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Strategies & Market Trends : Harmonic Trading with The Phoenix
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To: mishedlo who wrote (887)7/28/2003 5:37:52 PM
From: the-phoenix  Read Replies (2) of 941
 
I don't like to trade these patterns until they are "real". That means that I want to see a complete pattern before taking a position. They are always reversal trades. Sometimes they undershoot the targets, and I miss out on the reversal (this is certainly possible on SOX hitting 396 today). More often they tend to overshoot a bit.

One could have been in calls at the bottom - sure, if you had any idea that it was the bottom. This method won't tell you that, because the bottom can only be seen in retrospect as the potential third leg of a four leg pattern.

I guess one could trade the third legs of "bearish" patterns as short-term bullish plays, or vice versa. The short-term call is indeed up for a bearish pattern when called in advance of the short setup. But the odds are in favor of taking the reversal play if and when it sets up.

My plan to sell calls is largely based on the expectation that we may go nowhere for the next month, but unlikely to go up much more and very possibly down a great deal. Selling calls seems to have the best risk/reward here. The breakeven on selling August 400s at SOX 400 would be around 412 and if I sell September 400s it would be around 422, I think. I think I stand a very good chance to make a nice profit in a little over two weeks with the August 400s. The amount of time premium on these SOX options is ridiculous. I would not play them long.

All just my very humble opinion, of course!
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