Let’s talk about the five most frequently asked questions that I get around the PowerX Strategy and The Wheel Strategy.
Number 1: If I Have The PowerX Optimizer, What Are The Best Settings?
If you have this tool, the same tool that I use every day to find the best trades, you know that you can run the scanner. When you run the scanner, there are certain settings that you can choose.
So the question is, what are the best settings? Because one of the things that you can do is run the scanner for a certain risk-reward strategy. And you see that there are a total of six different risk-reward strategies.
We have 1.5/3 reward, this is basically a 1:2. Then we have 1:3, and then we have 1:5 in terms of risk and reward.
We have this with different risk factors. So it’s either 1.5 times the ADR, the average daily range, or 2.5 times the ADR.
What is the best strategy to use? Right now, since we introduced PowerX Optimizer 2.0, Mark and I are using the scanner for the “quick trades.” This is what you want to choose.
We highly recommend that after you choose the quick trades you click on “Reset to Default.” This will bring up the settings that Mark and I like the best.
We only want to trade stocks “long-only.” Right now we don’t want to short the market. You don’t want to fight the trend, right? I mean, what is the path of least resistance right now for the market? It’s certainly up, and we have been testing it over 700,000 trades. Yes, that is right, 700,000 trades!
We found that over the past years, long trades have outperformed short trades. Even though last year we had this Covid drop where the market’s dropped 30%. Even then, long trades have outperformed short trades here.
So we’re looking for a minimum “Return On Investment” of 40%, “Minimum Winning Percentage” of 40%. We like to trade stocks that are between $5-$250 in price. I want to see a “Profit Factor” that is higher than 2, and at least 12 trades.
We also have a “Minimum Volume” filter of 500,000.
Running the scanner with these settings, today it came up with 5 stocks that you see in the scanner.
This actually brings us immediately to question number two.
Number 2: How Exactly Do I Pick The Best Stocks For The PowerX Strategy & For The Wheel Strategy?
These are the two strategies that I trade all the time. And yes, I am trading the PowerX Strategy. I’ve been trading it for the past few months.
After the beginning of the year, we said, let’s wait until the market conditions are right. Well, they have been, since around the beginning of May, and right now it is a new day, July 1st as I’m writing this article.
Let’s go back and take a look at these stocks, first according to the PowerX Strategy. The most important thing that I’m looking for is, I want to see:
Number one, a smooth P&L chart.
What does this mean?
The P&L chart is how much money would you have made over the past years if you had traded this particular stock.
Right now we are looking at DISCA. So this is if I had traded this particular stock with the rules of the PowerX Strategy.
Most of the time we would have made a little, lost a little, made a little, made a little more, then lost it. Then we had this massive run-up, and after this, not a whole lot going on.
That is not what I’m looking for. My number one criteria is a rather smooth P&L chart that goes from the lower left to the upper right.
Then I see that over different market conditions we had the past 2 years, I would have made money regardless of the market conditions. This includes high volatility, low volatility, markets that are crashing, markets that are rallying up, markets that are quiet, and markets also that are volatile, as we have seen happen over the past year.
This is where I would say the number one criteria here is the P&L chart. Here I would say, “no thank you” for DISCA.
All I need to do here is simply click the red X and kick it out of the scanner for today. When we run the scanner again, it comes right back up.
Now, here’s DISCK. As you can see, these are really very related shares. What we see here, the same pattern, not doing anything. We have this run-up, not doing anything. This here for me is also a no. Therefore, we are kicking it out.
Let’s take a look at DQ, Daqo New Energy. We’re getting a little bit better. Not exactly what I want to look for, but we’re going up, sideways, a little bit up. So we are stair-stepping up, it is not bad at all.
I just want to show you a couple of trades in comparison so that you see what a good P&L chart looks like for me.
CELH, that’s a trade that I’m in. As you can see, this is nicely moving up.
Here’s another one, CLDX. That’s not the perfect one, but I took it last week. It was good enough for me.
The next one is PLUG. Beautifully, just going up in different market conditions, and that’s what you want to see.
Another one here is ZG, Ziller Group, also really nicely going up.
These are four that I’m in right now.
When we go back to the scanner and look at DQ, compared to the others I would probably mark this as maybe an A- trade, or maybe even a B+ trade. So, therefore, DQ is also a no.
The next one that popped up was JMIA, Jumia Technologies. A very similar picture here, not doing anything, then suddenly jumping up, then not doing anything compared to those that I’ve shown you just before.
Finally, we have VUZI. VUZI is the Vuzix Corporation. This has been trading below $5 for most of the time that I’m looking back, and the P&L charts aren’t looking too good either, so this one is a no for me also.
To answer the question, how do you pick the best stocks for the PowerX Strategy?
• Number one, I look for a smooth P&L chart.
• Number two, I look for trendability. I want to see if the stock has been trending nicely, not going up like crazy and then crashing down.
• And number three, I want to see that there are no gaps.
The beautiful thing is, this here is the number one criteria. If the P&L chart does not look good, I don’t even have to move on to numbers two and three. If this doesn’t look good, we are done.
