D AY T RA D I N G

OPTIONS
SC A L P I N G P R E M I U M S
T H E C O M P L ET E D A Y T RA D I N G GU I D E

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D I SCLA I M ER
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LET'S TALK ABOUT:

- GENERAL STOCK MARKET TERMINOLOGY

- BASICS OF TRADING

- PART I: INTRODUCTION TO OPTIONS

- PART II: UNDERSTANDING PRICE ACTION

- PART III: PUTTING IT ALL TOGETHER

- PART IV: KEY RULES TO LIVE BY

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 GENERAL STOCK MARKET
TERMINOLOGY

Section Breakdown

- Strategies

- Bullish vs. Bearish

- Market Cap

- Account

- Price Action

- Orders

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I N TRO D UCTI O N
TERMINOLOGY
St rat egies
Day Trading - refers to buying and selling shares or options within the same trading day.
Regardless of whether you buy and sell within a minute or 3 hours, it is still considered a day
trade.

Swing Trading - refers to buying and selling shares or options over an extended period of time
of at least one or more days. Regardless of whether you buy it today and sell it tomorrow, or
buy it today and sell it in a year, these are both considered swing trades.

Scalping - this refers to traders who rapidly day trade. In other words, scalping is buying and
selling shares, or option contracts, within a very short period of time; this could mean in
seconds or minutes. Scalping is the trading strategy that I prefer, and is very common among
pattern day traders.

Long vs. Short (Bullish vs. Bearish)

Long - have you ever heard someone say, "I'm going long!"? Well, the term Long refers to a
bullish position in which you think the stock will rise, or the value of the option premium will
increase. To go long on a stock position, you can buy shares or equity. To go long in an option
position, you can buy contracts known as calls.

Short - this refers to a bearish position in which you think the stock will fall, or the value of the
option premium will decrease. To go short in a stock position, you can sell shares or equity
known as short selling. To go short in an option position, you can buy contracts known as puts.

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 Market Cap
Market Cap - short for "market capitalization," refers to the value of a publicly traded
company by multiplying its current share price by the number of shares outstanding.

Small Cap - refers to stocks of publicly traded companies with a market cap between
$300 million to $2 billion.

Mid Cap - refers to stocks of publicly traded companies with a market cap between
$2 billion to $10 billion. Some examples of Mid Cap stocks include Discovery, Dish
I N TRO D UCTI O N
Network, and Hanesbrands.

Big Cap - refers to the stocks of the largest publicly traded companies with a market
cap of more than $10 billion. Some investors misinterpret this and assume that this
means less risk for your investment, but this is not the case. Some examples of Big
Cap stocks include Amazon, Apple, Facebook, and Microsoft.

St ock Split - refers to a company that increases the number of shares outstanding
which can boost the stocks liquidity. It is important to remember that just
because the number of outstanding shares increases, market capitalization (value of
the company) remains the same. This tends to happen when a company is thriving.

For example: NVDIA announced a 4:1 stock split

NVDIA price before split : $751

NVDIA price after split: $187

If you owned 1 share of NVDIA before the stock split at $751, you would now have 4
shares at $187.

Reverse St ock Split - refers to a company decreasing their number of outstanding

shares which in return boosts their stock price . Companies do this to avoid getting
delisted from major exchanges and to gain more attraction from investors.

For example: Citigroup announced a 1:10 reverse stock split

Citigroup Price before split: $4

Citigroup price after split: $40

If you owned 10 shares of Citigroup before the reverse stock split at $4, you would
now have 1 share at $40.
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 Account
Leverage - funds borrowed from a bank or a lender that are used to trade, but have specific
conditions and limitations.

Cash Account - allows you to trade using solely the cash you have available in your
account at the time of the purchase or sale. There are no restrictions as to how many times
per week you can trade; however, you can only use the cash you have available in your
I N TRO D UCTI O N
account. Pattern Day Trader (PDT) rules don't apply. After you open and close a position,
the cash becomes unsettled, meaning you have to wait for the funds to settle to re-use the
money and/or profits. Option trades settle overnight while equity/stock trades settle over
three days.

Margin Account - allows you to trade using leverage. In order to day trade with no
limitations, you must maintain an account balance of at least $25,000. Funds clear
instantly. If you have a balance of less then $25,000, you may only execute 3 day trades per
every 5 day cycle. If you have a balance of less than $25,000 and execute more than 3 day
trades in a 5 day period, you will be flagged as a PDT. Pattern day traders are required to
hold $25,000 in their margin accounts. If the account drops below $25,000, they will be
prohibited from making any further day trades until the balance is brought back up.

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Price Act ion
Ticker - the symbol and abbreviation that represents the publicly traded company. For
example, Apple is a publicly traded company and their stock ticker is AAPL. Microsoft's
ticker is MSFT, Lululemon's is LULU, Netflix's is NFLX, and so forth. These are the
abbreviations that investors and traders use to identify the stock.

Bid - the price at which buyers are willing to pay for a stock or an option contract. When you
enter an order to SELL your shares or option contract, it should immediately be filled if you
set the limit price at the Bid.

Ask - the price at which sellers are willing to be paid to sell a stock or option contract.
When you enter an order to BUY shares or an option contract, it should immediately be
filled if you set the limit price at the Ask.

Spread - the difference in value between the Bid and the Ask. The narrower or smaller
the difference between Bid and Ask, the better. This especially applies when scalping
premiums.

Volume - the number of shares or option contracts that have been exchanged between
buyers and sellers over a specified period of time. Volume can be calculated over short
time frames or over long time frames. It?s a very important term and tool to utilize
when trading as it indicates the strength or sentiment behind stock movement. High
volume on a rising stock indicates demand, while low volume on a rising stock indicates
weakness. On the other hand, low volume on a falling stock indicates weakness, while
high volume on a falling stock indicates panic and strength in selling pressure.

Volat ilit y - the movement of a stock or the market in general. The higher the volatility,
the more range and difference in price a stock/the market will have throughout the day
or over a specified period of time. Commonly, the higher the volatility, the riskier the
security.

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Orders
Market Buy/ Sell - purchasing and/or selling a share or option contract at the market price.
For example, stock AAPL's market price is $100, you would execute a Market Buy or Sell,
meaning you buy/sell AAPL at $100. Market orders will always fill you at what the market
makers want to fill you at. As a result, be careful using market orders when scalping. We will
delve into this further on in the book.

Limit Buy/ Sell - setting a specific purchasing or selling price that you, the investor, are
willing to buy or sell that share or option contract for. For example, stock AAPL's market
price is $100, but you set a Limit Buy at $95, signifying that you are only willing to purchase
AAPL at $95. Conversely, stock AAPL's market price is $100, and you are only willing to sell
AAPL at $105, so you place a Limit Sell at $105.

St op Loss - setting a specific price that you, the investor, will set to limit your loss on a trade.
For example, Stock AAPL's market price is at $100. You are currently in a bullish position on
AAPL. However, you want to limit your losses. As a result, you set a stop loss order at a
level/price that you are okay with losing.
Let's say that you are okay with setting your stop loss at $90. This means that if AAPL was to
dump to your stop loss level of $90, then your order would be executed and you would lose
$10 per share owned. Knowing where to place your stop losses is a whole other topic,
especially for options, which we will cover later on in this book.

St op Buy - setting a specific price that you, the investor, will set to do either of two things:

1) Limit your losses on a short posit ion - this is similar to stop losses, but used for
shorting a stock. When shorting and going bearish on a position, you are to sell the stock
then buy it back. For example, let's say AAPL is at $100, and you assume that AAPL will
decline from here. You open a short position by selling the stock. So, if AAPL was to dump
to $90, you will buy it back at $90 to close your position. This allows you to profit $10 per
share shorted.
However, you wanted to limit your risks on this trade, because of course, AAPL could
increase instead of dump. This is when Stop Buys come into play. You would set a Stop
Buy at the level you are okay with losing. Let's assume you set your Stop Buy order at
$110. This means that if AAPL was to push up to $110, your Stop Buy order would
execute and you would lose $10 per share owned. You will further understand shorting in
the next section.

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2) Limit on when you ent er your posit ion - you can also set Stop Buy orders to limit
yourself, the investor, on when to enter a trade. For example, AAPL is at $100. You want to
play the upside on AAPL, but only when it breaks above $105, because that will give you
more confirmation on your trade. So, you set a Stop Buy order at $105. Once, AAPL
reaches $105, your order will execute and you will have bought AAPL at $105.

Traders use Stop Buy orders when they are confident in their trade at a certain level. For
example, let's say stock TSLA has been having a hard time breaking $498, but you know
that if it were to break above $500 it will continue to aggressively increase. So, you set
your Stop Buy at $500. You will further understand critical level and zones throughout this
book.

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 Section End

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 BASICS OF TRADING

Section Breakdown

- What is a Stock?

- What is the Stock Market?

- Bullish Example

- Bearish Example

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W hat is a St ock?

To put it simply, a "Stock" is an investment that provides you with equity and
ownership of a company. Stocks like Microsoft and Apple, for example, are
corporations that are publicly traded on a stock exchange. This means that you, as an
investor, can buy into these stocks and own equity in the company, entitling you to a
portion of profits and assets of the company.

How much do you own?

Well, that depends on how much of the stock you own. Units of stock are known as
"Shares." The more shares you purchase, the more equity you own of the company.
Owning shares also makes you a "shareholder."

How much can you own?

This comes down to how many shares the company itself provides the public with.
This is known as "Outstanding Shares." Your investment and ownership is equal to
how many shares you own in comparison to the number of outstanding shares.
For example, let's say that Stock X has 10,000 total shares outstanding. Again, this
means that Stock X has provided only 10,000 shares to the public and institutions to
buy and sell. Now, let's say you own 100 shares of Stock X. This means that you own
1% of the company, Stock X. As a result, when the company does well then so do you.

Buying shares of the company = owning equity of the company

W hat is t he St ock Market ?

The Stock Market refers to a number of "markets" and exchanges where the buying
and selling of shares of publicly traded companies take place. The act of buying and
selling takes place through institutionalized exchanges that operate under
regulations. So, if someone tells you that they trade in the stock market, this means
that he/she/they buys and sells shares on one or more of the stock exchanges that are
part of the overall stock market. The top 3 stock exchanges in the United States are
the NYSE (New York Stock Exchange), NASDAQ, and the CBOE (Chicago Board
Options Exchange). With that being said, these national exchanges, and many other
exchanges operating in the country, form what we call the U.S Stock Market.

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Bullish Trade Example

Being Bullish or Long means that you believe that the stock will go up and increase.
?Hey I?m Bullish on Amazon?or "Hey I?m going Long on Amazon?mean the same exact
thing.
It means you believe that Amazon's stock will go up, that it?s stock price will increase, and
that you will make money if it goes up.
How do you take on a Bullish position or trade?
To Open a Position: You buy the stock.
To Close a Position: You sell the stock (your position amount).

Example: Buying Amazon for $100 and selling it for $200. This means you profit $100.
When it comes to long/bullish trades,
you need to first Buy to open the trade, then Sell to close the trade.

This trader bought 1 share of Amazon at $100, and then sold it when Amazon's price
increased to $200. Since this trader bought a share when the stock was valued at $100,
and then sold it when the stock increased to $200, they make a profit of:
$200 (Value of Stock Today) - $100 (Cost of to Purchase Share) = $100 Profit
So, to be green (make money/profits) on a bullish trade, you
would need to Buy LOW and Sell HIGH

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Bearish Trade Example

Being Bearish or Short means that you believe that the stock will go down and decrease.
?Hey I?m Bearish on Amazon?or "Hey I?m going Short on Amazon?mean the same exact
thing.
It means you believe that Amazon's stock price will decrease, and that you will make a
return on your investment if the stock goes down.
How do you take on a Bearish position or trade ?
To Open a position: You "short" the stock. This means that you would Sell the stock.
To Close a position: You would then buy back the stock, and your trade is complete.
Example: Selling Amazon for $200 then buying it back for $100. Which makes you a
profit of $100.
When it comes to shorting/bearish trades,
you need to first Sell to open the trade, then Buy back to close the trade.

In the chart above you can see that the trader decided to short stock Amazon. They
entered their position by selling the stock when the stock's price was at $200. The stock
started declining, which again, is exactly what a bear trader would want. The trader then
buysback the stock once it has declined to a price of $100 to close their position.

$200 (Cost of Selling the Share) -$100 (Value of Stock Today) = $100 Profit

So, to be green (make money/profits) on a bearish trade, you would need to Sell
HIGH and Buy back LOW
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Bearish Trade Real-Life Example

A good real-life example of shorting/bearish trade would be:

You want to make profits off of selling your car, but of course, you still need a car for
your daily life. You love your car so much that you want to buy the same exact make of
car again. So, when you do sell your car you are expecting to go and buy the same car.
What you would hope to do is sell your car for more than what you?re going to buy the
next car for, right?

You finally list your car on the

market. You list it at an asking
price of $10,000.
A buyer... let's call him Jimmy,
offers to pay for your asking
price of $10,000.
So, Jimmy hands you $10,000
and you hand him the car.
You have now opened the
trade as you have just SOLD
your car.

You have an open $10,000, but

again, you need a car to
complete this trade.
You know Christmas is coming
up and prices for cars will
decline.
You find the perfect deal! You
buy the same car that you love
so much for $8,000.
You have now closed the trade
as you have just BOUGHT back
a car.
As a result of this trade, you are
profiting $2,000.
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 Section End

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 PA RT I
I N TRO D UCTI O N TO O PTI O N S

Section Breakdown

- What are Options?

- Expiration Date & Strike Price

- How an Option Contract Works

- Option Premiums

- Implied Volatility

- ITM, ATM, OTM

- The Greeks

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So, W hat are Opt ions?
Options are contracts that you, an investor, can purchase that provide you with shares of a
company at a specified price for the future. Purchasing Option contracts give you the right,
but not the obligation to exercise the contract.

When investors refer to options, they are talking about purchasing either Call Options or
Put Options.

Call Opt ions - a bullish contract that you would buy if you believed that the value of the
underlying stock will increase within the specified time frame.

For example: Today is January 1st, and MSFT (Microsoft) is at a price of $140.
You believe that by the end of the month, MSFT's stock price will increase to at least
$150. Then, you would buy a Call Option expecting to make money from the
increased value of the stock price, and the increased value of the option contract
itself.

Put Opt ions - a bearish contract that you would buy if you believed that the value of the
underlying stock will decrease within the specified time frame.

For example: Today is January 1st, and MSFT is at a price of $140. You believe that by
the end of the month, MSFT's stock price will decrease to at least $130. Then, you
would buy a Put Option expecting to make money from the decreased value of the
stock price, and the increased value of the option contract itself.

Spot Price - the market price of the underlying security.

For example: If MSFT is at a price of $140 today, then it's spot price is $140.

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Expirat ion Dat e & St rike Price
Expirat ion Dat e - every option has an expiration date that you choose before purchasing
the contract. After that date, the option contract becomes expired or rather, invalid, and you
will no longer have the right to exercise the contract as it no longer exists. Option contracts
usually expire on Fridays, at the end of the trading day.

For example: Assume you purchased a MSFT 150 call that expires on Friday, January
7th. Then, by the end of the day on Friday, January 7th, your contract expires and no
longer exists.

St rike Price - also known as the exercise price, refers to the price at which the investor can
buy the underlying security. The strike price is fixed for the contract and therefore does not
change.

For example: If you buy a MSFT 150 Call option, your strike price is $150. This is the
number that you believe the underlying stock (MSFT) will move toward.

Choosing the strike price is one of the most crucial elements of trading Options, as there is a
risk associated with the underlying asset hitting the value of your strike price or falling short
of it. If the stock you are trading hits the value of your strike price by the expiration date,
then the option can be exercised. If it does not hit that value, then it will become worthless.

For example: Let's say MSFT is at $140 and you purchased the 150 strike MSFT call,
but by your expiration date, MSFT is only at $145. Your contract will expire and be
worthless. However, you can still profit off of the movement on the premium of your
contract, since the underlying stock still moved $5 in your favor. We will cover this
later in Part II.

Now that you have some important information, let's get back on track to understanding
how these Option things even work!

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How an Opt ion Cont ract Works
Again, purchasing a Call or Put option contract provides you with the right but not the
obligation to exercise the contract.

Call Opt ion

Purchasing 1 call option contract provides you with the right to buy 100 shares of the
underlying stock at the strike price when the contract expires.

For example: Let's take the same MSFT example from the Call Options section.
Purchasing 1 MSFT call contract at a strike price of $150 basically gives you the right
to buy 100 shares of MSFT at $150 per share, instead of its market price on that date.
So, let's say by the end of January MSFT is at $160.

Since you purchased a call contract at the beginning of the month, this gives you the
right to exercise the contract by the expiration date. You will have the right to
purchase 100 shares of MSFT at $150 per share, and could sell them at the market
price of $160 per share. Profiting $10 per share, you will end up with a total profit of
$1,000 minus the premium price.

Call Profit Equat ion

((SPOT PRICE x NOS) - (PURCHASE PRICE x NOS)) - PREMIUM PRICE = PROFIT

NOS= Number of Shares

So for this MSFT example, we would calculate our profits as:

($160 x 100) - ($150 x 100) - PREMIUM PRICE = PROFIT

($16,000 - $15,000) - PREMIUM PRICE = PROFIT

This equals to profits of:

$1,000 - PREMIUM PRICE

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Put Opt ion
The same rules apply for put options. However, purchasing a put option is to play the
downside of the underlying stock rather than the upside. In other words, purchasing a put
option is a form of shorting a stock but without the leverage liability. This also means that
calculating the profits when the contract expires is opposite to the calculations of a call
option.

Purchasing 1 put option contract provides you with the right to sell 100 shares of the
underlying stock at the strike price when the contract expires.

For example: Let's use the same MSFT example again, but now describing how
purchasing a put contract would work. Let's say MSFT is at a price of $140 today, and
you are analyzing that MSFT will be at a spot price of $130 or less by expiration.
Purchasing 1 MSFT put contract at a strike price of $130, basically gives you the right
to sell 100 shares of MSFT at $130. So, let's say that by the end of January, MSFT is
at a spot price of $120. Since you purchased a put contract at the beginning of the
month giving you the right to exercise the contract by the end of the month, you will
have the opportunity to sell 100 shares of MSFT at $130 per share rather than the
spot price of $120.
So, how do you profit? With shorting, playing the downside of a stock, you must
purchase the shares back that you sold to make your profit. In this case, you would
then buy the same amount of shares back at the market price of $120.
Profiting $10 per share, you will end up with a total profit of $1,000 minus the
premium price.

Put Profit Equat ion

((SELLING PRICE x NOS) - (SPOT PRICE x NOS)) - PREMIUM PRICE = PROFIT
NOS= Number of Shares

So for this MSFT example, we would calculate our profits as:

($130 x 100) - ($120 x 100) - PREMIUM PRICE = PROFIT

($13,000 - $12,000) - PREMIUM PRICE = PROFIT

This equals to profits of:

$1,000 - PREMIUM PRICE

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How an Opt ion Cont ract Works
With both of the above examples, the results turned out the same. This is because we were
trading the same exact movement of the underlying stock. The difference was in the
direction of the movement. If we analyzed that MSFT's stock price was going to move up, we
would then trade Option Calls. Opposingly, if we analyzed that MSFT's stock price was going
to decrease and move down, we would then trade Option Puts.

Make sense?Test your knowledge on the next page.

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SELF - A SSESSM EN T

If you have a hard time answering these questions, or cannot answer them without looking back at the first couple of sections, then please pause
here and re-read everything over again. Understanding the basics of optionsis crucial to further understanding how to scalp and trade them.

1. "I'm going long!" refers to a __________________ position in which you think the stock or
option premiums will increase.
2. "I'm going to short that stock!" refers to a _________________ position in which you think
the stock or option premiums will decrease.
3. I'm going to enter and exit out of this position very quickly, meaning I am going to buy
and sell shares or options within seconds or minutes; this strategy is called:
__________________.
4. With this type of account, there are no restrictions or limitations to how many trades
you may take per day/week. You may trade until all funds have been used. However,
funds take a day to clear for options and 3 days to clear for shares. This account is a
__________________account.
5. I assume that Tesla will be making new highs this week, therefore I am going to trade
__________________ option contracts.
6. I think that Tesla might move down 10 points this week, therefore I am going to trade
__________________option contracts.
7. I have more than $25,000 in my account, and although I don't care for using leverage, I
want the perks of being able to trade with no restrictions all while having funds clear
instantly. This account is a __________________ account.
8. Option contracts give you the right but not the obligation to __________________ the
contract.
9. This is fixed for an Option contract and therefore does not change: __________________ .
(Hint: also known as the exercise price)
10.If the stock you are trading hits the value of your strike price by the __________________ ,
then the option can be exercised.

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Answers t o Self- Assessment
1. Bullish

2. Bearish

3. Scalping

4. Cash Account

5. Call

6. Put

7. Margin

8. Exercise

9. Strike Price

10. Expiration Date

________________________________________________________________________________________

This leads us to our next important factor of understanding options...

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Opt ion Premiums

An Option's premium is the current market price, or rather, the price you have to pay to
purchase the contract. Premiums move when the underlying stock moves, which is how the
value of the option contract increases or decreases.

Going back to the MSFT example, let's say you wanted to buy the 150 MSFT call.
However, to purchase the call option contract there is a premium price of $3.00.
How much do you think purchasing this contract will cost you?

If you said $300, you are correct!

It would cost you $300 to purchase 1 call contract because, again, 1 contract always
equals 100 shares of the underlying stock. So, purchasing one contract at a premium
price of $3.00 means you are getting every share of MSFT for $3 per share for that
contract.

Opt ion Premium Equat ion

PREMIUM PRICE x ( NOC x 100 ) = COST OF OPTION CONTRACT
NOC = Number of Contracts

So for the above example, this is how it was calculated:

$3.00 x (1 x 100) = COST OF OPTION CONTRACT
which equals to a premium cost of,
$300

Now, let's assume you wanted to buy 3 of the same said MSFT call contracts.
How much would it then cost you?

Using the Option Premium Equation:

$3.00 x (3 x 100) = $900

So, if you said $900, you were correct!

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Looking back at our MSFT put and call example, we profited $1000. In accordance to our
Option Call and Option Put Equations, our actual profit would be the $1000 minusthe
premium price.

Now that you understand premium prices, let's go back and solve the equations
completely to find out how much we actually would have profited when subtracting the
premium price.

Assuming the premium price for both the call and the put contracts is $3.00, and we are
only purchasing 1 contract :

Call Profit Equat ion

(SPOT PRICE x NOS) - (PURCHASE PRICE x NOS) - PREMIUM PRICE = PROFIT

($160 x 100) - ($150 x 100) - PREMIUM PRICE = PROFIT

($16,000) - ($15,000) - $300 = PROFIT

$1,000 - $300 =

act ual profit s of $700

Put Profit Equat ion

(SELLING PRICE x NOS) - (SPOT PRICE x NOS) - PREMIUM PRICE = PROFIT

($130 x 100) - ($120 x 100) - PREMIUM PRICE = PROFIT

($13,000) - ($12,000) - $300 = PROFIT
$1,000 - $300 =
act ual profit s of $700

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Now that you understand what Calls and Puts are, let's look at what purchasing an option
contract may look like on a trading platform.
Platform used here isThinkorSwim by TD Ameritrade

Spot Price
Circled in green is MSFT's current
Spot Price, which is today's market
value of MSFT. This means it would
cost you $149.70 to purchase one
share of MSFT.

Expirat ion Dat e

Circled is the date that the option
contracts will expire. If I were to
buy the 150 strike contract, then I
am purchasing the option assuming
that by April 3rd 2020, MSFT's
stock price will be at $150 or
higher.

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 St rike Price
The top left green circle shows
where you would find the calls
column, and the putsare to its right.
The oval shows the shared strike
prices for both the calls and the put
contracts.

Premium Spread
Circled is the 150 strike call option.
The numbers circled show the bid and ask
spread for the premium price.
In this case, it would cost you between
$5.15 - $5.50 to purchase 1 contract.
So, how much would 1 contract actually
cost you?
I'm sure you were correct and said
between $515-$550!

(Looking at the same row, the bid -ask spread

to the right highlighted in purple is the
premium price for the 150 put contract)

You may be wondering why some call

strikes and put strikes are highlighted in
purple, right? Well, these are known as
In the Money options. Don't worry, we
will cover this next.

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Implied Volat ilit y (IV)
A very important factor to keep watch of when trading options is Implied Volatility (IV).

Implied Volatility shows how volatile the market may be in the future and where stocks may
be valued at in the future. IV plays a big role in how the premium for the option contract
moves. It is crucial that you keep watch of IV when trading options.
- The higher the IV, the higher the value of the premium.
- When IV decreases and drops, the value of the premium also decreases.
IV usually increases or decreases based on changes like: major court decisions, analyst
upgrades or downgrades, news, product releases, earnings announcements, etc.
Most often, before a stock reports earnings, you will most probably always see an increase
in that stock's implied volatility. Again, this increases the value of the option premium.

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At this moment, you might be asking yourself, "how do I know what option contract/ strike
price to choose?" This is where In The Money (ITM), At The Money (ATM), and Out The
Money Options (OTM) come into play.

ITM, ATM, OTM

The difference between ITM, ATM, and OTM is associated with the strike price's position
relative to the market value of the underlying stock.
ITM ( In The Money) - when your strike price is lower than the current market price of the
underlying stock
ATM ( At The Money) - when your strike price is equal to the current market price of the
underlying stock
OTM ( Out The Money) - when your strike price is higher than the current market price of
the underlying stock

ITM example: If the stock you?re trading?s price is currently at $100, an ITM option contract
would be a contract with the strike of $95. This is because your option contract?s strike is
lower than the current stock price, resulting in you being "in the money." Think of it as like
you?re winning the race because you finished in 95 seconds while everyone else is still
running into their 100th second. As a result, you?re in the money. The longer they take to
run (the higher the stock increases) the stronger of a win you set; meaning the deeper in the
money you are. If they reach 105, you will be deeper in the money.

ATM example: If the stock you're trading's price is currently at $100, an ATM option
contract would mean that the option strike has to be $100 for it to be ATM. This is because
your option contract is equal to the current stock price, resulting in you being "at the
money." Think of it again, as a race. You and the rest of the racers all reach the finish line at
the same exact second. You are all equal, and you are all at the money.

OTM example: If the stock you?re trading?s price is currently at $100, an OTM option
contract would mean that the option contract has a strike of $105. This is because your
option contract?s strike is higher than the current stock price, resulting in you being "out of
the money." Think of it as a race, again, but this time everyone has finished the race before
you. They finished the race at the 100th second, and you?re still running into your 105th
second. You are out of the money, as you have lost the race. If someone finished the race in
90 seconds rather than 100 seconds, you would be deeper out of the money as you are
much further away from the winner.

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Now, of course, your option contract can go from being ITM to being ATM or OTM. If the
stock price is at $100 and your strike is $95, you are ITM. If the stock price decreases to
$95, your option contract will now be ATM. Now, if the stock price decreases some more
to let's say $90, your option contract will be OTM.

The same concept works with OTM or ATM. For example, if the stock price is at $100 and
your strike price is $100, then what does that make your option contract? If you said
ATM, you are correct. At that moment, you are ATM. However, if the stock price
increases to $105, you will be ITM. This is because your strike is $100, and the current
stock price is now at $105. The further it increases, the further in the money you will be;
this is also known as deeper in the money. If the stock decreases from $100 to $95, you
will be OTM. The further it decreases, the further out of the money you will be.

Lastly, let?s say the stock price is at $100, and your strike is at $105; you are OTM. So, if
the stock price increases to $105, you will then be ATM and no longer OTM. If the stock
price increases some more to $110, your option contract with a strike of $105 will be
ITM. However, assuming the stock price decreased from $100 to $95, then your OTM
option contract will now be further and deeper OTM ( it still stays as an OTM contract, it?s
just a deeper OTM contract). How does this affect you if it?s still considered OTM? Well
this is where understanding The Greeks kicks in, which we will cover in the next section.

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In the money or out of the money options both have their pros and cons. One is not
better than the other. Rather, the various strike prices in an options chain
accommodate all types of traders and option strategies. I personally like to trade
options using the scalping strategy, so with that I tend to scalp ATM and ITM options.
Don't worry we will break this down soon.

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THE GREEKS
No, not the pita bread type.

The Greeks are very vital in understanding how an option contract is priced, and how the
value or premium of the option contract will be affected based on future stock movement.

D ELTA
Delta is one of the most important values to get familiar with when trading
options. Delta corresponds to the expected movement of the option's premium
per $1 move in the value of the underlying stock. This means that if your option
contract has, per say, a Delta of +- 0.35, then for every $1 move the underlying
stock moves, your premium will increase or decrease in value by $35. Delta for
Call Options range from 0 to 1, and Delta for Put Options range from -1 to 0.

Call Opt ion Delt a Example: assume MSFT is at $100 and your call premium
is at $2.00 with a Delta of 0.55. If MSFT was to increase by $1 to $101, then
your call premium's value would increase by 0.55 to $2.55. Hence, if you
were to sell the call option after the $1 increase in MSFT, you would profit
$55. However, if MSFT was to decrease $1 from $100, then your call
premium's value would decrease by 0.55, valuing your premium at $1.45.
Hence, if you were to sell the call option after the $1 decrease in MSFT, you
would cut losses and lose $55 on your trade.

Put Opt ion Delt a Example: assume MSFT is at $100 and your put premium
is at $2.00 with a Delta of 0.55. If MSFT was to decrease by $1 to $99, then
your put premium's value would increase by 0.55 to $2.55. Hence, if you
were to sell the put option after the $1 decrease in MSFT, you would profit
$55. However, if MSFT was to increase $1 from $100 to $101, then your put
premium's value would decrease by 0.55. Hence, if you were to sell the put
option after the $1 increase in MSFT, you would cut losses and lose $55 on
your trade.

- Something to keep note of: the more ITM an option contract is, the higher
its delta value will be. Meaning, the greater the money move you will see in
the option premium per $1 move in the underlying stock.
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GA M M A

Gamma measures the added value increase to the premium after the first $1 move
in the underlying stock.

Delta and Gamma work together, hand in hand:

Let's assume that your premium's value is at $1.00.

Your Delta on the option contract is 0.50 and Gamma is 0.10.

Let's assume that your underlying stock's price, MSFT, moves by $1.

With this first $1 move, we will add the 0.50 Delta onto the premium, right?

The premium is now worth $1.50 after that first $1 move.

Let's assume MSFT continues to move, and MSFT now moves another $1 in the
same direction.

This is where Gamma comes into play.

On the second $1 move, we now add the Delta and the Gamma to the premium as
well.

The premium is now worth $1.50 + Delta + Gamma

$1.50 + 0.50 + 0.10 = $2.10

- Not e: the higher the Gamma, the higher the premium reacts to price

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TH ETA

Theta is time decay. Every option contract, whether Calls or Puts, decays in value as you
get closer and closer to your option expiration date. Theta affects your option contract
every day, as the Theta value decreases your premium's price every day until the expiration
date.

Example:

Assuming your contract has a premium price of $1.00 and a theta of -0.30 ...

Your premium's value will decay by $30 every day, per contract.

So, disregarding any of the other factors that affect the premium value, your premium will
be at $0.70 by the end of the day.

- Theta is very important because higher Theta values can actually cause you to lose
money on the contract even if the underlying stock is moving in your favor, as the
rate of decay also increases as you get closer to expiration.

TIME DECAY OF OPTIONS

As previously stated, Theta

value decreases your
premium's price every day
until the expiration date.
Looking at the chart to the
right, you can see that as we
get closer to the expiration
date, Theta starts to decay
the Option's value (premium
price) much quicker and
greater. Keeping time decay
in mind when trading is
crucial, especially when
trading options that expire
within the week.

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V EGA

Vega is directly correlated to Implied Volatility. When the IV on your contract increases by
+1%, then you add Vega onto your premium's value. When the IV on your contract
decreases by -1%, then you subtract Vega from your premiums value.

Example:

Assume your contract has a premium price of $1.00 , a Vega of 0.05, and the Implied
Volatility on the contract is at 30%.

If the Implied Volatility was to increase to 31%, Vega would be added to your premium,
valuing it at $1.05.

If the Implied Volatility was to decrease to 29%, Vega would be subtracted from your
premium, valuing it at $0.95.

Opt ion Vega Graph

As you can see in the graph below, the closer we get to expiration, the lower Vega
gets as it decreases due to maturity. Thus, keep that in mind when trading options, because
as Vega decreases so will your premiums.

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 Delt a
The value circled in green
represents the Delta for the MSFT
150 strike Call Option. This means
that for every $1 increase in MSFT's
stock price, the 150 Call Option's
Premium price will increase by
0.4912, or about $49.12
For every $1 decrease in MSFT's
stock price, the 150 Call Option's
premium price will decrease by
0.4912, or about $49.12

Gamma
The value circled in green
represents the Gamma for the
same MSFT 150 strike Call Option.
This means that for every $1
increase in MSFT's stock price
aft er the first $1 increase, the
0.0273 Gamma will be added to the
Delta.
Thus, after the first $1 increase, on
the second $1 increase, 0.5185 will
be added to the Call Option's
premium, or rather, $51.85.
For every $1 decrease after the first
$1 decrease, 0.5185 or rather,
$51.85 is subtracted from the
premium price.

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 Thet a
The value circled in green
represents the Theta for the MSFT
150 Call Option. This shows that
this Call Option's Premium will
decay by 0.5033, or rather, $50.33
every day.

Vega & Implied Volat ilit y

The percentage circled in purple
represents the average Implied
Volatility for all the option
contracts under the same
expiration date. The value circled in
green represents the MSFT 150
Option Call's Vega.
Remember, Vega is directly
correlated to the change in IV. In
this case, if IV was to increase by
1%. Then the 150 MSFT Call
Option's premium price will
increase by 0.0761, or rather, $7.61.
If IV was to decrease by 1%, then
the premium price will decrease by
0.0761, or rather, $7.61.

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SELF - A SSESSM EN T

If you have a hard time answering these questions, or cannot answer them without looking back at the first couple of sections, then please pause
here and re-read everything over again. Understanding the basics of optionsis crucial to further understanding how to scalp and trade them.

1. An Option's _______ refers to the current market price, or the price you have to pay to

purchase the contract.

2. If the premium price for 1 contract is set at $5.00 and I wanted to purchase 2 contracts,

How much would the total cost of my purchase be?

3. If the premium spread shows the bid set at $2.50 and the ask set at $2.75, what does

this mean to you as a buyer?

4. When Implied Volatility decreases and drops, the value of the premium also __________.

5. If TSLA's stock has a current price of $1000, and I select a 950 strike CALL, this would

be considered an ____ The Money option contract.

6. The expected movement of the option's premium per $1 move in the value of the

underlying stock is referred to as ________.

7. AAPL's premium is valued at $1.00 ,the Delta on the option contract is 0.60, and Gamma

is 0.20. AAPL only moves $1, How much is the premium worth now?

8. As the expiration date of the contract gets closer, the Theta value ________ your

premium's price every day.

9. Vega is directly correlated with _____________ and is added or subtracted based on this

percentage value.

10. If Theta's value is -0.2055, this means the option's premium will decay by 0.2055 or

what dollar amount every day?

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Answers t o Self- Assessment

1. Premium

2. $1000

3. The buyers want to purchase the contract at $2.50 and the sellers want to sell the
contract at $2.75, therefore you can purchase 1 contract between $250-275.

4. Decreases

5. In

6. Delta

7. Trick question! $1.60, Gamma is not added since AAPL only moved $1

8. Decreases

9. Implied Volatility

10. $20.55

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 Section End

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 PA RT I I
GETTI N G STA RTED &
UN D ERSTA N D I N G PRI CE A CTI O N

Section Breakdown

- Opening an Account

- Understanding Charts

- Breaking Down Price for Starters

- Charting Common Technical Patterns

- Charting Common Candlestick Patterns

- Using My Favorite Technical Indicators

- How to Add Studies on ThinkorSwim

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Opening an Account

Now that you understand Options, let's get into the primary factor of having the ability
to even trade them - Opening a Brokerage Account!

To get started with trading, the first thing you are going to need to do is open up a
brokerage account.

I personally use TD Ameritrade and their trading platform called ThinkorSwim.

All you have to do is visit the brokerage of your choice's website and open up an
account!

If you're looking to open a trading account with TD Ameritrade, simply:

1) Visit their website at www.tdameritrade.com

2) Click on Open New Account

3) Open an account (typically an Individual account)

4) Fund the account with money by a deposit

5) Download the trading platform by TD Ameritrade called ThinkorSwim

6) Log into ThinkorSwim using the same account info created on the TD website

7) Et Voila! ("and there") you are ready to trade.

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St ep 1 & 2

St ep 3

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St ep 4

St ep 5

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St ep 6

St ep 7

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 M A RGI N A CCO UN T
- For Option trading the minimum
dollar amount is $25,000.
- Must maintain $25,000 in the account
otherwise the broker will flag your
account resulting in a margin call
which will restrict your ability to day
trade any longer. This is called being a
Flagged Pattern Day Trader. This will
only be removed once you fund your
account back to $25,000 and then
your trading may resume.
- Cash is settled immediately
regardless if it is Options or Stock that
you are trading.
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V S. CA SH A CCO UN T
- No minimum capital required. You can
trade with as low as $1 or as high as
you want. This is especially great for
beginners as you do not have a
requirement of funding an account
with $25,000.
- Allows you to buy and trade options
using only the amount of money you
have on the account. This means that
once you have used up all of your cash
on the day, you must wait until the
next day to trade again for cash to
settle.
- Funds for Option trading settle in 1
business day. Funds for Stock trading
settle in 2 business days.
 Page Break

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Underst anding Chart s

Understanding how to read charts and historic price movements to predict

future movements.

So what is a stock chart?

St ock Chart :

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 Page Break

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Breaking Down Price for St art ers
Understanding price action is the most important factor when it comes to trading.
Understanding price action will allow you to take your trading to a higher level.

Price Action is made up of:

- Candlestick Formation
- Charts
- Trends
- Key Levels
- Volume
- LVLII and Times & Sales

Candlest ick Format ion - learning how to read a candle. Understanding at what price it
opens, what price it closes, and what the wicks show.

Key Levels - support and resistance levels you implement while trading that will allow you
to construct your trades better and help you find high probability trades.

Volume - showcases the engagement behind the movement of the stock. Understanding
volume allows us to understand where the aggressive buyers or sellers are.

Trends - watching the trends of the stock will allow us to better understand what is
happening and predict what might happen next.

Let's break down each one of these in depth.

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 Candlest ick Format ion
Let's talk about Candlesticks. The following image below shows TW O candlesticks.

The Red Candle Stick shown The Green Candle Stick

on the right here is considered shown on the left here is
a Bearish Candle considered a Bullish Candle

Think of it as a Red candle means Think of it as a Green candle

selling pressure (downside) in the means buying pressure (upside) in
stock's price. the stock's price.

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 Great, you now know what the bearish candle vs bullish candle looks
like. But, how do we interpret the candlestick formation and reflect it on
the stock's price action?
We do so by breaking down the candlestick's Body vs. Wick

You can see here that we consider two labels when it comes to
breaking down the candlestick formation.
1) Body: The candle's range of price movement that has opened
and then closed. (usually the filled in portion of the candle)
2) Wick : The candle's range of price movement from highs and lows,
not considered in the stock price's value after candle close.

To further understand the Body of a candle, look at the image above.

(disregard the Wick for now)
We can see that on the Bearish Red candle, the candle opens from the
top, and closes at the bottom, signifying downside/selling pressure.
We can see that on the Bullish Green candle, the candle opens from the
bottom, and closes at the top, signifying upside/selling pressure.

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 Let's assume Stock XYZ is worth $100 per share at this exact moment.
However, looking at this Bullish Candle, you can see that Bulls bought the stock
at $100, and because of the buying pressure they've created, they were able to
push it up to $103 during this current candle's lifetime.
This means that once the candle closes at the $103 mark, the price and value of
Stock XYZ becomes worth $103 per share as the stock price has increased.
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 Let's assume Stock XYZ is worth $100 per share at this exact moment. However,
looking at this Bearish Candle, you can see that Bears sold the stock at $100, and
because of the selling pressure, they were able to push it down to $99 during the
candle's lifetime.

This means that once the candle closes at the $99 mark, the price and value of Stock
XYZ becomes worth $99 per share as the stock price has decreased.

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Now let's look at those same examples, but by disregarding the Body of the candle, let's
understand what the Wicks mean..

Let's assume Stock XYZ is worth $100 per share at this exact moment. However,
looking at this Bullish Candle, you can see that Bulls bought the stock at $100, and
because of the buying pressure they've created, they were able to push it up to $103
during this current candle's lifetime.
However... this is how the candle CLOSED. But, with understanding the wicks, we need
to look at what happened during the candle's lifetime BEFORE closing.
In this case, we can see that at one point, Bulls were able to push the stock price to
highs of $104 ( this is when you look at the wick's length and what price points it has
reached to). However, sellers pushed it back down and that's why the candle actually
CLOSED at $103.
We can also analyze that the candle opened at $100, but sellers at one point were able
to push the stock price down to lows of $99. Bulls, however, kept it above $100 and
closed it at $103.

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So, in this example, we understand that sellers opened the candle at $100 and
were able to close the candle $1 down to $99.
Looking at the wicks on this candle, we can see that there was a lot of
"fighting" or "indecision." This usually means that at one point, bulls were more
in control, and at another time bears were more in control. The "fighting" and
"indecision" is shown by how excessively long the wicks are.

We can see that at one point, the bears were so strong that they pushed the
stock price from the opening price of $100 all the way down to $95. At that
point, the bulls came in and kept it above $99, which is where the candle
closed.
We can also see that at one point, the bulls were able to push the stock price
past $100 to highs of $105. This means that at one point the candle was green,
right? Usually a move from the opening price of $100 to $105 indicates buying
pressure, but by the time the candle closed, sellers took the hold and dumped
it right back to $99 ($1 less than opening price). As a result, it closed Red.

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 Section Break

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Trends

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Key Levels
Key Level - a price of which is considered a key price level on the charts.

The most commonly used terms by traders are the Support and Resistance levels.

I like to think of these levels almost as "barriers" that prevent the price of the stock from
continuing to move in it's direction.

Resist ance level - a "barrier" expected to block an uptrend due to a concentration of

supply, or selling interest.

Support level - a "barrier" expected to block a downtrend due to a concentration of

demand, or buying interest.

Once these price levels have been found, they can be used for potential entry and exit
points for a trade. This is because once the stock's price reaches the support or resistance
level, it will only do one of two things:

- Bounce away from the Support or Resistance level

- Break the Support or Resistance Level and continue in its direction

Looking at the Graph to the left, you can

see the Support and Resistance levels,
which shows the stock's price bouncing
away from the Support and Resistance
Levels.

Looking at the Graph to the right, you can see Break of Resistance
that if the stock price breaks the Resistance level,
instead of the stock bouncing back down, the
stock price would continue to move in an uptrend Break of Support
direction. The same applies for the break of the
Support level; as it breaks, it continues in a
downtrend direction.
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Put t ing it Toget her

Breaking Down t he Chart and Candlest ick Format ion:

Looking at the image above, we are able to identify:

1) The stock we are watching

2) The time-frame we have chosen
3) Candlestick formation
4) Pre-market, Market, and After Hour Price Action (movement)
5) Trends
6) Key Levels

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1) The St ock We Are Wat ching

You can see that on this chart, we inputted the Ticker TSLA in the upper left corner,
which results in the chart loading the stock Tesla.

If you were to input AAPL into the box, the stock chart for Apple would load.

If you were to input NFLX into the box, the stock chart for Netflix would load, etc.

You do NOT need to have these memorized. You will memorize them as you begin your
trading journey. To find the ticker you may type "Tesla" into the search box and the
Ticker will pop up for you to click on.

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2) The Time-Frame We Have Chosen

In the image above, the arrow is pointing to the Time-Frame of the chart.
In this example, we have set the chart to5m , which means a 5 Minute Time-Frame.

What does the Time-Frame mean?

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3) Candlest ick Format ion

Remember when we broke down candlestick formation in the previous section, and
stated how each candlestick has a life-time/period? Well, this is how we signify the
life-time or period of the candlestick.

Essentially, on this 5m Time-Frame, each candle stick you see represents 5 whole
minutes of Price Movement for the underlying stock.

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4) Pre-Market , Market , and Aft er Hours Price Act ion

Keep in mind, when you load a stock's chart, you will see price action from Pre-market
to After Hour movement.

This is because the stock market opens at 6:30AM Pacific Time/9:30AM Eastern Time
and closes at 1:00PM Pacific Time/4:00PM Eastern Time.

This means that any trading that happens before 6:30AM or after 1:00PM is not
considered market hours, and rather, known as Pre-Market and After- Hours Trading.

There is usually very low volume and liquidity during Pre-Market and After-Hours
Trading. This will be covered later on in the book.

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5) Trends

If you look at this 5 minute TSLA stock chart, are you able to identify if the stock is in an
uptrend or downtrend on this day?

If you said uptrend, then you are correct!

The reason it is in an uptrend is because the stock price is overall and continuously
increasing.

We can identify this by looking at the candle stick formation and analyzing how the
candles have formed in the given period.

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In the image above, we have analyzed that TSLA is in an uptrend because you can see
that the price of the stock in the given period is overall increasing. Again, this is shown
by looking at how the candles have formed.

We can see that the stock price is making higher highs. As the time passes, the candle
tops are in an incline as the candles make higher highs (green circles).

We can also see that the stock price is making higher lows. As the time passes, the
candles bottoms are in an incline, showing that even when the stock price dipped, the
price itself was still higher than it was previously. This is called higher lows.

The inverse would be placed to identify a Downtrend, when the stock makes lower
highs and lower lows.

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That is how we identify an Uptrend, also demonstrated in the image below.

6) Key Levels
As we have previously learned, Support and Resistance levels are key levels that traders
use to identify where the stock may see rejection or continuation. Remember, think of
these levels almost as "barriers" that prevent the price of the stock from continuing to
move in its direction.
To recall, once the stock's price reaches the support or resistance level it will only do
one of two things:

- Bounce away from the Support or Resistance level

- Break the Support or Resistance Level and continue in its direction

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In our TSLA example, we have analyzed that $1108 is a Resistance level because we can
clearly see that candlesticks kept bouncing off of this level each time that it is tested
(red arrows). Yes, we do see some Wicks above our $1108 key level, but remember,
wicks are previous levels that the candle has reached in it's lifetime, NOT at closing. The
body of the candle is more crucial to note as it gives us the actual levels that the candle
has held. However, we do use the wicks, because it shows us where rejection took place,
which typically shows us where sellers or buyers are present.
Seeing that the candle bodies closed below and held below $1108 creates our
Resistance. This means sellers are present at this level making sure that buyers can't
take TSLA higher, keeping the stock holding below $1108.
If the candles were to close ABOVE 1108, then it would no longer be a resistance.

We also see that we have a Support created at around $1093.

The chart shows that at no point do we find a candle break below this level, proving that
it is a strong support. This means buyers have held this level making sure that TSLA
remains above $1093.

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 If those candles are remaining in between the support and resistance levels without
breaking out on either side, then what do we call this form of price action (candlestick
bars) movement?

We call this Consolidation. This is when price action is better known as , ranging, or
staying in between two key levels unable to break and trend on the upside or break and
trend on the downside.

Consolidation can be both, good and bad, for traders.

Traders favor consolidation when: it is informing us of a hold above or below a key level.
This is because price action is basically telling us that it is taking a rest, calming down, and
possibly preparing for a move. During consolidation, traders may also cut their positions or
add to positions. It is also favorable when we are able to analyze a technical pattern that is
forming that will properly give us direction and sentiment. This happens often! (we will
cover this later on).

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Volume
Volume is one of the most important indicators to constantly analyze while trading.
Volume ultimately tells you a lot about buying or selling pressure, which in turn
excessively benefits your trading . When trading, it is crucial we understand whether a
move in the underlying stock is actually indicating and showing us strength, or if the
move is weak.
When we see strength in a move on a stock, we have a higher probability of the trade
going our way. On the contrary, when we see weakness in a move, the opposite is true.
Traders get faked out on trades constantly, and it usually all dials down to the volume.
Many times, traders disregard watching volume while trading or have a hard time
interpreting it. This is unfortunate because volume will not only confirm a trade for you
but will also keep you from constantly getting faked out on a trade!

W hat is volume, and how do we analyze it on t he chart while t rading?

Volume - known as the total amount of shares that are being traded during the
specified time period. "Being traded" refers to shares being bought and sold
simultaneously.
Stronger volume represents heavier stock interest, and lower volume represents
lighter stock interest.
Does this mean that we need stronger volume for a stock to make a move? No.
This just means that we need stronger volume for a stock to give us the confirmation of
a move. Having multiple confirmations on a trade is the key to high probability trading.
Thus, yes, we would like to see stronger volume when taking a trade.

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Let's take the same previous TSLA example and break down the analysis on Volume:

As we have previously covered, TSLA's market open price action (candle bars in the blue
circle) is price consolidation.
A good measure of understanding volume is comparing price action in the candles to the
volume bars below. Each volume bar here breaks down the amount of shares bought and
sold during the time period. Since we are on a 5 minute time frame, then each blue
volume bar that is correlating to it's candlestick bar above is traded volume for 5
minutes.
In this example, we can clearly see that during price action consolidation, volume is low
and continuously decreasing. I like to call this the Volume Decreasing Staircase.

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Volume Decreasing St aircase
Again, if you look at the image above, you can see how the red trend-line drawn
showcases the steady decrease in volume. I actually love to see volume decrease
or 'squeeze in' like this when we are in consolidation. This is because it basically
shows us that the stock is losing strength and getting weaker and weaker.

You're probably wondering why I would want the stock's price action to get
weaker, right?
Well, when we are in consolidation and have strong volume, then we unfortunately
could easily get faked out as both bulls and bears are strongly controlling the price.
However, when volume is weakening during consolidation, then we are able to
assume that neither bull nor bear is in control and both are standing aside getting
ready for a bigger move.

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What we do want to see is how volume reacts when Price Action finally breaks out of
consolidation, as shown in the image below:

In the image above, volume breaks out of the decreasing staircase trend as soon as price
action breaks the $1108 resistance level. Do you see that?
Take note of how volume has a strong break out of the downtrend and price action has a
strong break out of the consolidation. This is strong confirmation to me, and is exactly what
I like to see when taking a trade. This is because volume strength is confirmation that this
break has higher probability of continuing in an uptrend rather than faking out and
returning back below $1108.
Thus, when taking break out trades, I almost always check volume in contrast to price
action to analyze whether volume seems strong or weak prior to taking the trade.

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 Section Break

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 LVL II and Times & Sales

Terminology to know when it comes down to analyzing LVLII and Times & Sales:

- Bids: The Bids are the price buyers are willing to buy the stock for
- Asks: The Asks are the price sellers are willing to sell the stock for
- Market Price: The current market price of the stock
- The Spread: The difference between the Bid and the Ask
- LVLII: Known as the 'order book' is where you are able to see the various spreads live
within the market
- The Tape: This is trader lingo for Times & Sales. Times&Sales, or rather the tape, shows
where price is being executed, flow, and size
- Size: the amount of shares the buyers or sellers are buying or selling

The Spread
The spread is the difference between the Bid and the Ask price. What does this mean? Well
when you go to trade any stock, there is a specific price that you must pay to buy the share.
For example, to own a TSLA share, you must pay a price. Right? Well, what dictates this price
is The Spread. Bids are the buyers and what they are willing to pay for a share of a stock. Asks
are the sellers and what they are willing to sell a share of stock for. To put it in more simple
terms, think of the spread like a car dealership.
Let's assume you visit the Tesla dealership. Let's also assume you have a budget of about
$30,000. You find the car you want and when look at the manufacturer's suggested retail
price, you see a price tag of around $40,000. So, you point out the car to the salesman and
tell him you want to buy that Tesla. He looks at it and says okay, we can give you that car out
of the door right now for $50,000.
In this example, $30,000 is the Bid price. As this is the price the buyer (you) are willing to pay
for the car. $40,000 is the Market Price as it is what the car is currently worth at fair value.
$50,000 is the Ask price. As this is the price the seller (car salesman) is willing to sell you the
car for.
The Spread is the range between the Bid and the Ask. So, in this example our spread would
look like:

Bid Ask
$30,000 $50,000

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LVL II

LVL II shows the order book, which is where Bids and Asks orders are set. This is the Spread.
Looking at the image above you can see that TSLA's Market Price is $824.13. This is what
TSLA's current stock price is valued at. Meaning, if you wanted to buy a TSLA share, you
would have to pay $824.13. However, the Spread changes things every second as the Bids
and Asks continuously update and change. In the image above, we see that on the left we
have the Bids and on the right we have the Asks. As explained in the car dealership example,
the bids here show what buyers are willing to pay to buy a share of TSLA stock. The Asks on
the right show at what price sellers are willing to sell their share of TSLA stock. So, the
Spread here is:
Bid Ask
$823.80 $826.29
We look at the top first row when watching the Spread because this is the best, or rather,
cheapest price you will find in the market on both ends. Meaning, looking at the Bids,
$823.80 is the highest price an investor will pay to buy a share of TSLA stock. Looking at the
Asks, $826.29 is the lowest and cheapest price an investor will accept to sell a share of TSLA
stock. A Market Maker, who is basically like the dealer here in the stock market, works in the
middle to create liquidity by facilitating the trades between the buyers and the sellers.
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Ultimately if you were to execute a Market Sell Order, the Market Makers will fill your order
in between the Spread.
Circled are the Size orders for both the Bid price and the Ask price. When looking at LVL II 's
size, we must note that each number here is representing 100 shares. So, on the Bids, we see
a size of 1 at Bid price of $823.80. This does not mean a buyer is waiting to execute 1 share
of TSLA, it actually means there is a buy order of 100 shares waiting to be executed at
$823.80. Same is true for the Asks side. We see that there is a seller with an order to sell 200
shares of TSLA at an asking price of $826.29.
Now, if you notice as you look down the rows of the LVL II chart, you will see that as you scan
it down the Bids continuously decrease and the Asks continuously increase. These are orders
waiting to be executed. As there are buyers who want to buy TSLA for much cheaper than
the top order and sellers who want to sell TSLA for much more than the top order.
When scalping and day trading, my main focus goes to the top row as I am watching it
constantly change. However, the rest of the orders are great to glance at because there are
times where you are able to analyze that there may be resistance at a certain level. How?
Well, let's assume the 6th row of price $828 actually had a size of 25. Let's also assume that
this order stays put and does not randomly vanish, as orders often get canceled. This would
mean that there are 2500 shares waiting to execute if TSLA were to move up to $828. This
would tell me that, hey if we hit $828s we might reject heavily as sellers are going to come in
and execute their orders. This would push the price back down. Good to note and utilize.

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TIMES & SALES

In the image above we have the Times & Sales chart, which is also known as the Tape.
We can see that the T&S opened is for the stock, TSLA. We are also able to see the Bid price
and the Ask price as well as Size on this chart. However, with this chart the size is true. So, if
you see 23, it is 23 shares. Not 2300 shares.
What I focus on when it comes to the T&S chart is the middle column, which is Price. This is
the price that the TSLA shares are being executed at. This is very crucial as it allows us to
understand Price Action and analyze whether the buying/ selling pressure is weak or
showing strength.
We watch the tape while in a trade because we need to understand if there is momentum
and strength or not.
The way to analyze strength here is by watching the Price column and seeing where Price is
being executed in relation to the Bid-Ask Spread.
If we see that Price is being executed at the Bids, then we are seeing strength in SELLING
pressure. For example, look at row 1. We see that the Price that was executed for that share
was executed exactly at the Bid price of $823.80.

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This basically means that the trader who's share that was, wanted to immediately exit TSLA.
They wanted to get out fast, and to get out immediately you would need to sell your shares
or contracts right at the Bid. This will fill you immediately as its the highest price a buyer will
pay for TSLA. So, when the trader exited TSLA, they sold their share right at the Bid for the
buyer to snatch. Now, if we were to see the T&S flow continuously showing us that price of
the shares that were then being executed afterwards were all hitting the Bids, we would say
that we are seeing strong selling pressure. As that shows that sellers are trying to
immediately exit their positions for whatever price the Bids are holding.
Same works for buying pressure. If we were to see that the Price being executed on the Tape
was being executed directly on the Asks. Meaning, lets say the Asks were $824.46. If we
began to see orders flowing through with Price in the middle column being executed right at
$824.46 the Asks then we would assume that the buying pressure has a lot of strength as
buyers are willing to get into the stock and buy shares at whatever price the Sellers are
stating.
We use this understanding of the Tape when trading as it allows us to confirm our trade
ideas. If we are in a bullish trade, I would want to see the Tape start flowing and Price
executing right at the Asks continuously.

Let's break all of this down in a simple video.

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V I D EO
LV LI I A N D TI M ES & SA LES

By clicking on the video button, you should automatically have the video open to watch.
However, if for some reason the button is not working for you, here is the link for the
above video: Breaking Down Price Action: LVLII and Times&Sales - YouTube

https://www.youtube.com/watch?v=D3mfCnSdpSc

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 Page Break

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Chart ing Common Technical Pat t erns

When it comes to looking at charts on a daily basis while trading, we may be able to analyze
different patterns that are forming within the candlesticks to give us a better idea on where
the stock may go. These patterns are called Technical Patterns, and traders use them on a
daily basis to find trade set ups.

Here are some common Technical Patterns that I use on a daily basis:

ASCENDING TRIANGLE
The ascending triangle pattern is known as
a continuation pattern. This means that
when the pattern breaks, it will continue to
move in the trend of the breakout. So, in
this case, an ascending triangle pattern is a
bullish pattern as we see price action
squeeze into a triangle. The top trend-line
is usually a strong resistance level, and as
price action squeezes into the triangle, the
bottom trend-line forms in an upward
slope. This is bullish. Once this ascending
triangle breaks out (green arrow), we then
assume that price will continue in an
uptrend. This pattern may be used to catch
upside plays.
DESCENDING TRIANGLE
The descending triangle pattern is known as
a continuation pattern. Just like the
ascending triangle, this means that when the
pattern breaks, it will continue to move in the
trend of the breakout. So, in this case, a
descending triangle pattern is a bearish
pattern as we see price action squeeze into a
triangle. However, contrary to the ascending
triangle, with a descending triangle, we have
a strong support level on the bottom of the
triangle and our top trend-line is sloping
downwards. Once this descending triangle
breaks out to the downside, we then assume
price will continue to trend down. This
pattern may be used to catch downside
plays.
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 BULL PENNANT
Like the ascending and descending triangle, this
pattern is also a continuation pattern. However,
with this pattern, instead of having one trend-line
slope and the other be at an exact horizontal and
180 degree angle, BOTH trend-lines are
converging to the same point. Think of it as a
perfect triangle, with both trend-lines meeting at
the point. The reason the trend-lines are meeting
at a point is because the candle price action is
consolidating and forming a pennant. We
consider it a bull pennant because the breakout
trends upward. In other words, once the pennant
breaks we may assume that the stock will
continue to move in an uptrend. However, it is
important to note that with a pennant, since it is
symmetric, the breakout may happen on either
end. Traders often say that if the pennant is
formed after an uptrend, then the trend will
continue. This isn't the case as pennants can most
definitely breakout on either side.
Consequently, the play here is waiting for the
breakout to confirm that it is indeed a bull
pennant for an upside play.

BEAR PENNANT
The bear pennant is similar to the bull pennant in
every sense. With this pattern again, we are just
waiting for the breakout to confirm in what
direction the stock may continue to move. In this
case, once we see that the pennant breaks out
downwards, we could use this indication to call
this pattern a Bear Pennant. This pattern may be
used to catch downside trades.

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DOUBLE BOTTOM
The Double Bottom is a bullish reversal
trading pattern. This is usually when we see
the stock come from a down trend, bounce
off a support level one time (A), then reject (B)
at a first resistance (B). We call this
resistance the "neckline" and we can use
the neckline to indicate where we would
play a breakout. Once the stock rejects the
resistance, or rather, the neckline (B), it
then comes back down to the same support
that it once tested (C). So, as you can see, (A) (C)
we now have two points touching the
support (A) and (C). Once we see that the
second test (C) bounces to retest the
neckline resistance, we would analyze this
pattern as a possible double bottom. I say
"possible" because it would need to break
the neckline for the Double Bottom to be
confirmed. Once the stock breaks the
neckline, we may use this pattern to take
an upside trade.
Pro Tip: I think of the Double Bottom as a
'W' forming on the chart. Seeing patterns
as visual letters makes it easier to DOUBLE TOP
remember.
(A) (C) The Double Top is a bearish reversal
trading pattern. This is usually when we see
a stock come from an uptrend, reject a
resistance level (A), but then bounce off of
a support (B) creating the "neckline." Once
it bounces off of support (B), it has a hard
time moving above the resistance and
(B) rejects the same resistance level as the
previous rejection (A) and (C). We then see
it reject again, all to come back down to
test the neckline for a break. At this point
we see this pattern as a Double Top, and we
may assume that once the stock breaks the
neckline it will continue to sell off and see
downside. This is where we may decide to
take a bearish trade.
Pro Tip: Opposite to the double bottom, I
like to visualize the Double Top as the
letter 'M".
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 INVERSE HEAD & SHOULDERS
This is a bullish reversal trading pattern. We
analyze that the stock price action may be forming
an Inverse Head & Shoulders if we see that the
stock comes from a downtrend and: 1) bounces off
a support level which creates the first shoulder
(S1) 2) once it bounces it then rejects a resistance
S1 level (neckline) 3) when it rejects off of the
S2
HEAD resistance it sees an even steeper downside, and
bounces off a deeper support level (HEAD) 4)
Once we see that the stock bounces off of the
steeper support level and rejects the same
resistance as the previous bounce, we then know
that we have now confirmed and created the
neckline 5) It then bounces off of the neckline
again, but this time it bounces off of the same
support as the first time it bounced. This now
creates the second shoulder. (S2).
We use this pattern to trade upside once the stock
bounces off of the second shoulder, and test the
neckline for a break. Once it breaks we know that
we have formed and completed an Inverse Head &
Shoulders pattern.

HEAD & SHOULDERS HEAD

The Head & Shoulders is known as a common
S1 S2
bearish reversal trading pattern. This is identical
to the Inverse, but is used for downside trades.
This is when we see the stock comes from an
upside move, and begins to create its first
resistance, which is known as the first shoulder.
(S1) Rejects the first resistance, bounces off of a
support, then continues to create a higher
resistance point (HEAD), to then reject and
bounce off the same support (neckline). After
the second bounce, we see the second shoulder
form at the first resistance level as shoulder 1.
This is a completed head and shoulders, and our
signal to get into a downside trade is once the
neckline breaks. We would assume that once the
neckline breaks, we could see more downside in
the stock.

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FALLING WEDGE
The Falling Wedge is a bullish reversal
trading pattern. We use this pattern as a
signal for upside trades. We may analyze
that a Falling Wedge pattern is forming if
we see the stock come from a downtrend
and begin to slowly squeeze into a triangle
formation. This is created when the stock
starts bouncing off tighter and tighter
support and resistance levels. However,
the key here is that the triangle (pennant)
being formed is sloping downwards. It
shouldn't be hard to spot, if you feel like
you are forcing a triangle, it's probably not
there.
Nonetheless, once we see this pennant
form, we want to confirm it with volume.
This will be explained further.
The trade signal for entry here is when we
see the stock break the tipping point of the
pennant and breakout of the resistance.
This is where we may take upside trades.
This usually indicates a reversal in the
stock and could have the stock see an
upside move.
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The Rising Wedge is opposite to the Falling
Wedge. This is a bearish reversal trading
pattern. We could say that a stock is
forming a Rising Wedge pattern when we
see the stock come from an uptrend, but
begin to see price action (candles) slow
down and start squeezing into a pennant.
The key with this pattern is that the
pennant is sloping to the upside. It looks
like the stock is reaching higher and higher
as it gets to the tipping point of the
pennant. However, once we see it break
the bottom support trend line, we can see a
downside move on the stock. Remember,
volume here is everything. So, let's break
that down now.
RISING WEDGE
 Let's first look back at our previous TSLA example.

By just looking at this chart again, and after learning about some of the most common
trading patterns, do you now see any pattern?

The answer should be yes..

Take the time on this page to analyze this chart and find the common charting pattern.

Try your best to answer these three questions before moving to the next page:
1) What is the pattern found on this chart?
2) Is this known as a Bullish or Bearish pattern?
3) Where would the trade entry signal be?

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The answer to the first question is....
An Ascending Triangle!

Why is it an Ascending Triangle? Well, as we previously explained, an Ascending Triangle

is formed when we see price action (candlesticks) reject a key resistance level, but each
time it rejects the resistance level and comes back down, it makes a higher low. This
means that each time the candles reject off of the $1108 resistance, it bounces at a
bottom and goes back to retest the resistance again. Each bounce is higher and higher.
We call this higher lows because there aren't any new lows being made. This also allows
us to draw and create the upward slope trend-line that we will indicate as the Ascending
Triangle's support level. This upward slope allows the price action of the stock to begin
squeezing into a pennant.
Do you see how it continues to reject the same resistance level of $1108 all while it
begins to create a triangle looking shape? Also, see how the bottom line of the triangle is
an upward slope? Yes?Perfect! There you have it.

Volume is equally important to note here. Volume is VERY important when it comes to
breakouts on any pattern, just like it is important with key levels.

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When it comes to pennant shaped patterns, we especially want to see volume begin to
decrease as the stock's price action starts squeezing into the tipping point of the pattern.
Below are the answers to questions 2 and 3:
The Ascending Triangle is a bullish pattern, as we use this pattern to take an upside trade.
As for question 3 on entry, the answer is on the break of the resistance level, but this is where
volume confirmation comes in. This is crucial for the pattern to have a higher probability of
actually continuing to see upside.
Here's the break down in a visual:

1. We see the pattern form - Ascending Triangle

2. While the pattern is forming, we also see that the volume starts decreasing. We like this
because it tells us that price action is actually slowing down and preparing for a move if
the pattern possibly breaks.
3. We see the pattern break. For the Ascending Triangle pattern, this is again, when the stock
breaks the resistance level.
4. And finally, for confirmation, we see that on the break, volume also breaks out! This
confirms our pattern break and gives us higher probability that the stock will continue to
trend upward.
Once we see the pattern break and get the volume confirmation break at the same time,
this is where we take out entry. As you can see, the stock continues to massively move on
upside!
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Real Life Pat t ern Examples
BEAR PENNANT - NETFLIX ( NFLX)

INVERSE HEAD & SHOULDERS - UPSTART (UPST)

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DOUBLE BOTTOM - TESLA (TSLA)

BEAR FLAG TO BEAR PENNANT TO BEAR FLAG TO BEAR FLAG TO DOUBLE BOTTOM

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NOTICE
Just because a pattern is forming does NOT mean that it will complete it's pattern and break out
in the direction you are assuming it will.
Nothing is for 100% certain in the markets, and if this is a hard fact to process, then you should
refrain from trading.

Market Makers (the big boys in the markets) will manipulate a stock in order to trap traders every
day. Meaning, although you may see a bull flag and though it may break to the upside, Market
Makers may still dump it back down. This is known as a fake out and WILL inevitably happen.
However, the more confirmations you can receive on a certain trade, the higher probability that
the trade will work out for you.

For example:
Let's say you are trading TSLA and you see a bull pennant forming. Your first instinct will probably
be "Oh! there's a bull pennant. This means it will continue to move on upside. Let me buy some
shares or calls."

This should not be your instinct as, again, just because a pattern is forming does not mean it will
100% move or break in the way it normally and usually should. This could easily fake out and
break on the downside instead of it's pattern upside, and you would get caught in a fake out and
lose money.

We always need confirmation.

Rather, let's say you are trading TSLA and you see a bull pennant forming. However, this time you
are not only waiting for the bull pennant to actually break, but you also want to see volume
confirmation and some other technical indicators confirming.

You now have set yourself up for a higher probability trade as you have waited for confirmation.

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 Page Break

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Chart ing Common Candlest ick Pat t erns

The first common Candlestick pattern we have is the Doji

There are 3 major types of Doji formations.
- Gravestone Doji
- Long legged Doji
- Dragonfly Doji

A Gravestone Doji, looking at the illustration above, looks like an inverted (upside down) T.
It is important to note that this candlestick is typically a Bearish indication. Bulls initially
drove the price upwards, found resistance, and then the selling pressure at the resistance
pushed the price back down to the opening price. Thus, indicating a 'Bearish' position.

A Long Legged Doji looks like a lowercase "t", where the opening and closing price are
almost the same. Therefore there is a long upper and long lower wick indicating indecision
between Bulls and Bears. This candlestick formation shows that neither buyers or sellers
are in control. Thus, indicating a 'Neutral' position.

A Dragonfly Doji looks like a capital "T" where the candle has no upper wick and only has a
lower wick. This suggests that bears initially had control and pushed price down before
bulls stepped in and regained full control. Thus, indicating a 'Bullish' position.

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 Real Life Examples

In the illustration on the left, we can clearly see that the

movement in the price action begins with an upward
trend. The stock looked strong with strong green bullish
candles pushing us up to new highs. However, we then
get a Gravestone Doji, and now since you know what
this candlestick means, you may assume at this point
that we have a higher probability of seeing some
downside. Thus, if you were in a bullish trade position,
you may want to take your exit here or manage your
stop loss.

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Hammer Candlest icks
There are 2 general Hammer Candlesticks
- Bullish Hammer
- Inverted Hammer/Shooting Star

A Bullish Hammer has a long lower wick and little to no upper wick. The difference with
the Bullish Hammer than the Dragonfly Doji candlestick is the body of the candle. The
Hammer Candlesticks have bodies at the ends of the wicks. This Bullish Hammer candle
can usually be found at the bottom of a downtrend and a potential reversal in the market.
Notice how I said potential, because it is not certain that it will reverse. Nothing is ever
certain in the markets but we can use these understandings and patterns to initiate and
form a possible analysis.

An Inverted Hammer or Shooting Star both look exactly the same. Which is an upside
down Hammer with a long upper wick and little to no lower wick. The difference
between the two is primarily context of when it is seen. An Inverted Hammer is a
potential bullish signal, but the Shooting Star is a potential bearish signal. The Inverted
Hammer comes after a downtrend and the Shooting Star comes after an uptrend.

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 In the illustration on the left, we can clearly see that
the Bullish Hammer comes after a bit of a
downtrend with price action selling off. The Bullish
Hammer forms, then we see the stock's price action
immediately reverse and move in an uptrend. This
candlestick is basically signaling the bottom of the
downtrend.

In the illustration below, we are able to visualize the difference between the Shooting
Star candlestick and the Inverted Hammer candlestick. Again, these candlesticks look
the same as they both are a long bearish top wick into a lower body with little to no
bottom wick. However, the difference here is that we tend to see the Shooting Star
after an uptrend, and once identified we could make the assumption that a reversal
into a downtrend will begin. The Inverted Hammer, again, is the same candlestick
formation. However, we tend to see Inverted Hammers at the bottom of a downtrend.
Once identified, we could make the assumption that a reversal into an uptrend will
begin.

