Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
USDT is 9-11 for Central Banks the Bitcoin Black Swan - Tether Un-Stable Coin Ponzi Schemes! - 30th Jul 21
Behavior of Inflation and US Treasury Bond Yields Seems… Contradictory - 30th Jul 21
Gold and Silver Precious Metals Technical Analysis - 30th Jul 21
The Inadvertent Debt/Inflation Trap – Is It Time for the Stock Market To Face The Music? - 30th Jul 21
Fed Stocks Nothingburger, Dollar Lower, Focus on GDP, PCE - 30th Jul 21
Reverse REPO Market Brewing Financial Crisis Black Swan Danger - 29th Jul 21
Next Time You See "4 Times as Many Stock Market Bulls as There Are Bears," Remember This - 29th Jul 21
USDX: More Sideways Trading Ahead? - 29th Jul 21
WEALTH INEQUALITY WASN'T BY HAPPENSTANCE! - 29th Jul 21
Waiting On Silver - 29th Jul 21
Showdown: Paper vs. Physical Markets - 29th Jul 21
New set of Priorities needed for Unstoppable Global Warming - 29th Jul 21
The US Dollar is the Driver of the Gold & Silver Sectors - 28th Jul 21
Fed: Murderer of Markets and the Middle Class - 28th Jul 21
Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One? - 28th Jul 21
I Guess The Stock Market Does Not Fear Covid - So Should You? - 28th Jul 21
Eight Do’s and Don’ts For Options Traders - 28th Jul 21
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How Stock Investors Could Profit from the Dark Net Pattern That Few Others See

Companies / Investing 2015 May 19, 2015 - 02:13 PM GMT

By: ...

Companies

MoneyMorning.com Tom Gentile writes: In a moment I'm going to show you a chart for EOG Resources Inc. (NYSE: EOG).

As I looked at the chart for this oil and natural gas development company, and positioned myself for a possible trade, an old song happened to come on the radio. It's a catchy tune that my friends and I used to "try" to dance along with.


Fast-forward to today, and as the song plays in my head, I'm almost moved to dance again by the profit pattern I'm seeing develop for us on this chart!

The Pattern That Few Others See… That Will Produce Winners

I call what we see on this chart my "DarkNet Pattern." It's something that only a few of my friends know about. DarkNet is my version of a contrarian system. Now this doesn't mean I am standing on the train tracks reflexively taking the opposite side of any trade. Rather, it means I love the overall direction of a trade, but am buying on pullbacks. That's where DarkNet comes in.

how to invest

In short, DarkNet analyzes trends. Computers identify these short- and long-term channels every day, and when two or more channels collide, this typically indicates a change in the stock's direction.

Now it's one thing to have a method, but it's something else to be able to back-test it using past data. But we can do precisely that. Let's take another look at the chart and focus on the red arrows. Each of these represents a buy (the low-end) and sell (high-end) point in the past.

Now, let's dig just a bit deeper than the chart above, and get into some of the nitty-gritty of EOG and DarkNet.

The table above shows not only the current buy that has occurred, but some info on the last three signals. The last three signals generated a profit of roughly $6 per share. The worst drawdown on any of these three trades was again roughly $6, but overall, all three past trades were profitable at an average of just over 12%. Not bad for a readily spotted pattern.

The other interesting piece of news is the average time frame in the trade… 15 days. This is good news regardless of whether you are a stock or options trader. I'll explain why.

Most retail stock traders fall into one of three loose categories:

  • Novice: They buy a stock and hope it goes higher.
  • Semi Pro: They buy a stock, and have a target and loss projection on it.
  • Pro: They buy a stock, and have both price and time targets on it, so as if they were playing a game of financial chess, are thinking ahead of the crowd.

Knowing that we have an average of 15 days in this particular trade is great news because you now have a time target for the trade. This lets you know not only what you may use as price risk, but the average time your money will be tied up, in this case 15 days.

Let's Talk About Making 300% on the Option Trade

The option trader, if he or she were a buyer, already has the stop-loss built in, which is the premium on the option. An option trader can also build in a target for the option based on the trader's target price for the stock, in this case, for EOG. Let's take a look at a recent example:

Now this example shows the trader buying a June week 1 87-call option for the price of $5.40. Since each contract controls 100 shares, that means this contract will cost the buyer $540. Also keep in mind the expiration date on the option, in this case, 23 days. This is several days past the 15 day average time in the stock, which is great. So our time target for holding the stock is well within the expiration date of this option.

What about price movement risk?

Well, the biggest downside on this option is if it were to lose all its value, in this case $5.40 or $540 per contract. But how do we determine a target price for the option?

By using the average move in the DarkNet tests… or 12% of the stock price! So, what's 12% of 91? Let's call it 10 points. So based on our current price of $91.77, let's use 102 as our price target.

If we now subtract $87 (the strike price) from $102 (the target price) we get $15. This means our $87 call would have a minimum of 15 points value with the stock price at $102. That's nearly 300% higher than the $5.40 price on entry.

So, I'm ready to move when I see DarkNet patterns develop on stocks like EOG!

Source :http://moneymorning.com/2015/05/19/how-to-profit-from-a-pattern-few-others-see/

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in