Top 10 Rules

How To Trade The Top 10

HOW TO TRADE USING THE TOP 10

In order to effectively trade positions using the Top 10, it is important to have a basic understanding of key terms with trading rules & guidelines.

Key Terms: Below are the key terms that are used throughout the newsletter.

  1. Big volume move: A volume increase of at least 25-30% as a stock breaks out through a specific entry area.
    • Exceptions are made in the cases of pocket pivots (including 5-day pocket pivots) and significant increases in volume that can be clearly seen on a relative basis.
  2. Constructive pullback: This refers to price action that does one of the following:
    • Pulls back on light &/or declining volume.
      • May be considered more of a drift lower than a “pullback.”
    • Moves in a tight, sideways pattern on light &/or declining volume.
    • Movement below a significant area of support that ultimately reverses and closes back near a stock’s high for the day.
    • This is referred to as an undercut and rally which forms a bullish reversal.

 

Trading Guidelines

  1. Validating Trades: When a stock breaks above an entry point (i.e. it triggers a breakout), it is critical to check the volume on the move in real-time to ensure it is considered a big volume move as defined in key terms.
  2. Entering Trades: When initiating a buy on a stock, never purchase the stock higher than 2% above its entry area as defined.
    • Exception: When a stock gaps higher at the open, observe price and volume for the first 30 minutes to determine a possible entry. If a constructive pullback occurs, a position can be initiated. The stock should not be chased higher and should be not be purchased more than 2% past its entry point. Please note that entering positions on gap-ups should be executed only by advanced traders. If you are unsure, it may be best to skip the trade.
  3. Exiting Trades:
    • Sell Stop Rules: All positions MUST be sold immediately at 8% below entry price. All other sell stops on position trades are based on closing daily prices. This allows the stock to potentially recover intraday back above the specified sell stop and not considered to be triggered.
    • Sell Stops at Moving Averages: When a major moving average is used as a sell stop, the actual stop price should be at most 2% below the actual value of the moving average and is triggered, as mentioned above, based on the closing daily price of the position trade.
  4. Managing Earnings Reports (EPS):
    • Dates: Earnings Report Dates will be provided on a best-case effort. It is still important to always check regularly for when the earnings release dates are scheduled for. It is important to continue to check these dates as they continually shift throughout earnings season.
    • Hold/Sell Rules:
      • You must never hold a stock through earnings if you don’t have the profits on it to protect against the potential downside.
        • Visit www.optionslam.com to check the implied move for your stock.
        • If your profit is less than the implied move it is considered unsafe to hold.
        • Please keep in mind the implied moves are just that – they are implied. They are normally accurate however earnings are always a gamble.
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