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Bullish & Bearish Engulfing Pat t erns

First, let us interpret what the term engulfing even

means. The definition of engulfing is to surround,
or cover, completely.
Hence, as shown in the illustration to the left, you
are able to analyze that the green candle on the
right is larger in size than the red candle on the left.
For a Bullish Engulfing like the one shown on the
left, it is important that the high and low prices of
the green bullish candle extend to higher price
levels than the high and low of the previous red
candle. Visually, we can tell that the green bullish
candle almost like 'eats' the red bearish candle as it
is much larger in size on both ends, the bottom
price and top price of the candle's body.
A Bullish Engulfing typically indicates a Bullish
signal as it shows that the selling pressure has
weakened and shows the rise and strength in
buying pressure coming in.

For a Bearish Engulfing, just the same as a Bullish

Engulfing, we want to see that the highs and lows
of the red candle extend higher and greater than
the previous green candle. Again, it almost looks
like the red candle could eat the green candle as
the body is large enough on both ends.
A Bearish Engulfing typically indicates a Bearish
signal as it shows that the buying pressure has
weakened and shows the rise and strength in
selling pressure coming in.
When identifying candlestick patterns, you should
not solely rely on them, but instead use them as an
additional confirmation or edge to your trade.

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SELF - A SSESSM EN T

If you have a hard time answering these questions, or cannot answer them without looking back at the first couple of sections, then please
pause here and re-read everything over again.

1. Identify the body and wick on this candlestick

2. Identify the opening and closing price of the candle

3. What does it mean if a candle has a long wick on the top in comparison to the bottom?

4. What is the range between the bid and the ask called?

5. What does it mean when the price being executed is hitting the asks on LVLII (Level 2)?

6. Time and sales is also known as _____.

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ANSW ERS

1.

2.

3. This means that aggressive selling pressure came in and pushed the candle back down.

4. The spread
5. When the price that we see being executed is hitting the Asks on LVLII then we could
assume that buying pressure is coming in. However, you want to see size also come in as
heavier size indicates strength. So, if we see the Asks getting hit with size and flow in the Tape
you got yourself some strong buying pressure!
6. The Tape

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Using My Favorit e Technical Indicat ors

Technical Indicators are great tools to use while trading because they are established to
predict future stock price movement, trends, and direction by studying the past historical
behaviors.
There are many indicators to choose from like the Exponential Moving Averages, Simple
Moving Averages, VWAP, TTM Squeeze, MACD, RSI, Bollinger Bands, etc.
As a day trader and scalper, I really only use the first four mentioned on a daily basis.
In reality, you do not need more than a few indicators to confirm a trade.
Sometimes you won't even get more than 1 indicator confirming a trade, so in those
moments of having more than 1 indicator confirm a trade, you will highly increase the
probability of that trade working out for you!

Exponent ial Moving Average

An exponential moving average, better known as EMA by traders, is a type of moving
average that calculates the stock price's movement and average price on a given time
period. It's called a moving average because, as the stock price moves every day and
makes new movement, the new data is added into the calculation. This then changes the
"average" of the stock price movement, which allows the exponential moving average
trend line to continuously find it's direction.

In simple terms, the exponential moving average is basically used by us traders to visually
understand and implement the stock's current directional trend. We watch the EMA's on
our charts to see how price action (candlesticks) is reacting to the EMA.
The EMA's time period is set by the trader.
Let's assume you as a trader set an EMA study on your chart as the 50EMA. What does
this mean? This means that the EMA trendline seen on your chart will measure the
average price of the stock over the given 50 days. With the EMA, as a new day is added,
since it is exponential, that new day's closing stock price will be added. Because of this,
the EMA is more sensitive to recent price data rather than old data, which is why it is
more favored by day traders than the Simple Moving Average (SMA).

The EMA's I personally use every day are:

- 9 EMA
- 21 EMA
These two are used on my 5 minute, 15 minute, and daily charts.

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Simple Moving Average
Just like the EMA, the SMA measures out the average price of a given stock in the specific
time period. The SMA is one of the most used averages by traders as it is used to
measure the average price movement of the stock.

The difference in the EMA and SMA moving averages is the way these indicators are
calculated. As a trader, you won't need to do the calculation as the computer and trading
program will automatically set it for you. However, it is important to note that the main
difference is that the EMA is more sensitive to newer price data rather than older data,
while the SMA primarily calculates the average price of the data collected.
The SMA's I personally use every day are:
- 50 SMA
- 100 SMA
- 200 SMA
These three are used on my hourly, 4h, daily, and weekly charts.

Takeaway
One is not "better" than the other. Traders have preferences, but the best of
traders incorporate both the SMA and the EMA to interpret their technical
analysis.

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 Implement ing Moving Averages in Real Life
These moving averages are used by us traders to understand the trend of the stock.
While trading, this helps us confirm our trades or better our technical analysis as it helps
us understand if the stock is currently in a trend or not.

As a general rule of thumb, when price is above the EMA or SMA trendline, then we may
assume that the trend of the stock is in an upward direction. Opposite works the same,
when price is below the EMA or SMA trendline, then we may assume that the trend of
the stock is in a downward direction.

Bullish Example

Above is the 5min chart for stock Netflix, Ticker: NFLX

The green light blue cyan color trendline is my: 9 EMA
The green color trendline is my: 21 EMA
Notice how price action (the candlesticks) are floating above the 9EMA throughout the first
half of the day. Each time we see a red candle form, it still ends up bouncing right off the 9EMA
and allows the stock's price to continue to trend up.
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Again, we can clearly see here that throughout the first few hours of the trading day, NFLX was
strongly trending up as it was strongly bouncing off of it's 9EMA each time sellers tried to
knock it back down. This shows strong bullish pressure, and as a day trader, I use these EMAs
to gauge strength of movement. So, if I were to be in this NFLX trade noticing that price was
strongly respecting the 9EMA,I would remain to stay in this trade and capture the full move up
until I receive a signal to exit.
What would the signal to exit be?

Well, if we used the 9EMA as confirmation for buying pressure, then the 9EMA should also be
our confirmation for the end of the buying pressure.

You can see later on throughout the trading day, price action (the candlesticks) start
consolidating at the top. With the candle's bodies tightening up and becoming smaller and
smaller. While the consolidation is happening, volume is squeezing in (which again, tells us the
stock is prepping for a move), but also the candles begin to have a more difficult time holding
above the 9EMA. A few small red candles already have closed below the 9EMA.
As a scalper and day trader, you would use the first red candle close below t he 9EMA as your
st op loss. This would trigger your exit and would close out your bullish position locking in your
profits.

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As we know with volume squeezing in during consolidation, the stock is prepping for a move
again. The question here lies, " well, in what direction?". This would lead to some traders
wanting to stay in the trade as NFLX may be 'resting' for a next leg up.

Again, our stop loss has already triggered. With proper risk management, you should have
taken your profits and exited your position already.

However, because of the volume squeezing in and stock price consolidating. You may decide to
lock in a great percentage of profits at the original stop loss of the close below the 9EMA, and
then let a few runners run. I usually do 70/30. This means on any signal for exit, I lock 70% of
my profits, and allow 30% to run if there is a reason to. In this case, there is a reason as we see
consolidation + volume squeezing in. Locking in 70% and only letting 30% run protects me from
letting this trade go red. No matter what happens, I will remain green as 70% of the profits
have already been locked in.

In this case, the new stop loss for our 30% runners would be a trigger of a close below the
21EMA OR a sudden Crossover.

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Look at the red arrow drawn.
The red arrow is pointing at the point where our 9EMA and 21EMA Crossover.

What is a Crossover?
An EMA Crossover is when we see the 9EMA and 21EMA Crossover one another. This could
be bullish or bearish.
It is usually bullish when the 9EMA crosses above the 21EMA and we see the 9EMA float above
the 21EMA.
It is usually bearish when the 9EMA crosses below the 21EMA and wee see the 9EMA float
below the 21EMA.

In this case, we can see that as soon as we get our first red candle to close below the 21EMA,
our EMAs begin to form a bearish Crossover. The first red close below the 21EMA should be
your stop loss for the 30% runners. The crossover that then comes next, would just be
confirmation to you that the trend is about to change from being in an uptrend to now going
into a downtrend. You see that? You see how the EMAs help us understand the direction of
trend for the stock we are trading?

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Reminder: I use the 9EMA and 21EMA on both the 5minute chart and the 15minute chart
while day trading. This is because I never trade on just one chart, you should be glancing over at
different time frames ( especially wider time frames) to understand the bigger picture.

On the 15minute chart, we are also able to analyze that NFLX's price action was holding well
above the 9EMA throughout the move. And it's not until we get a red candle close below the
9EMA that we start seeing a change in direction. And look at that, once the candle closes below
the 9EMA the downward sell of is very strong and takes us almost back to the mornings price
levels!

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Remember when I said that Volume Breakout is a huge indicator for strength and sentiment?

Well, while watching the 15 minute chart you can confirm that while NFLX was trending up at
market open, the first 6 volume candles are strong and leveled volume bars. Then you can see
during that during consolidation, the volume bars start aggressively decreasing.
This confirms that the consolidation has low buying and selling pressure, and waiting on a
strong volume bar to confirm a strong move.
We see decreasing staircase in volume break and increase again once we get the candles falling
below the 9EMA. This confirms that the selling pressure is strong.

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 Bearish Example

Above is the 5min chart for stock Tesla, Ticker: TSLA

If you were to look at this chart and analyze the EMAs, what would you conclude with that
would help you analyze that the stock is in a downtrend?

My answers would be:

1) Bearish Crossover right after market open. ( 9EMA crosses below 21EMA)
2) Price is floating below and respecting the 9EMA
3) At one point, price reverses back above the 9EMA, however, it remains to reject the 21EMA
which continues to confirm more possible downside.

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Thus, if you took a PUT trade on TSLA, your confirmation for entry would have been the hold
below the 9EMA. So, this makes your mental stop loss trigger a candle close back above the
9EMA, right?
Well, in the image above, you can see that around 8:00AM TSLA gets a green candle to close
above the 9EMA. This triggers our exit. You may completely lock all profits and exit the
position, or, practice the 70/30 rule.
If done so, you would lock 70% on that green candle close above the 9EMA, and let the 30%
run with the mental stop loss of a close above the 21EMA for the runners. And watching the
5min chart, you can see that at no point do we get a candle to close above the 21EMA all day.
This would allow you to hold your runners all day and build up on even more profits with low
risk as you've already locked in 70%! Amazing, right!?

15min chart above confirms the downtrend as it remains to hold below the 9EMA all day! So,
the bigger picture was also bearish all day.

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VWAP
VWAP is an important study that most day traders use intra-day because the VWAP may
be used as a trend confirmation tool. This is because, similar to the EMA and SMAs,
traders may build a trading rule around the VWAP such as:
when price is above VWAP, they may prefer to initiate long positions.
when price is below VWAP, they may prefer to initiate short positions.

What exactly is the VWAP?

Well, the VWAP gives us the average price a security has traded at throughout the day,
based on both price and volume. Unlike the Moving Averages, VWAP calculates volume
in it's equation.
VWAP calculates the sum price multiplied by volume, divided by total volume.

I personally use the VWAP on the following time frame:

5 minute chart

Takeaway
Again, no indicator is better than the other. As traders, we use these indicators
to give us more confirmation for a trade. The higher number of confirmations we
receive the higher probability the trade works in our favor. Hence the reason we
use multiple indicators at once, so that we may find multiple confirmations to
heighten our chances of a trade going in our favor.

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 Implement ing t he VWAP in Real Life

By looking at the image above , you should be able to analyze most of the information on the
chart by now. Right?

This chart above is showing us that we are watching the Netflix stock NFLX, on the 5 minute
time frame. Right ?
The only study here shown is the VWAP. Yes, it is all three trendlines. The red trendline, the
purple trendline , and the yellow trendline are all VWAPs. Let's break this down.
The red trendline is known as the upper deviation band, which we consider to be the
overbought level. This means that when price is at or around the upper band VWAP then we
may assume that the price is then overbought and may want to close out our bull positions. Or
rather, start a bear position.
The yellow trendline is known as the lower deviation band, which we consider to be the
oversold level. This means that when price is at or around the lower band VWAP then we may
assume that the price is then oversold and may want to close out any bear positions. Or rather,
start a bull position to catch the bottom of a reversal back up.

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The purple trendline in the middle is known as the VWAP.
Traders use the VWAP on smaller timeframes like the 1minute and 5minute charts to
understand the stock price's sentiment. Again, we use this VWAP as a measure of trend
confirmation.

Look at the image above and notice how price action (the candles) move in respect to the
VWAP, the upper deviation band, and lower deviation band. When Price holds above the
VWAP, the stock price continues to move in an upward trend. However, you can see that each
time price reached the upper deviation band (red band), price rejected and came back down.
However, throughout the first half of the day, price stayed in between the VWAP and the
upper deviation band, which gives us the bullish confirmation of an uptrend.
You then notice that when sellers step in and bring price below the VWAP and confirm a hold
below the VWAP, price starts declining into a downtrend. How did it confirm a hold below?
Well, do you see how we get a red candle close below the VWAP, then the next few candles are
small bodied candles also closing below the VWAP. Showcasing that at no point were bulls able
to bring us back above the VWAP again. This confirms a hold below, and then gives us the
downtrend we would have expected.

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Here is another example of using the VWAP study to understand stock price sentiment.

Keep notice that in the image above, we are now looking at stock Tesla, TSLA. We are also on
the 5 minute chart, as again, I like to use the VWAP on the 5 minute time frame.
On this trading day, we notice that TSLA's price action instantly held us below the VWAP,
indicating a downtrend. However, this is a great example because we are able to see extreme
selling pressure by just looking at this image. Do you know how?
Well, I'm here to tell you!
Look at the image and notice how TSLA's price action (the candles) are aggressively riding
down the lower deviation band. Yes, it still has bounces off the lower deviation band, however,
do you notice how each time we touched the lower band vwap, the next candle also wanted to
close right at it? This shows us that selling pressure is extreme, because bulls are having a hard
time bouncing it off the lower deviation band. Another form confirmation here is volume! You
can tell that each selling pressure candle has a very long body with a huge volume bar to
support the long body selling pressure. Then when we see a green candle, which is a bullish
candle, the body remains small and the correlating volume bar is very low. This shows that
when bulls do come in, there is no strength in the buying power. Resulting in a double
confirmation that selling pressure is extreme. And you can see that throughout the day, TSLA
was in a downtrend as it held in between the VWAP and lower deviation band.
Pro Tip: price usually bounces off the lower deviation band. Thus, if you are in a short position
and at any point you see a green candle bounce off the band that has a longer body with volume
to support the push, then this may be your signal to exit the position as price may strongly
bounce back. You can see this exact event happen in the image above where the green arrow is
pointing to.
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TTM SQUEEZE

This is one of my absolute favorite studies to use while trading as it allows traders to
identify when momentum is about to kick in. And as a trader who scalps and day trades
breakouts ( you will learn my strategy in the next chapter), we need to understand if
momentum is truly there to refrain from getting faked out or trapped.

The TTM Squeeze measures the relationship between two popular studies: The Bollinger
Bands and the Keltner Channels. This allows traders to identify periods of consolidation
and anticipate when momentum is about to kick in.
Which in short, helps us 'forecast' the direction.
I use the TTM Squeeze on the: 5minute, 15minute, and 1hour time frames
There are three components to the TTM Squeeze:
- The Bollinger Bands
- The Keltner Channels
- Zero Line

I know it sounds like a lot, but the main focus when watching the TTM Squeeze indicator
is the Zero Line.

The Zero Line helps us identify new trends, changes in momentum, and increased
volatility.
Above Zero Line: When we see that the TTM Squeeze indicator is above the zero line,
then it indicates a possible long-play and upward momentum. You may see a Cyan color.
Cyan color on the Momentum Oscillator shows buying pressure. The dark Blue color on
the Momentum Oscillator shows buying pressure declining.
Below Zero Line: When we see that the TTM Squeeze indicator is below the zero line,
then it indicates a possible short-play and downward momentum. You may see a Red
color bar. Red on the Momentum Oscillator shows selling pressure. Lastly, if you see
Yellow, the Yellow color on the Momentum Oscillator shows selling pressure declining.

Green Dots on Momentum Oscillator: Indicator is On

Red Dots on Momentum Oscillator: Indicator is Off

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 Implement ing t he TTM Squeeze in Real Life

The image above is the same NFLX example we covered in the VWAP section, however here,
we have both the VWAP and the TTM Squeeze studies added.

The TTM Squeeze here shows us some Cyan, Dark Blue, Red, and Yellow bars. It also shows us
the Momentum Oscillator.
The Momentum Oscillator is pointed at by the green arrow. Those green and red dots lie on the
Momentum Oscillator which is also the Zero Line. We are to note that when the Momentum
Oscillator has green dots, then we can assume that the TTM Squeeze indicator is On. Meaning,
it's on because it is trying to show you something about the price action. However, when the
Momentum Oscillator is turned off, then we are to assume that the whole TTM Squeeze study
is Off! Meaning, do not even look at what the bars are like because the Oscillator is telling you
that it does not measure any momentum or buying/selling pressure. So, when I see the red dots,
I ignore the TTM Squeeze and do not use it as a measure of buying or selling pressure
confirmation. Instead, when I see the red dots, then I assume we are in consolidation.

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The Zero line as mentioned before is used to understand if the momentum is in the buying
pressure or selling pressure. When we have bars above the Zero Line in Blue, then we are
identifying buying pressure. When we have bars below the Zero Line in Red and Yellow, then
we are assuming selling pressure.

In the image above, we are able to identify that when we see NFLX run to the upside, we get
confirmation on the TTM Squeeze. We are able to analyze this by identifying if:
(looking at where the green arrow is pointing towards)
1) The Momentum Oscillator is turned on: yes, we are seeing green dots.
2) Are the bars in Cyan?: Yes, the bars are in the Cyan color which means that we are seeing
buying pressure
3) Are the bars increasing in a staircase formation?: Yes! They are continuously increasing, this
shows that the momentum within the buying pressure is there.

This confirms that we indeed, do have buying pressure on NFLX in that moment of time.
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However, we then notice the bars above the Zero Line turn Dark Blue. This means that buying
pressure is declining and could be used as a measure of exit.

Again, it's always great having more than one confirmation for your entries and exits. In this
case, if we are analyzing both the VWAP and the TTM Squeeze, as we should since I watch all of
these with the EMAs added when I am trading, we are able to identify that the TTM Squeeze
gives us the buying pressure signal and the VWAP also confirms a hold above and in between
the VWAP and the Upper Deviation Band. These are two confirmations for upside momentum.

When the TTM Squeeze then turns Dark Blue, we also want some sort of measure of either
price action slowing down or selling pressure kicking in for us to take our exit if its not because
of a Price Target or a Stop Loss getting triggered. And in this case, we see that when it turns
Dark Blue price action starts holding in consolidation as the candles' bodies start getting
smaller in size and Volume starts squeezing into a decreasing staircase. This is three
confirmations for a possible exit because of buying pressure diminishing.

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You can see here that just before NFLX sees some massive selling pressure, we are notified by
the TTM Squeeze that the Momentum Oscillator is turned off. We are able to identify this by
again, looking at the dots. The long red arrow in the image above is pointing at the Momentum
Oscillator during the period that NFLX is in extreme consolidation. Or rather, squeezing in and
preparing for a move. When the red dots turn on, that again means that the TTM Squeeze
study is turned off! Which tells me that there is NO buying pressure and NO selling pressure
being identified at that current moment in price.
This will usually make me exit a trade as the stock could then continue in either direction. A
second confirmation here is the fact that volume is also in a decreasing staircase. Showing no
pressure on either side.

Once the Momentum Oscillator turns into green dots again, the Red bars below the Zero Line
come out and that's when volume also breaks the decreasing staircase. All of this confirming
that downside selling pressure is imminent.

See! Super interesting, right?

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NOTICE

Just like our charting patterns, technical indicators do not give you 100% confirmation.
Just because the TTM Squeeze is showing buying pressure or the EMAs are crossing over,
does not mean you enter a trade. Be sure to have multiple confirmations by not just the
technical indicators, but with technical indicators confirming + price action with
confirmed breaks or holds of key levels + volume confirmation.

A rule of thumb I live by:

I like to see at least 3 confirmations before entering a trade for me to feel comfortable
with the probability of the trade moving in my favor. This allows me to capture better
trades and stay away from losing trades!

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How t o Add a St udy
So, after learning about my favorite indicators all that's left is learning how to add them to your
chart! (The example shown is for the ThinkorSwim platform on TDAmerit rade.)

First, begin by locating the St udy Symbol on the top right of your chart > then select
Edit St udies.

Here, a popup appears where you can add and customize your studies.

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On the left of the popup is a search bar where you can type in the study you're looking for.

Here I typed moving average in the search bar shown by the white arrow.

Next, I select the study I'm looking for. In this case, I select the MovAvgExponent ial>
in the bottom right corner, the Add select ed button is highlighted where the study is
added. The study appears at the top when added, shown by the blue arrow.

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To edit the selected study, click on the settings gear on the right side of your study.

Here, you can customize the settings. The length is automatically always set to 9, but
you can change it to what you want. i.e. you input 21, the 21EMA would set up.

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After customizing your settings, press the OK button. We now see the 9 EMA on the
chart!
The study is represented by the blue trendline.

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 Page Break

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SELF - A SSESSM EN T

Please refer the following questions to the chart shown above.

1. __________is the ticker on watch.

2. In what direction is the trend?
3. The time frame shown is the ______minute time frame.
4. In the image above, are you able to identify any technical indicators? If so, which ones?
5. Are you able to spot any technical patterns in the image above?
6. Are any of the indicators in this photo providing us with a signal?

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SELF - A SSESSM EN T

Please refer the following questions to the chart shown above.

1. In the image above, are you able to identify any technical indicators? If so, which ones?
2. Does the VWAP in the image above signal anything?
3. By looking at both images, at what point is the downtrend confirmed? Hint: we get 3
confirmations here! Great for a trade.
4. At what time does the TTM squeeze turn off?

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ANSW ERS

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ANSW ERS
Image 1
1. TSLA
2. Downtrend
3. 15 minute
4. There are two EMA's shown, the 9 and the 21 EMA
5. Bearish Pennant formed after downtrend which led into the next leg of selling pressure
6. The EMA's bearish crossover indicates the start of a bearish signal of selling pressure and
downtrend

Image 2
1. Yes, the VWAP and the TTM Squeeze
2. Yes, confirmation of a downtrend because we see price action hold below and in between
the VWAP trendline and the lower deviation band
3. The downtrend is confirmed by the EMA Bearish Crossover in the first image, while we see
a hold below the VWAP Band in the second image and the momentum oscillator on the TTM
Squeeze is turned on ( green dots) and indicating and increase in selling pressure as the red
bars continue to increase. 3 confirmations!
4. The TTM squeeze turns off at 9AM shown by the red dots appearing on the momentum
oscillator. Remember, when the TTM Squeeze oscillator shows red dots it is basically telling
you not to pay attention to the TTM Squeeze at all as the whole indicator has turned off. This
is usually because buying and selling pressure is so minimal that it can not signal strength in
either direction ( we usually see this during consolidation or chop).

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 Section End

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 PA RT I I I
GA M E PLA N
PUTTI N G I T A LL TO GETH ER

Section Breakdown

- Pre - Market Key Level Scan

- Spotting a Fake Out

- My Scalping St rat egy: Principles of 3

- Choosing the Right Option Strike to Scalp

- Using Active Trader on ThinkorSwim

- Understanding When to Exit the Trade

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Pre- Market Key Level Scan
When we talk about Pre-Market Level Scanning, we are referring to an analysis that is
done prior to market open which allows us to measure volume and support and
resistance levels for the stock chosen.

How does this help us as traders? Well, volume and key levels are two important
factors to properly execute scalps and day trades.

During a Pre-Market Scan we analyze the following:

1) Key Levels
We call these the Pre-Market High of the Day (HOD) and Pre-market Low of the
Day (LOD) Key Levels.

Pre Market HOD - Pre-Market High of the Day, corresponds to the highest price
point that the underlying stock has reached during the Pre-Market movement.

LOD - Pre-Market Low of the Day, corresponds to the lowest price point that the
underlying stock has reached during the Pre-Market movement.

We mark these levels as key levels prior to the market open because they
present us with scalping and day trading opportunities. Many traders look to
only trade HODs and LODs, as they are 'safer' plays. Reason being, majority of
the time, when a stock breaks its HOD or its LOD it continues to move in that
direction.

The next page demonstrates how:

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Below is a real-life example of a Pre-Market HOD ( High of t he Day) Key Level break:

As seen in the image above, by looking at TSLA's pre-market movement (grey shaded area
to the left of market open), we should be able to identify the pre-market key levels.
To reiterate, HOD is the highest price point during pre-market and LOD is the lowest
price point during pre-market.
By analyzing the pre-market movement, you should be able to identify that the highest
price point is at $1,112. This means that at one point during pre-market, TSLA's price
reached to highs of $1,112 but could not sustain and hold above this level. Hence why we
mark this as a HOD key level. The inverse is true for LOD. By looking at the chart we can
see that the lowest price point that TSLA has reached during pre-market is $1,090.
Once these levels are marked, we can use these levels as Key Levels for a trade.
This means that once we see the stock break and hold above the pre-market HOD or LOD
level, then we may have a higher probability of the stock continuing to move in that
direction of break.
Thus, in this example, once TSLA broke and closed above $1,112, we saw the stock
continue to run to upside. You see that?
We call this a pre-market HOD break! This is a higher probability play (remember,
nothing is 100% in the markets) and could set up as a great trade to execute.
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Below is a real-life example of a Pre-Market LOD ( Low of t he Day) Key Level break:

As seen in the image above, by looking at AMZN's pre-market movement (grey shaded
area to the left of market open), we should be able to identify the pre-market key levels.
You should be able to identify that the highest price point during the pre-market trading
hours is at $3,493.50. This means that at one point during pre-market, AMZN's price
reached to highs of $3,493.50 but could not sustain and hold above this level.
Why did it not sustain and hold above this level, you might ask? Well, because sellers were
strong enough at that level to keep buyers from breaking above. Hence why we mark this
as a HOD key level.
The inverse is true for LOD. By looking at the chart we can see that the lowest price point
that AMZN had reached during pre-market is $3,468.50.
We can analyze and confirm here that when AMZN broke and closed below the
pre-market LOD level of $3,468.50, the stock continued to trend downwards. The break
and close below the LOD pre-market key level would have also been a higher probability
trade to take and play the downside on!

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Pre- Market Key Level Scan

2) Volume
As a day trader, watching and understanding volume will be a very beneficial tool
in your trading journey. Volume highly affects whether the move you are seeing
in the underlying stock is actually a strong and possible move, or if it may lead to
a fake out. I tend to hear "I got faked out" a lot, and it's usually because of
misreading or ignoring volume.

Many times you will see a stock increase or decrease by a great percentage in
pre-market movement, but at the market open the stock runs flat or strongly
reverses. This is due to the fact that low volume stocks could very easily be
manipulated. Don't get caught in these trades!

Pro Tip: I like to filter my stocks down to only trading stocks that have a
pre-market volume of over 100,000.

On ThinkorSwim, thiscan be done by clicking on the Scan tab on the top of your
screen > Set up Scan > Stock > Volume > Min: > input '100,000' > Click the Green Scan
Button.

Not e: Be aware and cautious of stocks with low float. Low float is when a stock
has a low amount of shares that could be traded. Low float causes the stock to be
highly volatile, as the stock can move in any direction vigorously.

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 Section Break

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 Spot t ing a Fake Out

Let's take a look at an example of a key level break fake out and how we could have spotted
that it was going to be a fake out, which would have kept us from entering and taking a losing
trade.
In this new chart above, we are trading TSLA as shown in the ticker box. We are on the 5
minute Time-Frame.
We have set the pre-market LOD key level of $1124 for a possible downside play. As we have
covered, we want to see the stock break the LOD key level strongly and close below for us to
confirm an entry for a short play trade. Again, when we say a "strong break" we are referring
to volume.
In this example we can see that when TSLA breaks the pre-market LOD key level and closes
below, volume has not changed in pattern. Volume is still low as it forms its candle lower than
that of the previous and remains in the decreasing staircase. This would stop me from
starting a position and entering the trade, as low volume equals to no strength. Resulting in a
lower probability of the stock continuing to trend in the direction of the break.
And then look at that! TSLA quickly gets right back above the $1124 key level a few
moments later. This is a pre-market LOD fake out and is something you want to stay away
from.
Thanks to volume, you can now analyze strength in a break out.

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 Section Break

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My St rat egy

Let's dive into my personal trading strategy!

I have named my scalping strategy:

The Principles of 3

*Before we can break t hat down, we need t o break down some import ant aspect s
of developing and underst anding a t rading st rat egy.*

First off, you want to follow a Trading Plan.

If you do not have a plan, then you should NOT trade!

Developing a Trading Plan:

I prefer developing my trading plan by making sure that when executing the plan, I remain
disciplined. Discipline is everything in the markets. Developing a Trading Plan is setting up
rules and regulations for yourself and your account, that way you not only gain discipline,
but you also get to control your risk management. A Trading Plan also includes an
execution plan. An execution plan essentially means understanding why you are looking to
enter and exit a trade.

I personally set a number of max trades I may take per day, as shown on the next page.

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My Personal Trading Plan for Number of Trades Per Day:

3 Trades or 3 Losses

3 Trades

This indicates when I decide that after 3 trades, regardless if they are positive or negative
(green or red), I will STOP trading for the day and walk away.

For example, today is Monday. Let's say I take my first trade and it is a Red trade. I then take
my second trade and it is a Green trade. Now, no matter what the outcome is of the third
trade, I will walk away after that trade and STOP trading. I take my third trade and it is
Green. DONE. I stop trading on that day and walk away. I then will come back Tuesday
morning to trade. This works the same no matter what your profits or losses are for the day.
This plan keeps you disciplined and only allows for 3 trades a day no matter what.

This Trading Plan strategy is great for the traders that can't seem to walk away from the
screens, those who tend to over-trade and go from having green days to red days, vice
versa. This way, you limit yourself to 3 trades and also know that even if you are red on that
day, you will need to walk away after the third trade.

3 Losses

This is when I decide that after 3 losses, I will STOP trading for the day and walk away. This
Trading Plan discipline allows you to take more than 3 trades, but limits the number of Red
trades. So, let's break this down more and let's say that today is Monday. I take my first
trade and its Green. I take my second and its Red. I take my third and it's green.

I may still trade. Why? Because I have only 1 red trade so far.

Let's say I trade again and it's Red. I now may continue to trade but must stop once I take
one more Red trade. I then take my next trade and it is Green. Again, I may keep going if the
trade opportunities present themselves. I take another trade and it's Red. I now must STOP
trading and call it a day, and resume trading tomorrow on Tuesday.

Great ! Now you underst and t he import ance of having a Trading Plan. However,
before we can get int o my Principles of 3 Candle St rat egy, we also need t o
breakdown what scalping an Opt ion cont ract even is. I know, t he suspense.. right ?
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W hat Is Scalping an Opt ion Cont ract ?

Now that you understand the importance of a trading plan, and understand how Options
work, let's get started on learning how to Scalp Option premiums.

Most people choose NOT to hold the option until expiration to buy or sell the shares. Most
traders simply Day Trade, Scalp, or Swing Trade option contracts expecting the value, or the
PREMIUM, of the option contract to rise. They capitalize off of selling it for a higher price
than what they bought it for.

Broken down, this means:

1) Purchasing a Call/Put for the said premium price.

2) Letting the stock move in their favor.

3) Selling the contract for a higher premium price anytime before expiration.

All of this means the trader profits off of the increase in the value of the premium itself.

This is called Scalping Opt ions, and is how I choose t o t rade opt ions.

As we know, Option contracts' value move up or down based on many factors such as The
Greeks and Implied Volatility, but the main reason we see an increase or decrease in our
option value is because of the movement of the underlying stock.

To reiterate... your Option Premium Value INCREASES or DECREASES because of the

movement of the underlying stock.

As you know, if you are in Calls for a stock like Facebook (FB), then you would want FB to
move in what direction? Up. Those Calls will INCREASE in value if the FB stock price does
move upwards.

The opposite is true for Puts. If you are in Puts for a stock like Facebook (FB), then you
would want FB to move in what direction? Down. if FB's stock price trends downwards, then
the value of those PUTS will INCREASE. (Remember, your Put's value will not decrease if
the stock price goes down because playing puts means playing the downside, so since you
are correct on the price movement, the value of your Put Premiums will increase.) If FB
moves upward then your PUTS will decrease.

Sounds simple, right? Well that's what I'm here for, breaking this down as simply as possible
so you can get started trading immediately!

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 Let 's Learn From a Real Life Example!
This chart pictured below is Facebook (FB)'s 5Day 15Min chart. What does that mean? I'm
hoping you can answer that by now. The 15Min chart shows FB's stock price movement in
the past 5 days, and each candle pictured represents 15 minutes of stock price movement.

If you analyze this chart like I have, you will notice that FB has a resistance level
represented at the $345 price.

Do you see that?

Do you see how we have a couple of bullish candles testing the key 345 level, but strongly
rejecting? Each time it looks like buyers (the green candles) try to break the $345 key level,
sellers (the red candles) bring them back down. This is called rejection, and this is what we
see at the $345 level which is why it makes it a resist ance level to us.

As a trader, I analyze this chart as:

Seeing an opportunity for a great scalp (trade) if buying pressure seems strong enough to
break and hold us above this $345 level. Meaning, the candle on watch needs to break above
the key level, and the candle itself needs to close above it.

If buyers can do that, then our resist ance level now becomes a support level and that shows
a lot of strength! Make sense?

As a result, FB is now on watch for a trade if we can break and hold above $345!

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Well would you look at that!

Look at that beautiful bullish candle with a break and close above our $345 key level.

Not only do we break and close above $345, but look at how strongly:

Look at the difference in volume! Buyer strength here shows a lot of aggression.

Overall we see: A break of a Key Level, a close and hold above the key level, and Volume
strength!

Based on my strategy.... this is ready to trade.

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What a strong rally! FB breaks and holds above $345 then aggressively increases and
pushes to tops of about $358, which was about a $14 move.

Now for simplicity, let's say we got in at the confirmation but also exited at the top. Of
course, this is harder than it looks as we never know what the top is, and that is where
Price Targets and such come into play.

Again, for simplicity let us assume that we get the perfect trade entering at our
confirmation and then exiting at the top level of $358.
Now if you were to trade SHARES, buying 1 share of Facebook at our entry price would
cost you $345. Right? Assuming you exit your position at $358, which means selling your
share when the price hits $358, means that you would profit:
Buy +1 share @$345
Sell -1 share @$358
Profits of: $358- $345 = $13 which is a return of about 3%

This is a great trade! However, with shares, to make more than just $13 you would need to
buy more than 1 share which also means investing more than just $345 into the trade.
To make ten times this profit; making $130... you would need to buy 10 shares of
Facebook. This would cost you a huge investment of: $345 x 10 shares = $3,450

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Scalping OPTIONS Comes Int o Play

As we have seen, taking that scalp on Facebook with SHARES tends to make us about a 3%
return and a dollar profit of $13..?

lets compare that to taking the same exact trade, but instead of buying 1 share let us buy 1
OPTION CALL Contract.

