Issue 96: NEW: High Probability Breakout Trade - Masters in Trading Digest

NEW: High Probability Breakout Trade

We have something exciting and NEW to share with you today. It is a breakout trade setup we have been researching and it uses one of our most popular tools, Volatility Visualizer (VV) – a tool that is only available on Thinkorswim as I write.  

Here’s what VV looks like:

VV is a charting tool that plots the upper and lower bands of what the market is pricing in as the expected move. The green lines are the upper end of the monthly expected move. The red lines are the lower end of the monthly expected move.

Over the last 2 years, CCJ has closed within its expected move 83% of the time.

Every 30 days, CCJ has traded within those outer (green and red) boundaries.

The expected move is another way to follow the market's implied volatility.  

  • Implied volatility is volatility priced into the market right now.  
  • Historical volatility measures past behavior.
  • Theoretical volatility is a trader’s personal value.

VV grabs data directly from the options market and then displays the statistics for traders on a chart to analyze and benefit from.

Here’s where things get fun. You can look at expected moves for the month, or you can look for the week.  Here’s CCJ going back three months and looking at weekly data instead of monthly data.

The difference between the first chart is the expected move was 30 days, but in the second chart, the expected move is only one trading week. The top of the expected move is blue, and the bottom is yellow.  The week starts at the white line, also called the zero line.

Scanning For High Probability Breakout Trade

Notice how last week's CCJ traded above its expected move in the weekly? But if you go back to the first chart, CCJ is still trading within its monthly expected move.

We have found this setup to be quite compelling because stock tickers that have price action trading outside the weekly expected move bands but have not yet broken outside the monthly range is the behavior that we are searching for.

“Following this data since 2017, the probability of the market continuing in the direction of the weekly move breach is a high probability bet,” explains the tools creator, Pablo Lucena.

Masters in Trading Digest - Issue 96

Share this post:

Get MIT Digest!

Want FREE actionable trading tips and strategies like the ones you see here 3 times per week?

We're now accepting sign-ups, FREE for a limited time. Register below to join the Digest.

Unsubscribe at any time! Your email address will be used to send you Masters in Trading DIGEST issues.

NEW PRODUCT ANNOUNCEMENT

This week we will be releasing the NEW Volatility Visualizer scanner used with the VV charting system.

Finally, this was mentioned in Friday’s class. The catalyst for the VV scanner was a member question during one of our classes. Someone asked if the VV has the capability to scan for trades with certain parameters, but up to that point it had not.

Well – now it does! We are excited to offer this to everyone early this trading week.

Stay tuned for more information.

FINAL THOUGHTS

WHAT TO EXPECT IN THE NEXT MIT DIGEST

The next issue will be released on Wednesday. 

Until then, trade smart and always manage your tail risk.

Thanks for reading,
Jonathan Rose

P.S. Our most popular program, Unusual Options Activity, is available now to all digest subscribers for 99% off! Get it now!

Get Masters in Trading Digest FREE!

Want FREE actionable trading tips and strategies like the ones you see here 3 times per week?

We're now accepting sign-ups, FREE for a limited time. Register below to join the Digest.





 






Unsubscribe at any time! Your email address will be used to send you Masters in Trading DIGEST issues.

Share this post: