Creating Your Own Trade Strategy
We’ve always wanted to help as many people as possible create or build a successful trade strategy that works for them. The reality is that everyone is different (i.e. different account sizes, risk tolerance, trade experience, trading style, etc.) so there is not a “one strategy fits all” solution when it comes to trading stock options.
Our goal with our Insight and Targets Indicators is to help you build that strategy! Every strategy is unique because every trader has a different trading style… but regardless if you’re selling trades for credit or buying trades via debit, each strategy ultimately has 3 key parts: Entry Signal, Profit Target, Stop Loss. Here is a quick guide on how you can build your own trade strategy and use our Insight and Targets Indicators to increase your success!
Choose Your Trading Style
Your Trading Style is just what I like to call your preferences when trading. I like to focus on just two things: how you choose to trade options (buy or sell) and how long you choose to hold your trades (weekly cycles or monthly cycles). So, the first question is do you prefer to buy or sell options? Buying options usually has a higher profit when you win, but a lower overall win rate. Selling options typically has a lower profit when you win, but a higher overall win rate.
The second question is how long do you want to hold your trades? Weekly Trades are shorter trades with just a few days-til-expiration (e.g. 4-DTE). They usually have a quicker turn around, but they require more of your time to manage them and lower profits when you win. Monthly Trades are longer trades with more days-til-expiration (e.g. 30-DTE or longer). They usually have a slower turn around, but they require less of your time to manage them (great for those who work fulltime) and higher profits when you win.
So what style sounds good to you? Selling weekly trades, selling monthly trades, buying weekly trades, or buying monthly trades? Once you’ve decided on that, move on to the next section!
How Our Indicators Can Help
Here’s a quick look at the type of information that our indicators can give you for both weekly and monthly expiration cycles. As I’ve already stated, there are typically 3 key parts to every trade strategy, and our indicators can help you with all 3!
We’ll get into it a little more in the next few sections, but take a look at the image above and think about this… if you know that a trade setup has been winning a lot recently, which is what our Insight Indicator can show you, wouldn’t that high win rate make a great entry signal? What if you know that price is likely to hit a certain price point (like our High, H50, Low and L50 strategies show you), wouldn’t that make a good price point for you to target for profit? What if you know that price is NOT likely to hit a certain price point (like our X Bull, X Bear and X Neutral strategies show you), wouldn’t that be a great place to put a stop loss?
Part 1 of 3: Entry Signal
Your Entry Signal is the confirmation you need in order to confidently enter a trade. Usually, your entry signal will give you direction that you’ll want to trade in. There are countless options for things you could use to get an entry signal, but here are our top 3!
Option 1: Insight Indicator (Win Rates)
For those looking for a simple, done-for-you entry signal, you can use the win rates from our Insight indicator! This indicator gives you the win rates of different strategic trade setups. High win rates means that a setup has been winning a lot recently! If the win rate is high, why not trade that setup? For this option, that high win rate would be the only signal you would need!
Option 2: Insight Indicator (Tests) + Exponential Moving Average
For those looking for a more creative (yet still simple) way of choosing your entry signal, you can use our “Tests” feature in the PRO Insight indicator. These tests show if a strategy won or lost during each weekly/monthly expiration cycle. The bottom half of the example image below shows the test results of our Bull strategy (cycle closing above Low Target Level) for the weekly expiration cycle. The light gray bars indicate the weeks that won the Bull strategy and no bars indicates that the Bull strategy lost during those weeks. The top half of the image shows the stock chart, and the blue boxes that we added highlight areas where there were the most winners.
You can literally look at the test results to not only have a visual of how often a trade has been winning, but also see what the chart was doing during the times when there were a lot of winners! Was the chart up-trending when your bullish strategy (i.e. Bull, X Bull, H50, High) was winning the most? Was the chart down-trending when your bearish strategy (i.e. Bear, X Bear, L50, Low) was winning the most? If so, well now you know that it’s best to trade these strategies when the market is trending… does that make sense?