If we were to enter 1 FB Option Call contract when FB broke and held above our key level
of $345, it shows us here that it would cost us $3 per 1 contract. So, how much are we
really investing?
If you said $300, then you are correct! One contract always equals to 100 shares of the
underlying stock. So, if the contract shows $3, then we are paying $3 per share, and 1
contract always equals what again? 100 shares!
Thus, here we would enter the trade paying $300 for 1 OPTION CALL Contract.
This is already less cash invested than if we were to buy 1 share at $345, right?

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To Recap:
We bought 1 OPTION CALL Contract of FB costing us $3, which actually means we have
invested $300 in this trade.
Let's say we exit at the top level of $358, as we did when we traded a share.

Looking at the image above, we can see that by the time the stock hit that $358 level our
CALL OPTION becomes worth $13!! And as we did with the share trade, let's assume that
this is where we sell out the CALL OPTION and exit the trade.

To break it down in numbers and percentages:

Entry: 1 OPTION CALL @$3 = $300
Exit: 1 OPTION CALL @$13 = $1,300
Profits of: $1,300 - $300 = $1,000 ; which is a return of 333%.

It's amazing how lucrative of an option scalping is if understood and executed properly.

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 Section Break

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My St rat egy

Th e Pr i n ci pl es of 3

The Principles of 3 is my strategy that I sometimes refer to as the "Three Candle Strategy."
I have created this strategy from trial and error and have found that this strategy results in
a higher probability of the trade going in my favor.

I am super excited to share it with all of you and I hope you find the success I have found
using it! Let's get into it.

So, W hy is it Called t he Principles of 3?

Well, because I use a 3 Candle confirmation for entry and a 3 question confirmation called
the 3 Dids for my exit. The Principles of 3 strategy allows you as a trader to confirm the
reason behind your entry and confirm the reason behind your exit, which in turn, raises the
probability of the trade going in your favor.

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3 CANDLES for Ent ry
For entry, I follow my 3 Candles St rat egy.

This strategy is best implemented when trading and scalping break out plays at Key Levels.
This is because this strategy that I've created was developed around the strategy of
playing momentum and break out plays.

I watch this strategy on the 1 minute chart for entry.

Here is how:

(let's assume we are going to trade a bullish breakout play)

On the first 1 minute candle, I want to see the candle break and close above the key level.

On the second 1 minute candle, I also want to see the candle stay above and close above
the key level.

Key word here is close.

On the third 1 minute candle, I want to see us hold above the key level but quickly continue
to push in the direction of the trade. This is usually where I enter.

There are times where I wait for the third candle to close, and other times I will enter at the
third. This is usually decided by how much momentum and pressure is supporting the third
candle. For example, if the third candle opens up red and starts retesting the key level
break, then I will wait for the candle to close to ensure that it actually does close above the
key level for entry. However, if the candle starts green or above the previous candle, and
volume and momentum continue to push it in the direction of the play, I will enter at that
third candle before it even closes.

Once entered, my Ment al St op Loss immediately becomes the key level that I used for the
trade. I call this a Mental Stop Loss, because I do not set any form of hard stop losses. I am
just watching the charts and watching that key level as my stop loss. Meaning, if a candle
were to close back below the key level I would exit my position and take my loss. This keeps
your risk tight in comparison to the possible reward.

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Visually Breaking it Down
Let's make up an example so that we may further understand the 3 Candle Strategy Entry.
Assume that we are trading stock MSFT ( Microsoft), and we are anticipating a breakout play
above $100 for a bullish trade. This means that we want to see the 3 Candle Strategy pass at
the Key Level of $100 for our entry.

Above, is an illustration of a $100 key level. Let's assume this is MSFT's $100 Key Level.

Notice how the first green candle (starting from the left) breaks the $100 Key Level and
closes above it. This means Candle #1 passes.

Then we see a red candle begin to form. Be patient, as just because it is red does not mean
that it will close below the key level. In this case, as you know by understanding the body and
the wicks of a candlestick, at one point this candle took MSFT below the $100 key level.
However, bulls were strong enough to keep it back above and allowed it to close above the
$100 Key Level. This means Candle #2 passes.

Finally, our third candle begins above the $100 key Level and continues to hold above closing
us above the $100 Key Level for the third time! This means Candle #3 passes.

Once this candle closes, we take our entry.

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Set t ing t he Ment al St op Loss and Price Target s

Once we have entered any trade, we need to immediately do two things.

1) Set a Mental Stop Loss and 2) Set Price Targets

These two factors are much needed for successful trading and scalping. Without a Mental
Stop Loss, you may let a losing trade run which will result in you losing much more capital than
you should have lost. Without Price Targets, you may not know when to take some profits off
of the position or completely exit a position. Knowing when to exit a position is just as
important as entering a position.

Looking back at the MSFT $100 Key Level example. Since we are playing the key level break of
$100, we are to wait for the level to hold 3 Candle Strategy, correct? Once we get a
confirmation hold above the $100 Key Level, I usually tend to then make this Key Level my
Mental Stop Loss. This means that if we entered on the 4th candle after the 3 Candle Strategy
has confirmed the entry, and if the 4th candle fakes us out and actually closes back below the
Key Level $100, then I am OUT. Immediately. Remember, just because the candle is red or
breaks below $100 does not mean that it will close below the Key Level. Be patient. Wait for
the candle to close. Nonetheless, if we do seem to close below then that tells me that the Key
Level $100 was not as strong as anticipated and bulls didn't have that strong of control.

Price Targets are set with setting Support and Resistance levels as we've learned, which
basically are, Key Levels (page 69 & 70). Once we have these Price Targets set, we are able to
use them as levels to watch for possible profit locking. What I usually do is watch how price
reacts to my first Price Target. Let's go back to the MSFT example and assume that because of
charting resistance levels, we have come up with our first Price Target as $103. Now, let's
assume MSFT hits $103. Here, I can either immediately lock a percentage of my profits, exit,
or, watch how price reacts to this Key Level $103 using 3 Candle Strategy Strategy. By waiting
to see how price action reacts to the Key Level $103 allows us to remain in winning trades
longer.

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Profit Locking St rat egy
My personal rule is usually triggering a 70/30 profit locking strategy.
This is where I usually look to exit 70% of my position and lock profits at my first Price Target.
Then I allow 30% to run while watching the following Price Targets to come.

This means that now that we are at Key Level $103, we are to exit 70% of our position.
Locking in 70% of profits. Then we keep an eye of how price is going to react to $103. Let's
assume 3 Candle Strategy passes above the Key Level $103. This means that I will remain in
my position and allow the stock to run to my second Price Target of, let's say, $105.

Now that we have confirmed a 3 Candle Strategy hold above $103, I am to set my Mental Stop
Loss at $103. This means that if we get a candle to close back below $103, I will exit the
remaining 30% of my position and close the trade completely. There are times when I am
already at Price Target 2 or 3 that I switch to watching the 5minute chart rather than the
1minute chart. This is due to the fact that usually the 1 minute chart will have much more
fakeouts and retests of a Key Level before it actually breaks or hold. However, we are
focusing on scalping, so as a scalper, getting in and out withing seconds or minutes is very
possible. It's all based on price action.

To continue, if the stock runs to Price Target #2 of $105, we perform the same strategy. We
will lock 10% of profits of the 30% we had running, and watch how price reacts to $105. If we
hold above, we stay in the trade with the remaining 20%. If we reject and cant hold 3 Candle
Strategy at $105, then we can decide to either completely exit the trade or wait for our
Mental Stop Loss $103 to trigger. Usually, if price starts consolidating this is where I analyze
our EMAs, VWAP, TTM Squeeze , and such to conclude if price still looks bullish or if any bear
signals have surfaced.

This profit locking strategy not only allows the trader to build a profit cushion while taking a
trade, but also stay in a winning trade much much longer.

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 Some More Visual Examples

Does the illustration above pass the 3 Candle Strategy?

First candle breaks and closes above Key Level $100. Candle #1 passes.

Second candle breaks below the $100 Key Level and closes below. Candle #2 fails.

We stop here. Just because the third candle closes above the Key Level does not mean the
strategy has passed. Instead, we are to reset.

Thus, meaning that the third candle now actually becomes our first candle as the strategy
resets.

First candle (which is actually the third in this photo) breaks and closes back above the Key
Level $100. Candle #1 passes. and so on!

But in this scenario, no entry is to be taken as we do not see 3 Candle Strategy confirm our
entry.
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Does the illustration above pass the 3 Candle Strategy?

First candle breaks and closes above Key Level $100. Candle #1 passes.

Second candle also holds and closes above the Key Level $100. Candle #2 passes.

Third candle does not seem to close above the Key Level $100. Candle #3 fails.

This results in the 3 Candle Strategy failing, meaning no entry was taken here.

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Does the illustration above pass the 3 Candle Strategy?

Although it is a bearish red candle, we see that this first candle still breaks and closes above
Key Level $100. Candle #1 passes.

Second candle also holds and closes above the Key Level $100. Candle #2 passes.

Third candle too, holds and closes above the Key Level $100. Candle #3 passes.

This results in the 3 Candle Strategy passing, meaning an entry after the third candle closed
was taken.

!POP QUIZ!

As we know, as soon as we enter a trade we are to immediately set a Mental Stop Loss. What
is our Mental Stop Loss here according to our 3 Candle Strategy?

Answer: the Mental Stop Loss is the $100 Key Level until our first Price Target (PT) is hit and
holds. We then raise our Mental Stop Loss to the Key Level of the Price Target #1 .
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The inverse is true for entry of 3 Candle Strategy when taking a bearish trade.

Instead of watching for the candles to hold above and close above the Key Level, for a short
position, we are watching for the candles to confirm a hold BELOW and CLOSE BELOW the
Key Level.

Does the illustration above pass the 3 Candle Strategy?

Let's assume you are trading stock TSLA. For a downside short play, you are looking to trade
Puts if TSLA can hold below $800. So, you would want to see the 3 Candle Strategy pass
BELOW the Key Level $800 for your bearish trade entry.

First candle breaks below and closes below Key Level $800. Candle #1 passes.

Second candle bounces, however buyers were not strong enough to even test a break back
above the $800 Key Level. Candle closes below Key Level $800. Candle #2 passes.

Third breaks back above the $800 Key Level, however, sellers still bring it back down and
close it below Key Level $800. Candle #3 passes.

This results in the 3 Candle Strategy passing, meaning an entry in a Put or short position after
the third candle closed was taken.

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3 DIDS for Exit
To exit my trade, I need to answer YES to all 3 Dids.

I ask myself these 3 questions each time:

1) Did the bids/asks break the key level?

2) Did the candle close?

3) Did my stop loss get executed?

Let's break each of these down one by one.

1) Did the bids/asks break the key level?

This is answered by looking at the key level that you have chosen to trade and if the trade you
are taking is a bullish or bearish position.

Bullish position: In this case we go back to the MSFT example as it was a bullish trade
example. Key Level here is MSFT's $100 price level. Right? Right. Now while we are in the
trade, we are eyeing LVL 2 and the Tape. By looking at LVL 2 we are able to spot the spread,
which is the difference between the Bids and the Asks. It's important to watch the Bid-Ask
spread and notice when the bids break below the key $100 level. If at any point we see the
Bids break below 100.00 while we are in the trade, then our answer to question (1) is, yes.

This is because when you are in a bull trade, you ultimately want the bids to hold that key
level. Because that shows that bulls are holding $100 very well and could build a strong
support, which confirms a move up.

Bearish position: In this case let's go back to the TSLA example as it was a bearish trade
example. Key Level here is $800 price level. Right? Right. So, we are saying that if TSLA holds
below $800 then we will initiate a short position as we are assuming more downside. Now
while we are in the trade, we are eyeing LVL 2 and the Tape. By looking at LVL 2 we are able to
spot the spread, which is the difference between the Bids and the Asks. It's important to
watch the Bid-Ask spread and notice when the asks break above the key $$800 level. If at
any point we see the Asks break above $800 while we are in the trade, then our answer to
question (1) is, yes.

This is because when you are in a bear trade, you ultimately want the asks to hold that key
level or below that key level. Because that shows that bears are holding almost like a wall at
the key level $800, which would make it hard for the bulls to break back above $800.
Confirming a possible move down.
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2) Did the candle close?
This is answered by simply checking to see if the candle has already closed, or does it still
have a few seconds. Remember, being patient and waiting for the candle to CLOSE is key
with this strategy. Reason being the fact that a lot of faking out can happen within a candle's
time period up until it closes. The closing price is crucial to understand the sentiment of the
stock.
A lot of the time where I see traders fail is within the discipline of their patience. They see a
strong red or green candle begin to move and immediately decide to exit their trade. Patience
here is important. Waiting for the candle to actually close to make your decision is crucial.

3) Did my stop loss get executed?

The third and final question is answered by analyzing where the answer to question 2 has
closed.

Bullish example: The question here would be, did the candle close below MSFT's $100 Key
Level? If so, the answer is yes. If not, the answer is no.

Bearish example: The question here would be, did the candle close Above TSLA's $800 Key
Level? If so, the answer is yes. If not, the answer is no.

Be aware to executing only if your Mental Stop Loss has been triggered. Meaning, there often
times where we may answer yes to question 1 and 2, because we do see the bids or the ask
break and then the candle close. However, where it has closed relative to your Mental Stop
Loss Level makes a big difference.

Bullish example: If the candle, per say, breaks the bids of the Key $100 Level, and the candle
closes. That means we have answered "yes." to both questions. However, question 3 is crucial
because we need to know where we closed. For example, if MSFT's candle closed at $100.50.
Then what would the answer to question 3 be? The answer would be no. This is because we
have already insisted that our Mental Stop Loss is the $100 Key Level. So, if we do get a
candle that does break below $100 but then ends up closing above $100. This does not mean
that our Mental Stop Loss was executed, which results in us staying in the trade.

Now if we were to say that MSFT's candle on watch broke the bids below $100, closed below
the $100 level. Then our answers to the first 2 questions again would be yes, and we would
also answer yes to question 3. Since we have answered "yes" to all three, then Resulting in us
exiting the position.

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TH E PRI N CI PLES O F 3
V I D EO

WATCH THE VIDEO ABOVE FOR A FURTHER BREAKDOWN OF STRATEGY + REAL LIFE
TRADE EXAMPLES
Simply click on the video above to watch. However, if for some reason the video does
not open for you, here is the link: Principle of 3s: Trading Strategy, Entering,
and Exiting a Trade. - YouTube
https://www.youtube.com/watch?v=_SKAZIRtf0g

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 Section Break

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Choosing t he Right Opt ion t o Scalp
The day of the week usually plays a role in what expiration date I choose to play. I like to
trade same week expiration on Mondays, Tuesdays, and Wednesdays. For example, If
today is Monday, January 1st, I will be trading same week expiration January 5th options.
This is because same week expiration contracts will significantly move more than the
further expiring contracts. However, when Thursday and Friday come around, it's usually
safer to play the following week expiring contracts. Why?

Well, by Thursday and Friday the contracts are so close to expiration that any smaller
move in the underlying stock and implied volatility can drastically move your premiums.
Yes, this could be an amazing thing IF the underlying stock and IV are moving in your favor,
but if not... it's very easy to lose 100% of your investment. And don't forget Theta!

Unless there is a high probability trade to take weekly options, this is why I choose to scalp
next week expiration at the end of the week, especially on Fridays.

When day trading, or rather, scalping options, what strike you choose is very crucial. I like
to trade ATM (At The Money) strikes to maximize profits for smaller movements in the
underlying stock. However, if my account can't afford it I will scalp an OTM (Out The
Money) strike. Now, it's very important to note that when you trade OTM strikes, your
trading needs to be adjusted. Meaning, you can't hold onto an OTM strike hoping to make
money if the underlying stock pushes up. Why? Because you have the Greeks like Theta
Decay and other factors like Implied Volatility moving against you.

So let's start off this intense breakdown by taking an example of a trade as a:

DAY TRADER

(In the following examples you are to look at yourself as a day trader and not a scalper)

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Day Trading ATM St rikes:
Let's breakdown a previous real-life TSLA move. Here, TSLA had a nice 6% up day and TSLA's
run was steady throughout the day. When it comes to a day like this it's best to day trade it,
meaning buying an ATM call and watching wider time frames like the 5min and 15min chart for
an exit. This usually allows you to stay in the trade longer and ride it all the way up.

Here's why:

Let's look at the break of the Key Level $700 in this example and compare its price movement
to both, an ATM 700 call strike and a further ATM strike of 710 (wouldn't consider this as an
OTM for a stock like TSLA)

We see a nice break of t hat key level 700 on TSLA

Now as a day trader, Entry would be confirmation of a close above 700 which in this case would
be at this second 5min candle start, this is because the previous 5 min candle closed above the
Key Level. (arrow pointing to candle entry). Now let's assume we held TSLA all day trying to day
trade it to that Key Level of 720s; while still following our game plan of a mental stop loss of
course. Not just holding it to hold.
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Looking at the graphs of the option contracts and how they moved you can see that the
700 Call st rike:

Assuming we are buying just 1 contract:

We would have gotten in with an Entry at around a price of $23.00; this is when TSLA gave us
that 5min candle confirmation hold above the $700 Key Level for entry.

.... And holding it until Key Level $720s on the chart, our option premium would reach a value
of $29 by the end of the time reached.
Entry Value= $23.00 (x 100 since 1 contract always gives us 100 shares) = $2,300
Exit Value= $29.00 = $2,900
So we are green $600.
Which is a 26% return thus far. That's fantastic!

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Same thing with a little further strike of the 710 Call:

Purchasing it at where we said we would (the 5min close above 700 key level on TSLA), would
give us a rough Entry estimate of around $19. Holding it until the same point... our premium
would be worth $22.
Again, assuming we traded 1 contract
Entry Value = $1,900
Exit Value = $2,200
So, we are green $300 if we take this strike instead. Which is a return of about 15%.
That is still great! But not as fantastic, right?

