Our goal each day is to bring you possible trade setups for two major reasons. The first is to put out some free education to traders who are looking for more screen time and who want examples of what to look for when combing the market for possible trades.
The other reason is to provide a viable trade you can put on to gain more confidence and experience in the market. Today, we have another one of these opportunities to bring you both thanks to Bank of America (BAC).
Financials have had somewhat of a whacky year so far. They found some solid footing after the episode where some major banks went under, causing some consolidation in the space. One could also argue that event sent the rest of the market on its way, as well. However, it hasn’t all been a move higher and higher, as you will see.
For BAC, the ride higher has been a bit bumpy. As you can see on the chart, the stock has put in a solid line of support, which has been respected very well. This opens the door to our next trade. As the market continues to pullback, yesterday being a glaring exception, BAC has approached this trendline of support.
The trade here is another one that will require some patience, as well as discipline. These trade breakdowns are never a green light to just go and take the trade. It is merely to put it on your radar, so you can keep a close eye on how the trade develops.
For this trade, we are looking for yet another bounce off this trendline to take a long position on BAC. If the market can once again find its footing, this should set us up nicely for this bullish play. Again, like our trade fro yesterday, we need price and volume to confirm this at our key level. We do this by gauging how both react when we get toward this key level of support.
If we get a sign of reversal at the support trendline, then we can test calls with a stop just below the trendline, in case the trade tucks tail and runs in the opposite direction. If we get a flush of price at this level, then we know the trade has become invalid and we can either move on to the next trade or see if we get a reversal somewhere below this support level.
Either way, this is a great setup to get a little more market experience, so we are that much more prepared for the next trade that crosses our screens. Any instance where you can work on improving your risk management and trading psychology is great experience you can use to get better as a trader. Keep this trade on your radar to practice both.
If you like The Profit Machine (TPM), then you will really like my Wednesday Profit Room trading service. Same high-quality options action, as well as more world-class trading education. As I say, the more screen time and education you expose yourself to, the better. Give it a try for one month here and if you don’t find even more value, cancel anytime.
Your success as a trader is on the other side of hard work and education, will you be willing to put in the work with me as you guide? Give it a try today!
Good Luck With Your Trading!
Christian Tharp, CMT
This post was originally published on Wealthpop