Now, it’s just a matter of understanding how to identify the current “trend” to know if the stock is up-trending or down-trending. My all-time favorite technique for doing this is simply using the 20-period Exponential Moving Average (20EMA). And the technique is super simple! If the cycle opens above the 20EMA and I have a high win rate for a bullish strategy, then I enter a bullish trade. If the cycle opens below the 20EMA and I have a high win rate for a bearish strategy, then I enter a bearish trade.
And finally, I recommend entering trades that last 4-5 bars. So, if you’re trading the Weekly expiration cycle, you would want to trade on the Daily timeframe to use the Daily 20EMA (because there are 4-5 Days per Week). If you’re trading the Monthly expiration cycle, you would want to trade on the Weekly timeframe to use the Weekly 20EMA (because there are 4-5 Weeks per Month).
(Note: Obviously, you can use any Moving Average that you want, but I highly recommend starting with the 20EMA… it’s been one of my secret weapons for years!)
Part 2 of 3: Profit Target
Your Profit Target is where you are looking to exit your trade for the profit you want. There are generally two types of profit targets: price targets and percent targets. Which one you use will depend on how you choose to trade.
Option 1: Price Targets
Price targets are actual price points on the chart where you want the stock to move into. With our PRO Targets Indicator, these Price Targets are automatically plotted on your charts for you (they are the H50, High, L50, and Low target levels). And with our PRO Insight Indicator, you’ll know exactly which of these price targets is likely to get hit based on the win rates. A high win rate means that that particular Price Target is likely to get hit… so you should target it for profit!
The image below shows an example of a stock chart with a high H50 win rate, meaning that price has touched the H50 level (highlighted in blue) a lot recently. In this example, 9 out of the 10 monthly cycles shown were winners, making the H50 level an excellent Price Target!
Option 2: Percent Targets
Percent targets are a portion of the max profit that you can receive on a trade. For example if the max you can receive on a trade is $1,000, you could set a Percent Target at 40%, just as an example. So, you would exit your trade after you’ve received a $400 profit (40% of the max $1,000 profit.)
Option 3: Expire Worthless
This is when you hold a trade all the way up until expiration without closing it early. This is an option if you are overall selling options trades since you take in a credit when you sell. As time goes by, the value of the trade you sold slowly decreases. At expiration, the value of the trade drops to $0 (aka expiring worthless). So, by holding a trade all the way up until expiration, you get to keep 100% of the credit you sold the trade for.
Part 3 of 3: Stop Loss
Your Stop Loss is where you are looking to exit your trade at a manageable loss because the market has moved too far against you. Just like with Profit Targets, you have two main options for your Stop Loss.
Option 1: Price Stop
Price Stops are actual price points on the chart where you DO NOT want the stock to move into. With our PRO Targets Indicator, these Price Stops are automatically plotted on your charts for you (they are the High and Low target levels).
With our PRO Insight Indicator, you’ll know if these levels are adequate Price Stops. How? Our X Bull strategy tells us how often price stays ABOVE our LOW target level (for the entire cycle) without touching it. If the X Bull strategy has a high win rate, that tells us that our LOW target level would make a GREAT Price Stop. Why? Because we know price isn’t likely to come and hit that level, so if it does, that means that something is not going as we expected. That’s plenty of reason to exit out of the trade.
The image below shows an example of a stock with a high X Bull win rate. 9 out of the 10 monthly cycles shown were winners, making the LOW target level a great place to stop out of a trade during this time.
Similarly, our X Bear Strategy shows how often price stays BELOW our HIGH target level without touching it. If the X Bear strategy has a high win rate, that tells us that our HIGH target level would make a GREAT Price Stop.
Option 2: Percent Stop
Percent Stops are a portion of the max profit that you can receive on a trade. For example if the max you can receive on a trade is $200, you could set a Percent Stop at 150%, just as an example. So, you would exit your trade after you’ve loss $300 on the trade (150% of the max $200 profit.)
