As you may already know, I like to use the PowerX Optimizer to find the best trades according to the PowerX Strategy, along with The Wheel Strategy.
My morning routine is that, usually, I’m in front of the computer at 8am Central Time, 30 minutes before the US markets open. I run the scanner on PowerX Optimizer, and it finds possible trades based on my criteria.
My Criteria For Finding Stocks
My criteria, for starters, is I like to look for long and short signals because I like to play the markets both ways. I want to see at least a 60% return on my investment, and I also want to see stocks that have a closing price between $5 and $250. I don’t like to trade stocks that are below $5.
I want to see a profit factor that is higher than 3, meaning that for every dollar that I would have lost trading the strategy, I would have made $3. I also want a risk-reward ratio of at least 2%. Usually, there are anywhere between 4 & 8 stocks that come up on my scanner every day.
I use three criteria to find A-plus trades, and this is where I’ll share with you what I’m looking for.
Number one, I’m looking for gappiness. I look back to see if the stock had a lot of gaps over the past year. I like look back over the past 13 months.
Number two, I’m looking for trendability. What does trendability mean? It means that I want to see nice trends to the upside and to the downside.
And the last thing, number three is, I’m looking at the P&L chart. What does the P&L chart mean? The P&L chart basically shows you what would have happened if I had traded this stock according to the rules of the PowerX Strategy over the past year. Now, this is one of the strengths of the PowerX Optimizer software, and this is why I use it every single day.
So I can take a look at the trading report where I see for the past few trades, what I would have made in profits & losses.
Here is a trade I was in with AAPL a few months back. What I want to see in the P&L chart is, I want to see that over the past year, if I had traded Apple according to the PowerX Strategy, is it nicely going up? In this case, absolutely.
Here I would have had 7 winning trades and 4 losing trades for a total of 60%, and a 220% ROI.
When To Sit On Your Hands
This morning (at the time of this writing) I saw EVRI on my scanner and it passed MOST of my criteria. First of all, it did pass all my scanner criteria, otherwise, it wouldn’t have come up here.
Also, it did pass 2 out of my 3 criteria in terms of gappiness and trendability. But when it came to the P&L chart, it didn’t meet my criteria.
This is where this morning I did the most difficult thing for a trader, I was sitting on my hands. You see, at the beginning of my trading career, I had this little voice in my head. This little voice said, “If you don’t trade, you don’t make any money.”
Well, after I forced some trades, I realized, if you don’t trade you also don’t lose any money. This is why it’s so important.
In the beginning when I got a new tool, or when I had a new trading strategy, I wanted to trade it. All I wanted to do was trade. However, when there’s nothing to trade, DON’T TRADE.
This is why I use the PowerX Optimizer. It does a fantastic job of keeping you out of trouble.
As you can see, this is a chart of the S&P 500 (from the time of this writing), and for a whole week, there was a lot of uncertainty.
We didn’t really have a defined downtrend overall in the markets, or a defined uptrend. We are, in fact, just diddling along. The markets are just teetering.
As you know, I am trading two strategies. In addition to trading the PowerX Strategy I’m also trading the Wheel. So for the Wheel, I started looking for trades. Let me show you what I was looking for this morning.
One of the trades that I thought, ahh you know what, this might actually be a decent trade was Marriott, MAR, but when I looked, however, there wasn’t enough premium in there to sell according to the Wheel.
I looked at another stock that came up on my radar this morning, which was PENN. There was some great premium in there, but PENN sounded rather risky. You see, for me, it is very, very important that I have a great track record.
At the beginning of my trading career I would have forced these trades. I would have said, “Oh my gosh, I cannot be done working after one hour.” This is what happens sometimes in the morning, I sit down in front of the computer at 8 o’clock, half an hour before the open, and I run through the PowerX Optimizer and don’t find anything.
Now, one of the things that I do every single day is, I check my open positions, and in the PowerX Optimizer I have my watch list. So first I look for new trades, and secondly, manage my existing trades. I don’t, however, need to over-manage my account when there are days where there is nothing to trade.
What I used to do back when I was still new to trading and nothing would come up was, I would adjust my criteria. I said, yeah, you know what? Instead of getting a 60% return on my investment, why don’t I lower it to 50%, or why don’t I lower the winning percentage to 35%. Maybe lower the volume to 200,000.
I had to learn the hard way early in my career not to do this.
In summary, there will be days when you’re all excited. But you see, in order to make money with trading, two conditions have to be met.
Number one, you have to be ready, and number two, the markets have to be ready. You may be ready but if the markets are not ready, you’ve got to sit on your hands.
The beautiful thing as traders is, it’s not that today is the trading opportunity of a century. No, tomorrow there will be more trades, on Wednesday there will be more trades, on Thursday, and so on.
Every single day I’m running the scanner according to PowerX Optimizer and I will find more opportunities to trade.
So today, one of the hardest lessons is, sit on your hands.
If you enjoyed this article, do me a favor and leave a comment below.
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Thanks for taking a moment to reaffirm the conditions of the market. Don't need to make unnecessary mistakes!
Funny coincidence (or maybe not): I also found it quite difficult to fill up my 5 positions for the Wheel Strategy but could not find enough premium or only stocks that seemed to risky to me at the moment. So I finished this week with „only“ 3 positions live and waiting for Monday to present new opportunities!
Thanks for reassuring and giving this valuable lesson!
Not trading is also trading ??
I am glad that this helps. 🙂
Thank you for a very good advice.
You are welcome! 🙂
Another way of earn money when sitting on your hands is by selling neutral option strategies and profit from theta decay
When selling neutral option strategies like Strangles and Iron Condors, I like to filter for the following parameters to increase my chances for success:
>50% IV Perc so there is a high chance the IV will reduce, making the options decay faster
>100,000 open interest to make sure the trade volume of the particular symbol is high
>$10B market cap so the stock price isn't easily manipulated (like GME, AMC)
also the required Buying Power to be less than 5% of my account to manage my risks
That is an awesome tip! 🙂
Thank you for sharing it!