My TradeSpotting (TS) system is also useful for directional trading of stocks and options using daily and weekly charts. The TS system provides entry signals to either buy (go Long) or sell (go short) with either stock or option purchases. Whilst I am happy to buy certain stocks, I do not like to short sell stocks. My trading preference for directional trades is to buy either Put or Call options. If a stock chart renders a signal that suggests upward movement then I would look to buy a Call option (at least 3 ~ 6 months out). Conversely, if a stock chart suggests downward movement then I would look to buy a Put option (at least 3 ~ 6 months out).
I have posted weekly and daily charts for two stocks, Avon (AVP) and Walgreen (WAG), to illustrate this strategy. It is important to analyse trading charts fully to identify areas of strong support or resistance and to identify any other trading patterns. Both of these stocks had been trading within a triangle pattern for some time so I was looking for a breakout, either up or down. AVP and WAG eventually broke down and out of these triangles. This breakout move provided added support to confirm the signals to SELL that my TS system identified shortly after the breakout.
The downward move with Avon was almost a $6 move and on Walgreen was almost a $5 move. These would have provided profitable option trades.
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