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Larry’s note: Welcome to Trading with Larry Benedict, the brand new free daily eletter, designed and written to help you make sense of today’s markets. I’m glad you can join us. My name is Larry Benedict. I’ve been trading the markets for over 30 years. I got my start in 1984, working in the Chicago Board Options Exchange. From there, I moved on to manage my own $800 million hedge fund, where I had 20 profitable years in a row. But these days, rather than just trading for billionaires, I spend a large part of my time helping regular investors make money from the markets. My goal with these essays is to give you insight on the most interesting areas of the market for traders right now. Let’s get right into it… |
Today, we’re going to do something a little bit different…
If you’re a regular reader, you’ll know my focus is highlighting different ways to trade popular market sectors. To do this, we look at key technical factors that drive the market.
My goal is that you’ll be able to apply some of these techniques to your own trading too.
Over the next two days, however, I want to take this a step further…
Rather than running through some potential trades that might unfold in the future, I’m going to write about an actual trade that we closed out last week in my option trading service, The Opportunistic Trader.
After we entered the trade last Monday, we closed it out that Friday for a 260% gain. That’s almost a quadruple return on your initial investment in just one week.
To be clear, we used a bought-option strategy to generate that return. The goal was to capture a potential upswing in a stock based on an impending earnings result.
Tomorrow, I’ll run through the strategy behind the trade in more detail and how we used those options.
For today, I’m going to focus on the chart… Because that’s where all trades begin.
The stock we used to generate this trade was Airbnb Inc. (ABNB) – the homestays and vacation rental giant.
If you look at the chart of ABNB below, you’ll notice the change in the long-term 50-day moving average (MA) line.
On the left side of the chart, this blue line is trending down. After bottoming out through July, the blue line begins to turn up…
Airbnb Inc (ABNB)
Source: eSignal
During that initial downtrend (May to June), the short-term 10-day MA (red line) remained below the 50-day MA.
However, after criss-crossing through July and August, the 10-day MA finally broke (and stayed) above the 50-day MA. This confirmed a new uptrend was now in place.
By the time we entered the trade on November 1, ABNB had been in an uptrend since August.
With the moving averages confirming the trend, we then turned to the Relative Strength Index (RSI) in the lower half of the chart to help gauge momentum. As the uptrend in ABNB takes shape, you’ll notice a consistent pattern with the RSI…
Airbnb Inc (ABNB)
Source: eSignal
As the RSI approaches the upper grey horizontal line at 70% (overbought signal), it forms several inverse “Vs.” These occur just as ABNB’s share price peaks before rolling and falling.
And it’s here that the support/resistance (green line) comes into play.
You’ll notice that since ABNB’s uptrend took hold, the RSI didn’t fall below the green support line. Each time the RSI touched that line, it bounced, along with ABNB’s share price also moving higher.
With the RSI bouncing off support and showing increasing momentum coming into its earnings results, we entered our long trade on ABNB on a strong up-day on November 1.
As it turns out, our analysis was right… ABNB shot up to the upside, sending the stock soaring…
With the RSI well in overbought territory, we exited the trade last Friday for a 260% gain.
Of course, as much as we’d like to, we’re not going to generate trades like this every week. It’s simply not possible. In fact, swinging for the fences is a sure way to drain your account.
However, what does work is applying a successful strategy week after week. Because profiting consistently, no matter how big, is what really puts you ahead of all the other traders.
Tune in to tomorrow’s essay where I’ll run through exactly how I put this strategy to work…
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
P.S. To learn more about my option trading service, The Opportunistic Trader, just click here. It’s a great way to take your trading knowledge to the next level and see how my strategy works in real-time, for real money.
While I can’t promise you’ll make a 260% gain on every trade, you’ll have multiple chances to profit with options each week. Getting started is simple, just click right here…
Reader Mailbag
I always enjoy reading feedback from my subscribers. Today, we hear from one of our readers, Howard…
Hi Larry, I’ve enjoyed your daily letter. It’s very educational. Thanks.
– Howard
We’re excited to hear what you think of your new eletter, Trading With Larry Benedict. Let us know at [email protected].