Neutral Channels in the stock market
July 25, 2006 by Daniel Beatty
The DOW and the S&P 500 after two straight days of gains are now displaying a neutral channel pattern.
The DOW is stuck between 10700 and 11200 for now. Not too bad considering the time of year and the world news in general.
The S&P 500 is between 1220 and 1280.
The Nasdaq on the other hand is still in a downward Bear Channel and is currently sitting at the resistance line to the channel, the next resistance line would be the 30 dma.
So what to do with trading…well Conservative Credit Spreads are an excellent strategy during times of neutrality because you make your profit off of the time value and not necessarily direction in the stock. Oh it is always better and less of a risk when the markets have a distinct direction which is why for the faint of heart it is always better to stay out if the market does not know what it wants to do.
Another play would be Time Diagonal Spreads - A simple strategy of buying a call or put at one strike price from one month and selling a call or put of a different strike price in a different month.
Here is a defintion and example from Writing Puts.com
There are many other ways to trade a time diagonal spread. One of my favorites is to buy a call below a support line and sell a call above a resistance line and time it so that the most profit is made especially if the stock is channeling. For example buy a long term call when the stock has just bounced off support and then sell the current months call when it is somewhere near resistance, therby making the most profit no matter what the stock does, unless of course you get bitten by news and the stock drops below your support line such was the case of my THOR trade earlier this year.
I have noticed that i have not placed a new trade out there so I am going to have to produce one this week. I do also plan to finish the way to trade conservative credit spreads this week or the beginning of next and have the ebook finished in a couple of weeks so it is all organized in a step by step fashion. Stay tuned.
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Wow Dr.Dan are you doing this for a hobby?
you seem to put so much time and effor into teaching us these technics and strategy..
VERY APRECIATED…. Great Job ..please let us Learn more.
Yes and no, I have an LLP which owns all my sites and so I do need to make money off these sites. If you guys/gals click on the google ads or subscribe to one of the subscriptions that I have an affiliate on I make a little money. Also even though I give away the “teachings” on how I trade through the postings on this blog I am planning on putting them in e-book form for a small fee. I have been at it for two years with my other sites making small amounts, but I would do it for free. Actually I am with all the server space and some of the advertising I have done I am actually in the hole on these projects. So why do I do them - it interests me, its a passion of mine. Not to sound hokey but I really like the idea of helping as many people as I can and teach them what I know. The internet is the best way to do this.
Do I plan on making a fortune with this…Absolutely!!! How else am I going to fund my trading accounts?!
Thanks for reading and I hope to keep this blog informative and entertaining.