Master Volatile Markets with This Fundamental Approach
Editor’s Note: As a Power Trends reader, you already know that my goal is to take emotions out of investing. The more emotional we get, the more mistakes we make.
Well, if there is one thing in investing that sparks emotions, it’s options. People are fascinated, intrigued, scared, confused… and who knows what else.
I get it. I spent seven years as Head of North American Equity Derivatives… a fancy title for running an options trading desk. I’ve seen the good, the bad, and the ugly.
Options can be terrific investments that allow you to do just about everything. I mean, you can make money on stocks that go down. How cool is that?
Yes, options can be complicated. But they don’t need to be.
Yes, they can be very risky. But they don’t need to be.
The key is a smart strategy, a system, and data. And that’s why I want to introduce you today to Jonathan Rose of Masters In Trading.
He, too, has been on the frontlines of options as both a floor trader and a partner in a proprietary trading firm. He’s also a pioneer in computer-based trading, and he has a system.
I’m going to turn it over to Jonathan today to talk more about his system, and I encourage you to join him for a special event next Wednesday when he’ll share even more, including the No. 1 indicator that helps market makers find trades that go up 90% of the time.
It’s amazing what a trader can do with a straightforward fundamental market outlook, and the leverage we get from trading options.
I would know, I was a professional trader for more than 16 years. I traded in the pits on some of the biggest exchanges in the world like the Chicago Mercantile Exchange and the Chicago Board Options Exchange.
Over the course of my career, I’ve come to find that if you can combine these tools into a comprehensive system – just as Jason has done with his own Quantum Edge system – then odds are good you are lightyears ahead of most folks out there.
In trading, it’s critical to have a fundamental idea of how the market is performing to help shape our positions. That’s why members of my Masters in Trading program and I have been watching the action in the Invesco QQQ Trust (QQQ) under a microscope. This ETF is based on the Nasdaq-100 Index, which includes the 100 largest nonfinancial companies on that exchange.
By looking over recent history in the charts, we begin to see patterns of behavior we can use to our advantage.
What’s so important about the QQQ? Well, the biggest drivers in the market are the so-called “Magnificent Seven” stocks: Microsoft Corp. (MSFT), Apple Inc. (AAPL), Alphabet Inc. (GOOG), Meta Platforms (META), Nvidia Corp. (NVDA), Tesla Inc. (TSLA) and Amazon.com Inc. (AMZN).
All these companies trade on the Nasdaq, so the QQQ is one highly valuable chart I like to keep a close eye on.
Part of how I like to monitor the market’s performance is looking for the current critical level — what I like to call my “Line in the Sand.” This can be either a level of support or resistance depending on how markets are trending in relation to that line.
This is a fantastic concept to help us simplify our fundamental view of the market… If we’re trading above the line, we’re in a bullish trend, and if we’re below that line, we consider that to be bearish.
In my daily Masters in Trading: Live videos, where I interact live with members every day at 11 AM, we’ve focused extensively on the QQQ, particularly around the critical $433 level.
Look at that daily chart of the QQQ over the past quarter; you’ll notice significant activity around $433. In early February, the market approached the mid-430s three times in two weeks before breaking out. That $433 resistance then turned into support, undergoing several tests through March and into mid-April.
One of those tests came ahead of the release of Non-Farm Payroll results back on April 4.
Before we got the results, we noticed an extended period of bullish trends.… And when times are good, it’s easy to get swept up in the run. With shares of the QQQ trading around $445, I brought this to my member’s attention during our live class and suggested they look to short-dated options to hedge that downside risk heading into the catalyst. Later that afternoon, market anxieties about inflation and unemployment triggered a sell-off, with QQQ dropping 2.4%, respectively. By the next day, our QQQ puts were in the money, for an average 179.9% gain… overnight!
Be Adaptable, Be Objective
A solid fundamental understanding of the market, the strategic use of options, and disciplined risk management forms the cornerstone of successful trading. My career on the front lines of the exchanges has shown that these principles, when applied systematically, can offer major advantages, even in volatile markets.
These trades came together because of the time we had spent working on our systematic approach. We understood that the markets were in a bullish trend, and we knew how to manage for a portfolio that might be out of balance relative to market support. That knowledge allowed us to protect our portfolio ahead of potential volatility from a key market catalyst.
As we navigate the complexities of the financial world, remember that adaptability and objective market indicators, like our ‘Line in the Sand’, remain essential.
This is just one of the tools I use to inform my trading, which is why I invite you to join me at my Masters in Trading Summit Wednesday, May 8, at 10 a.m. Eastern. At the summit, I will be introducing a new market indicator that I believe can help transform how you approach your trading.
It’s free to attend, and you can sign-up here to reserve your spot.
It’s critical for every trader to always be learning and keep an open mind to evolving strategies. This type of mindset keeps us creative and helps ensure you’re always in position to capitalize on market opportunities as they arise…
And as I like to say, the creative trader always wins.
Jonathan Rose
Founder, Masters In Trading
P.S. In addition to revealing that No. 1 indicator, Jonathan will also reveal the results of a live experiment where he made money on seven out of seven trades for an average gain of 125%.
Be sure to check it out. Simply sign-up here and you’ll be all set.