As you can see here, it’s super quick to go through the picks that are coming up there.
Now the question is, how do we do this for The Wheel Strategy?
What exactly am I looking for right now? Again, the two strategies are completely different.
The PowerX Strategy is a trend-following strategy. If you would like to learn more about this, CLICK HERE for a video series that I did.
The Wheel Strategy, on the other hand, is a strategy where you want to sell options and collect premium. The idea is that long term you want to own the stock.
The question here is, “how do I find the best stocks according to this strategy?”
Well, there is one main question that you need to ask yourself all the time. “Do you want to own the stock at the strike price of the puts that you are selling?”
Let’s take a look at AMC, AMC Theaters. For me, this is kind of a crazy stock. It’s one of these meme stocks that have been diddling around, then it jumped up, diddling around, jumped up from $12 to $72, and ever since it has been trading between $52 and $64, approximately.
The key question is, first of all, do you want to own shares of AMC? And here are the possible strike prices that we can sell a put on: at 40, 45, 47, 46, you get the idea. So would you want to own shares of AMC for $40?
If so, then you can sell this put and you would make 41% annualized in premium. Honestly, I don’t like these meme stocks. I did a video about meme stocks and why I don’t like them. You can WATCH IT HERE.
With meme stocks, I think all fundamentals are out of the way and they are driven by the crowd, I don’t like that. But again, that’s me. So I’m flagging them as no.
Then we have the Blink Charging Company. And again, the question is, do you want to own Blink Charging Company? Honestly, I don’t even know enough about this company to own it, so this is going to be a no.
Let’s jump over to my account and I’ll show you the stocks that I traded here based on this strategy, this way you get a better idea of what kind of stocks I’m looking for.
Here for me, Blink Charging Company, I don’t know enough about them to trade them so this is a simple no.
The next one that just popped up here on the scanner, which refreshes every 2 minutes, is CGC, Canopy Growth Corporation. For me this is another crazy stock that went from nowhere to, “yippie yi yay let’s just have fun with this one.”
You see, it was trading here as low as $10, then went all the way up to $57 in a short period of time, crashing down.
So here, the key question that you need to ask yourself is, “do you want to own this stock at $22.50?” Because that is the strike price that is recommended. For me the answer is no.
Steps To Picking The Best Stocks
For the PowerX Strategy I’m looking for a smooth P&L. This stands for profit and loss graph, which goes up from the lower left to the upper right over the past 2 years where we had all sorts of different market conditions.
For The Wheel Strategy it’s even easier. The key question for The Wheel Strategy is, “do you want to own the stock at the strike price of the put that you sold?” And if the answer is, “yes I would love to get assigned!” then good for you.
Number 3, The Wheel Strategy Is Amazing!
I agree, it is absolutely amazing. Thus far with The Wheel Strategy, over the first half of the year, I made $106,000. This is based on a $250,000 cash account getting $500,000 in buying power using a margin account.
If you can make $100,000 based on $250,000 in cash in 6 months, I would say that’s pretty good, at least in my book because I like to look for SRC profits. SRC stands for systematic, repeatable and consistent.
The idea here is that you’re selling puts and that you’re getting assigned. So what happens if the market crashes? What happens if you’re getting assigned in all of your positions? Yes, that is absolutely a valid concern.
Let’s take a look at the most recent market crash that we had. In order to do this, I’m going back here to the NASDAQ. So this is what happened last year when the market crashed 30%.
What do you do then? What if you’re assigned and the stock goes down by 30 percent, maybe even 40 percent? And as you know right now, I am in such a position. I am in RIDE. I’ve shown over and over what you do then, you simply fly Rescue Missions.
What does it mean to fly a rescue mission? It means that you’re selling more puts at a lower strike price. Let me give you a very specific example of a stock that I’m in, RIDE.
With RIDE, I sold puts at a strike price of 21.50. Then the Hindenburg report came out and I was assigned. I was the proud owner of 7,000 shares.
What I did then, so as soon as you see that a stock is trading around 30 percent below the assigned price and now you are experiencing drawdown in your account, this is when you start selling more puts.
The idea is that you buy more shares at a lower price. That’s what they call dollar-cost averaging, and it’s bringing down your cost basis. By doing this, by selling more puts, I have been able to lower my cost basis to $15.79.
Today, RIDE is trading at $10.38. That’s not good. I’ve been trying to lower my cost basis a few more times. That has not happened because I sold more puts at a level where I did not get assigned.
Since I have been able to collect more than $15,000 in premium thus far, I have been able to lower my break-even to $14.17. At this point, what I’m trying to do is continue to reduce my cost basis, and I’m looking for a little pop.
Now, it did happen a few weeks ago. We actually did have a pop where RIDE quickly went up to $15.80, right at my cost basis.
Here’s the deal. At that time when it happened I was sitting on a plane, so I could not even react. I did not see what was happening, and by the time I landed, this is when RIDE was already plummeting back down to $11.
So the question is, what happens if the market crashes?
This is when you follow your plan. I even have a mug on my desk here that says, “follow your plan,” and this is what I’m doing here.
