can gain. The website consists of different techniques which include graphs of resistance, support, candlesticks, etc with this knowledge you can practice by reading a graph of a stock and predicting the movement of the stock. The YouTube playlist consists of many techniques people use to maximize their profit gains when trading. The type of trading seen in both of the sources is a trading called “Options” This trade style is high risk and high reward. Where you would place a “call” option if they expect a stock to rise and a “put” option when they expect a stock to fall. This way of trading is like a gamble and I would call it being a “Professional Gambler”. This citation explains how stocks are different from options “Now, let’s say a call option on the stock with a strike price of $165 that expires about a month from now costs $5.50 per share or $550 per contract. Given the trader’s available investment budget, they can buy nine options for a cost of $4,950. Because the option contract controls 100 shares, the trader is effectively making a deal on 900 shares. If the stock price increases 10% to $181.50 at expiration, the option will expire in the money (ITM) and be worth $16.50 per share (for a $181.50 to $165 strike), or $14,850 on 900 shares. That’s a net dollar return of $9,990, or 200% on the capital invested, a much larger return compared to trading the underlying asset directly.” (Options trading for beginners, Elvin Mirzayev) You can multiply profits tremendously if you utilize contracts which are a contract between two parties that gives the buyer the right to buy or sell underlying stocks at a predetermined price and within a specified time which you could place a “put” or a “call” to determine if the price will rise or decline.
Due to the high risk if you make the wrong choice between a put or call you would lose all your money instantly. It takes many hours out of your day to analyze the stock graphs when the market opens where you would need to watch the stock movement constantly. To ensure you enter a “call” or “put” it at the right time, you would exit out with a fair return of money that depends on how much you are willing to risk. It would be beneficial to thoroughly learn and practice instead of instantly trading without thinking since you could lose all that money instantly. “There are ways to mitigate the risks in options trading. In fact, many options trading strategies are used to minimize risk by combining contracts or shares of the underlying stock. It can pay to educate yourself further about those strategies in order to fully understand the risks involved with trading options before you put real money on the line.” (How to trade options, Adam Levy) This quote shows how it’s better to enter the market experienced than inexperienced just like how you go job hunting employers want experience over inexperience.
The chart below from https://ronfx.notion.site/ronfx/MMXM-Course-45877fd9cc664fc3a35cab787e7df1b9
Example of how the Silver Bullet Technique is used
The method Silver Bullet Strategy is used within different time frames which include 3 am-4 am, 10 am – 11 am, and 2 pm-3 pm NYC local time.
Here is how different times will affect the way you trade:
(3 am- 4 am)
This setup involves a classic ICT fair value gap between 3 AM and 4 AM. The goal here is to determine where the price is likely to go next. This setup requires a keen understanding of the market and the ability to predict price movements accurately.
(10 am- 11 am)
This setup focuses on relatively equal lows and sell-side resting below that. The market creates a fair value gap, and the trader sells short there, aiming for at least five handles. This strategy requires a deep understanding of the market’s dynamics and the ability to make quick decisions based on market movements.
(2 pm – 3 pm)
This setup involves trading down into a higher timeframe 15-minute discount fair value gap. The market trades down into it, shifts higher, and a fair value gap is created. The trader goes short here, collecting five handles. This strategy requires patience and the ability to anticipate market trends. (Mastering the ICT Bullet Trading Method, Dr. Lester Leong)
This style of trading consists of meticulous amounts of focus and time in which you would be constantly watching your screen as the trends go up and down. When the time hits either one of them you will need a setup beforehand to know when to enter at the correct time using the vast technique. You could get started with low amounts of money since you can use funded accounts. You might be asking what is a funded account, “Funded trading necessitates that you trade on a company’s account. The prop trading firms offer you sufficient capital, buying power, and leverage with a funded trading account so that you can significantly profit from the financial market.” (Are funded accounts worth it? Adam Haeems) There is a drawback where if you lose too many trades you will lose that funded account.
There are many different setups for the silver bullet method but I will only focus on one which is the daily high/low draw on liquidity. First, we need to learn the different components of stock charts there are candle formations in which the top of the candle wick represents highs and the bottom represents lows which is easy to remember. Now we need to know how to draw on liquidity, liquidity is how rapidly a stock is being bought or sold without it affecting the price. One way to do this is to find the previous day’s highs and lows in which we will predict how the next day’s order flow will be impacted always remember that previous days’ highs and lows will always be seen on the next day’s charts. For example in a bullish( stock will go down) order flow the market seeks the buy-side liquidity above the previous day’s high while in a bearish (stock goes up) order flow the market will seek the sell-side liquidity below the previous day’s low. The lows and highs mean what was the price of yesterday’s stock price if the stock was left at a high price it’s high if it’s left at a low then it’s a low. Prices do 2 things draw out the old highs/lows and rebalances or imbalances with this knowledge you can make profits from anticipatory if you are lucky. Now here is a step-by-step to start trading first make an options account using apps such as Webull, Robinhood, Td Ameritrade, etc. Then decide what companies you want to trade in using “calls”, “put”, and contracts. Set up your buy price and sell price so now you can make your trade.
Sites used
- https://medium.com/gradient-growth/mastering-the-ict-silver-bullet-trading-model-1c7cc
- https://alphachain.co.uk/blog/are-funded-accounts-really-worth-it/#:~:text=What%20are%20funded%20trading%20accounts,profit%20from%20the%20financial%20market.
- https://ronfx.notion.site/ronfx/MMXM-Course-45877fd9cc664fc3a35cab787e7df1b9
- https://www.fool.com/investing/how-to-invest/stocks/how-to-trade-options/