Option 3: No Stop (Risk-Defined Trades)
One cool thing about trading options is that you can setup a trade that has a built-in stop loss… it’s called a risk-defined strategy. This is when you have limited, known risk in the trade even if it moves drastically against you. While some strategies require other stop losses, like the options discussed above, the truth is that stock charts are very cyclical in nature. They move up and down and up and down and so on.
So, it’s not uncommon for you to close your trade after seeing your stop loss get hit, and then watch as the stock turns back around and does exactly what you were initially hoping for. Instead of going through that frustration over and over again, wondering when/where/how to place your stop loss, consider trading risk-defined setups (i.e. credit spreads, debit spreads, butterflies, iron condors, etc.) with a max loss that you are comfortable with.
Example Strategies
You can create and build your strategies any way that you like! Here are just a few examples, using our Insight and Targets Indicators, to give you a few ideas to work with. Keep in mind, you can always have multiple entry signals, profit targets, and stop losses if you’d like…
BULLISH Strategy Example 1
- Trade Style(s): Selling Weekly, Selling Monthly
- Timeframe: Any Chart
- Indicators: BASIC or PRO
- Entry Signal: Insight Indicator shows a high win rate for Bull strategy
- Profit Target #1: 50% of max profit
- Profit Target #2: Expire Worthless
- Stop Loss: None
BULLISH Strategy Example 2
- Trade Style(s): Selling Weekly
- Timeframe: Daily Chart
- Indicators: PRO
- Entry Signal #1: Insight Indicator shows a high win rate for X Bull strategy
- Entry Signal #2: First day of the week opens above the 20-period EMA
- Profit Target #1: 50% of max profit
- Profit Target #2: Expire Worthless
- Stop Loss: Low Target level plotted by the Targets Indicator (since X Bull strategy has a high win rate)
BULLISH Strategy Example 3
- Trade Style(s): Selling Weekly, Selling Monthly, Buying Weekly, Buying Monthly
- Timeframe: Any Chart
- Indicators: PRO
- Entry Signal #1: Insight Indicator shows a high win rate for X Bull strategy
- Entry Signal #2: Insight Indicator shows a high win rate for H50 strategy
- Profit Target: Exit when price moves up to H50 level from Targets Indicator (since H50 strategy has a high win rate)
- Stop Loss: Low Target level plotted by the Targets Indicator (since X Bull strategy has a high win rate)
BEARISH Strategy Example 1
- Trade Style(s): Selling Weekly, Selling Monthly
- Timeframe: Any Chart
- Indicators: BASIC or PRO
- Entry Signal: Insight Indicator shows a high win rate for Bear strategy
- Profit Target #1: 50% of max profit
- Profit Target #2: Expire Worthless
- Stop Loss: None
BEARISH Strategy Example 2
- Trade Style(s): Selling Weekly
- Timeframe: Daily Chart
- Indicators: PRO
- Entry Signal #1: Insight Indicator shows a high win rate for X Bear strategy
- Entry Signal #2: First day of the week opens below the 20-period EMA
- Profit Target #1: 50% of max profit
- Profit Target #2: Expire Worthless
- Stop Loss: High Target level plotted by the Targets Indicator (since X Bear strategy has a high win rate)
BEARISH Strategy Example 3
- Trade Style(s): Selling Weekly, Selling Monthly, Buying Weekly, Buying Monthly
- Timeframe: Any Chart
- Indicators: PRO
- Entry Signal #1: Insight Indicator shows a high win rate for X Bear strategy
- Entry Signal #2: Insight Indicator shows a high win rate for L50 strategy
- Profit Target: Exit when price moves down to L50 level from Targets Indicator (since L50 strategy has a high win rate)
- Stop Loss: High Target level plotted by the Targets Indicator (since X Bear strategy has a high win rate)
Ready To Get Started?
Our Intelligent Indicators Give You Win Rates for 20 Great Trading Strategies!
You’ll get each of the 10 strategies below for both Weekly and Monthly expiration cycles.