This is how I’ve been able to collect that much premium. And yes, I am continuing to work this trade and this is where you might be stuck in a position.
The good news is, while you’re stuck in the position, you can still possibly generate more premium by selling more calls. By the way, it happened to me a few times before, so this is not my first rodeo, as you can imagine. It happened to me in TQQQ, it happened to me in APPL, and it happened to me in GDXJ.
In the Wheel Options Strategy book I describe the TQQQ trade in detail over 30 pages or so where I’m dissecting it step by step. I have also made a video about how to fly rescue missions, you can WATCH IT HERE.
So what do you do when the market crashes? Well, you follow your plan. And if this makes you nervous, then don’t trade The Wheel Strategy. Hear me very loud and clear, The Wheel Strategy is NOT FOR EVERYBODY.
I know that you might be reading and say, “Oh my gosh, you made more than one hundred thousand dollars in a few months. I want to trade this strategy.” Yes, but you have to be able to go through a drawdown.
This might not be for you, and if it’s not, then there are other trading strategies where you do not have a large drawdown, as I’m experiencing right now in RIDE.
Now I want to talk about question number four.
Number 4: What Account Size Do I Recommend For The PowerX & For The Wheel Strategy?
Let’s start with the PowerX Strategy. For the PowerX Strategy I recommend an account size of $10,000, and here’s why. Because with the PowerX Strategy, you risk 2% of your account on any given trade.
Now, if you risk 2% of $10,000, it’s a risk of $200. $200 is very affordable, and most traders can afford to lose this amount on a $10,000 account. There will be quite a few stocks that are meeting your criteria.
The challenge is, if you’re starting with less money such as $5,000, it is possible but the risk is still 2%. So now you’re risking $100, and you will find fewer trading opportunities just because there are not many stocks where you can risk that little. They would have to be very inexpensive stocks.
If you go even further down, like starting with $2,000, 2% is only $40. You’d have to pass on most opportunities that come up on the scanner according to the strategy simply because you cannot afford the stocks that are coming up.
So that’s why I recommend starting with $10,000. Now, I believe it is possible to get started with $5,000, but again, this here is for the PowerX Strategy.
Now let’s talk about the account size for The Wheel Strategy.
For The Wheel Strategy I recommend that you have an account of at least $20,000 in cash that you can turn into $40,000 of buying power in a margin account.
I really do not recommend starting with less because you will have the same problem, that you can’t find enough trades. We will go back to the scanner right now so that you see exactly what I mean.
What PowerX Optimizer does is, calculates the right amount of contract based on your account size. If I put in the buying power of, let’s say only $20,000, now I’m looking for trading opportunities.
So one of the trades that I recently entered on Monday was UAL, United Airlines. With United Airlines, yes, you could trade one contract. However, if you’re looking for some other opportunities that are appearing on the list, right now there is not really anything appealing.
If we look at AMC, here we got lucky because AMC is trading at 53 cents so you can trade one contract. But what will happen is, often it will show you zero contracts just because your account is not big enough.
This is why I recommend that here you have a buying power of at least $40,000. When you do this, now you can at least trade one or two contracts of most of the stocks that are coming up. Especially when it comes to The Wheel Strategy, bigger is better.
I told you my buying power here on the $250.000 account is $500,000, so this is where I’m able to trade 20 contracts on United Airlines, and 26 contracts on AMC if I choose to trade it.
Question 5: When Is The Best Time To Trade? Do I Have To Watch The Markets All Day?
Let’s talk about the PowerX Strategy first. Here is what I like to do, I want to share my trading routine with you. By the way, I did a more in-depth video on my trading routine, you can watch it HERE, you might enjoy it.
I’m in Central Time, so at 8:15 am, 15 minutes before the markets open, I’m running the PowerX Scanner. As you have seen, it only takes me a few minutes here to say yes, yes, no, no, no and find the best stocks to trade.
If I find a stock to trade at 8:30 am when the markets open, this is when I place my trades according to the PowerX Strategy. Also at 8:31 am, one minute after the markets open, I start watching the real scanner and I’m doing this until 9:00 am. At 9:00 am I usually stop trading for the day.
My “workday” is 45 minutes long. I don’t know about you, but a 45-minute workday to make more than six figures in just six months, I’m not complaining. I like that idea. So, no, you do not have to watch the scanner all day, especially when you’re trading the PowerX Strategy.
You can watch it in the open, or you can just place a so-called stop-limit order, which is what I often do. Using a stop-limit order, you don’t even have to watch the open of the market at all. You can place it the night before if you’re busy throughout the day, or depending on where you live, it may be the middle of the night or in the afternoon.
And again, most of the opportunities according to the Wheel Scanner are coming up in the first 30 minutes. This is when I place most of my trades and after this I go on with my day. There’s no reason for me to babysit the trades.
Closing
These are the five most frequently asked questions around the PowerX Strategy and The Wheel Strategy. I hope this helps.
If you would like to learn more about The PowerX Strategy you can check out the playlist I’ve created for you here HERE, or for videos covering The Wheel Strategy, click HERE.
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