Looking at the first example of the ATM 700 strike option call or this example of the 710 strike
option call;
we would still be green and profitable regardless of all the consolidation happening with
TSLA?s stock price. This is because:
1) Time Decay: we are trading on a Monday so theta doesn't hit us as hard
2) Uptrend: We had a nice big move on TSLA and our strikes are now ITM (in the money).
3) IV: TSLA?s IV is at an average so IV crush does not affect us on every pullback or
consolidation.

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Now, it's important to note that in just comparing these two strikes, there is a big return
percentage difference. This shows us that if we are looking to day trade a stock, it's best we
stick to trading ATM st rikes. Yes, the further one of 710 is still profitable and could be great,
BUT if your account can afford to trade ATM, then that may be the best choice.
If not, a strike like 710 would suffice.

Before I break this down some more, I want you to see the comparison of day trading the 700
ATM and the 710 further strike vs i f you were to trade an OTM (Out the Money) call strike of
800. Sometimes traders decide to buy an OTM option contract because it's cheaper. However,
many do not understand the risk they are putting up with OTM even on a day like this day
where TSLA stayed in an uptrend all day making new highs. Remember, Theta is constantly
decaying and will decrease the value of your premiums as time goes. So, that uptrend today on
TSLA might have burned you. Let's check it out.

Day Trading OTM St rike

Now looking at the very further Out the Money OTM 800 TSLA Call

Our entry at the same spot as before would get us filled at around $1.70....
And although TSLA is in an upt rend and making new highs on the day, our premium is taking a
big hit!! With the end of the day value of $1.37...
This makes us red $33 on one contract...about 19% loss. That is a BIG loss.. And for what?
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Imagine if you were to invest the same amount of capital in the previous trades? This means
buying about 10 OTM contracts to value your entry at $1,700 and your exit at $1,370; thus
being a loss of $330. Still the same losing percentage, but this trade gives you a higher
probability of being in the red. So why even take it?

TSLA was in an uptrend, making nice moves, but we're still red?

Yes.

That's because with an OTM Option Call:

1) Time Decay: Loses value as time goes by because of Theta

2) Probability Analysis: Is so far from being ATM (based on the Greeks). Based on the
Greeks and probability analysis, what are the chances of TSLA hitting $800 this week?
Could there be a chance? Yes. So, TSLA moves in an uptrend as does this Option Call
strike...However, the moment we get that slight pullback in TSLA's stock price is the
moment the premiums and value of this Option call gets slashed and takes a hit. The
further away we get from the 800 mark, the more the premiums will take a hit and the
cheaper the premiums will get because the probability of TSLA hitting 800 becomes less
and less.

3) IV: As stated previously, Implied Volatility on TSLA today is of average. However,

on days where IV is higher, once that IV were to pullback and crush, it would also
crush the premiums even harder.

These 3 reasons are why trading OTM Option Contracts are so risky.
I know it looks tempting to trade a stock like TSLA when you have a small account; and it's
doable. But Day Trading weekly TSLA with OTM option calls, majority of the time does not
make sense.

So, you might be thinking... okay then how do I trade them?

Well, this is where being an option Scalper comes into play!

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Let's now take the same TSLA example as a

SCALPER:
As a scalper, our main focus is entering and exiting a trade quickly while holding extreme
discipline. Meaning, entering because of confirmation and exiting because of confirmation.

Let's take a look at the same exact TSLA trade but in terms of how a scalper would take this
trade rather than a day trader:

As a scalper, entering to play the break of 700 to me means one of two things:

1) Riskier Trade (this is done when you have profits on the week and can afford to do so):
Getting in before the break of 700.
a) Just to note, getting in before the break of 700 does not mean getting in at 697. It
means getting in when the momentum starts picking up and the flow is moving on the
Tape, and the Asks on LVLII start testing a break of Key Level 700s. You need to see
price action support your decision, and not just getting in at 697 because you think
TSLA will break 700.

2) Safer Trade (this is my strategy as a scalper, which does not mean it should be everyone's or
is the right strategy, but is what works for me):

Waiting for the 3 candle strategy to hold 700s.

Meaning we see that the first candle breaks and closes above 700, then the second also
closes above 700. And the third one is where we take our entry If the third candle
continues in the direction we are looking to see it move. Otherwise, it's best we wait
for that third candle to completely close and enter at the start of the 4th.

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 Section Break

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In this example, we will break down the safer trade of waiting for that 3 Candle Confirmation.

3 Candle Confirmat ion Ent ry for a Scalp on TSLA

Looks like our Entry would be at 7:10AM which is when we see 3 candles confirm the hold
above 700.
The entry of 7:10AM is our fourth candle and that is when we enter.
Now as a scalper, I like to set my intra-day levels to know where I would like to take profits. In
this trade example I have levels at 703, 706, and of around 708. These are just resistance
levels I am finding by scanning the candlesticks and noticing where we see consolidation and
rejection. These are also known as Price Targets.
For the sake of this example, let's assume we take profits at our higher Price Target of 708.

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Scalping ATM St rikes
Here is what it would look like to SCALP TSLA with a 3 candle strategy hold for both the 700
calls and the 710 calls:
700 Opt ion Call

This shows that we would have entered when premiums were valued around $22.
Assuming we bought 1 contract
Entry= $2,200
And exiting at our key level of 708 on TSLA means we would exit when premiums were worth a
value of $27
Exit= $2,700

Profiting $500 from this trade in just about 10 minutes... 23% return. That is amazing!

As a scalper, we get the opportunity to make great returns in shorter periods of time. BUT
ONLY IF we stick to our plan and eliminate greed, ego, and fear.
Because, this trade could have easily been red if we held with greed or ego of wanting more or
not responding to the rejection of a Price Target and Mental Stop Loss, or even by letting fear
keep us away from taking this trade in the first place.

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Or the
710 Opt ion Call

Same exact trade would mean our Entry would be at $18

Assuming we purchased just 1 contract:
Entry = $1,800
And our exit at TSLA?s 708 intra-day price target would mean our premiums would hit $22
Exit = $2,200

Profiting $400! ... which is a return of 22%

Wow!

Showing us that the difference between scalping the ATM 700 call and the 710 further call
gave us about the same return. 23% vs 22%. A slight difference of about 1 or 2%. In just 10
minutes.
However, with day trading these the difference was much wider. Returns of 26% vs 15%.
Ouch, wider difference of about 11%. In about 2 hours. That?s crazy, right? Now before we
talk about this more, let me show you what scalping that same 800 OTM strike instead of day
trading it would have made us.

Remember, day trading that 800 call strike left us with a loss of about 19% even though TSLA
had a good uptrend on the day.
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Now lets look at scalping such a far OTM strike
800 Call St rike

So our entry here would be of course when TSLA held 700 with 3 candle strategy; meaning
our Entry was when premiums were valued at $1.6.
Assuming 1 contract
Entry= $160
And selling at that 708 key level means selling when premiums hit the value of $2.0
Exit = $200
Making profits of $40! Which is a whopping 25% return!! On an OTM strike.
Assuming you invested the same amount of capital as an ATM, buying 10 contracts would
mean making $400 profit on this trade.

So, do you see the difference?

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Choosing St rikes based on Volume and Open Int erest

I personally like to only trade option contracts that have an Open Interest of at least 1,000.

You can easily find this on your trading platform:

This is how it looks on the trading platform ThinkorSwim by TD Ameritrade that I use.

By clicking on the Trade tab up on the top left of your screen > changing the Layout option on
the Option Chain row to Volume, Open Int erest , and voila! There it is, you can see the
underlined numbers show option strikes for stock COIN that have very high Open Interest. I
would trade these ones because they have over 1,000 in open interest. You see how the other
strikes on the screenshot have as few as 50-700 in Open Interest? That shows low liquidity and
we want to refrain from trading those strikes as it would be hard for a scalper to get quick
entries and exits because of the low liquidity.

Therefore again, I personally like to scalp or even day trade options that have higher than
1,000 Open Interest.

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Conclusion
It merely depends on you as a trader and what YOUR TRADING PLAN is. Which again, should
be figured out and noted prior to entering a trade.

If you are looking to day trade; maybe its best you day trade stocks that you can afford ATM
and closer to ATM strikes for.

If you are looking to scalp trade; then you can most definitely scalp further OTM and benefit
off of paying less for the premium. However, you need to be VERY strict with your trading plan.
Because if you hold with greed on an OTM strike like the example above, your premiums will
just dump right back down to where you initially bought them, and you will be flat or most
probably red on your trade. So, if you are looking to scalp make sure you actually are scalping..
Meaning, executing your plan. Do NOT hold with hope, because that just then becomes a
forced day trade.

Key Point s:
- Watching 5min and 15min charts when day trading for confirmation for entries
- Watching 1min chart for scalping; glancing at 5 and 15 mins for confirmation of trends
and intra-day levels to help remain in a winning trade for longer/ adjusting and raising
mental stop losses
- Setting a mental stop loss and profit taking levels prior to entering a trade
- Focusing on day trading ATM/ closer to ATM strikes
- Focusing on scalping a strike with higher than 1,000 Open Interest.
- Time Decay and Implied Volatility both play a big role on how your premiums move and
react.
- If you are going to scalp an OTM contract, be sure to be quick and follow your trading
plan. Do not hold with hope because any slight pullback will wash your premiums right
back down and you will end up flat or red on the trade.
- Execute your Trading Plan, do not adjust mental stop losses or hold with hope or
because of ego. If you are wrong on a trade, then you are wrong. It?s okay, it happens. Let
go of that ego of wanting to always be right and cut your losses. Smaller red days or red
trades will yield stronger returns in the long run with your green days.

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 Section Break

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USI N G
A CTI V E TRA D ER
There are many ways to go about buying and selling shares or option contracts as you
can execute a trade from your phone, from the ThinkorSwim app, or any other trading
platform you choose to use! However, here's a video on how I use Active Trader to
execute my limit buy, limit sell, and market orders when scalping options.

Simply click on the video above to watch. However, if for some reason the video does not
open for you, here is the link: How to Use Active Trader - YouTube
https://www.youtube.com/watch?v=AUMrKioZ6cshttpsa

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Underst anding W hen t o Exit
My general rule when it comes to exiting a trade: ?exit with the same confidence you had
when entering.?The signal that told you to confidently enter your trade, whether it was a
catalyst, earnings report, technical analysis or etc., should also be there to tell you when
to exit your trade. Whatever signal initiated the entry should also initiate the exit. Do
NOT let greed get to you. If a trade is going against your analysis and if your mental stop
loss has triggered, get out. If a trade is going with your analysis, but you?re unsure on how
much further it?ll go, get out.

This is where risk and emotional management kicks in.

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 Section End

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 PA RT I V
K EY RULES TO LI V E BY

Section Breakdown

- Risk Management and Emotions

- What Not to Do When Trading Options

- Rama's Three P's

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RI SK A N D EM OTI O N S

Risk Management and our emotions while trading are crucial for progression. If you want to
find consistency and success in trading, you most definitely will not find it if you are lacking in
either of these two. They move hand in hand.

When it comes to Risk Management, I like to break it down into four parts:

1) Game-Plan
2) Position Sizing
3) Profit Locking
4) Stop Loss

These are the four factors that significantly affect your trading.
Having a Game-Plan is the first step to trading, as you know. We have already covered this
earlier and I hope you are now realizing how important it is to properly set up a Game-Plan
rather than entering a trade blindly. Do your own due diligence, set your own Key Levels, and
find your own stocks that you like to trade. If you focus too much on the noise around you, you
will find yourself lost and your trading will be negatively affected. My personal Game-Plan
when trading is like I have mentioned earlier; using the 3 Trades or 3 Red Losses rule. So, I
either take a total of 3 trades only on the day and walk away. Or, if I feel that the opportunities
are there, I will continue to trade until I have had 3 red trades. This helps you manage your risk
and your capital as it controls how often you trade. Setting up a Game-Plan will prevent you
from over-trading and revenge trading.
Posit ion Sizing is massively important as it dictates the risk you are putting up. Every trader
and investor has their preference when it comes to what percentage capital they are willing to
put into an investment. However, with me, I like to stick to a 20-25% rule. Since I am a scalper,
I do not like to go in with more than 20-25% of my capital into any one trade.
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Also, meaning that if I wanted to open two trades at a time, the capital invested for both
trades together should not amount to more than 20-25% of my capital.
To put this in terms of dollar. Let us assume we have a $1,000 account. Following my position
sizing rule, I may not enter into any trade with more than $200-$250.
Contract size is important too! Both my max percentage capital risk and contract size need to
work hand in hand. I typically like to trade any stock that I can at least afford 2 contracts on.
This is because when trading with just 1 option contract, it is very hard to stay in a winning
trade. Why? Well, because when the stock begins to move you can't lock profits and let some
run, you would need to completely exit since you only have 1 contract. This could also lead you
to bag holding a winning trade that will maybe then turn red. Thus being the reason that I
prefer to trade a stock that I am able to purchase at least 2 contracts on. But guess what? This
is all while following the max percentage capital invested.
Again, lets put this in terms of dollar. Let us assume we have a $1,000 account. Let's also
assume that stock AAPL's contracts that we are looking to trade cost 1.20 per. This means that
every 1 contract will cost me $120. According to my position sizing 20-25% rule, I may
purchase 2 contracts of this AAPL option strike. However, I would not and should not buy
more than 2 as I will be risking much more capital than is allowed (according to MY personal
plan).
Another example, let us assume we are to trade BA option contracts. The contracts for the
strike that we are eyeing cost 0.30. This means that each contract will cost me $30 per. Thus
meaning, that I am able to afford up to 8 contracts. 8 contracts would be an investment of
about $240 for the trade. This fits my position sizing rule as well as my contract size rule! The
fact that I have more than 1 contract will help plenty as I can look to take some profits off and
let runners run, maximizing profits.
Profit Locking helps tremendously as it allows you, the trader, to build a profit cushion that
will aid in letting runners run. I've mentioned this in the previous chapter, but I like to stick to
my 70/30 rule. Locking 70% of profits at a Price Target(PT) and raising my Mental Stop Losses
as the 30% left run. Locking in 70% allows me to stay green no matter what happens to the
30%. So, let's say I lock 70% of profits at Price Target 1, if the stock rejects Price Target 1 and
my Mental Stop Loss gets triggered, exiting out of my remaining 30% will not affect my 70%
green. However, if you lock 70% at a lower percentage return, the remaining 30% may
actually turn you red, but not as damaging as if you were to hold all 100% of the full position.
As I have mentioned before, I like to watch how price reacts to my intra-day Key Level Price
Targets. If we approach PT1 and the stock immediately breaks and holds, I will raise my
Mental Stop Loss to PT1. Which means that if PT1 was to suddenly reject, I would exit my full
position. However, let's say PT1 holds and the stock continues to run, I could either lock 70%
here at PT 1 or 70% at PT 2, or 3, etc. However, each time a PT breaks and holds, I raise my
Mental Stop Loss to the previous PT.
For example, if PT 2 breaks and holds, I turn PT1 into my Mental Stop Loss. And so on.
Let's say we hit PT2, I may decide to lock 70%, turn PT1 into my Mental Stop Loss, and allow
the 30% to run. If PT1 gets triggered again, I am out of my 30%. If not, I am still in and just
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continuously adjusting my Mental Stop Loss.

St op Losses are a must. If you are not setting stop losses, whether they are hard stops or
mental stop losses, then you are not properly trading. You would basically just be gambling. As
I have mentioned multiple times in the book, setting a mental or hard stop loss should be
something that is immediately done once you've entered a trade. Setting a stop loss will
protect you from blowing your cash.
I know many investors like to set hard stops. For example, some may decide that they do not
want to lose more than 10% of the capital invested for the trade, so they set a hard stop at a
10% loss. That way, if the stock reverses and goes against them and the premiums take a 10%
hit, then the stop loss will automatically execute and exit you for a loss of 10%.
I do not do this as I feel that it is more harmful than helpful to set hard stops when trading
options. This is because, as we have learned, there are many factors measuring the value of
the premium at that specific time. So, often times, your premiums may move down -10%,
-20%, or even -30% red before you're green 30%, 50%, +100%. Again, this is because factors
like Delta, Theta, and Vega are affecting the value of the option premium every second.
For example, let's say you spot a bull flag and decide that you would like to enter some calls
anticipating a break of the bull flag into an upward trend. You find that the candles have built
up and formed the bull flag, the volume is squeezing in and decreasing as price action in the
candlesticks get tighter. You find confirmation that the EMAs are holding during
consolidation, and all you are waiting for is a break with volume for entry.
Let's assume that we see a candle break the bull flag, volume starts coming in, and you eye the
Tape and notice that price is being executed right at the asks with size. This is a perfect set up,
so you decide to enter some option calls.
As soon as you enter, the candle comes down as sellers try to knock the candle back into the
bull flag rather than breaking it. At this moment, your premiums will take a hit as you are
possibly getting faked out. However, because you are a well aware trader, you know that you
should wait for the candle to close first before deciding if it is a fake out or truly a break out of
the bull flag. So, you wait for the candle to close, it closes above and price continues to rally.
During this example, when you had entered the position because of the break, your premiums
would have been break-even, flat. However, when sellers come in and try to knock the candle
back down during its time period, your premiums would have probably taken at least a
10-20% hit. You held and waited for the candle to close to decide if it was truly a fake out. It
was not, because the candle closed above and the continuation of candles all had strength in
the Tape and LVLII. At this moment, your premiums may turn green well over 30-50%.
What do you think your Mental Stop Loss (MSL) should have been? I would have personally
set my MSL as a confirmation fake out. Meaning, if the candle that was to breakout showed
strong volume, tape flow, and hitting the asks. Yet still closed back below the breakout of the
bull flag, then I would immediately exit the trade. That would have been my Mental Stop Loss;
confirmation of the trade not actually breaking out.

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This is why I feel that setting a hard stop does not work well with options, because if you had
set a 10% or even 20% hard stop on your option premiums, the moment that the sellers tried
to knock the candle back down, you would have been faked out and executed your exit. All to
then see that the stock actually ended up following your analysis. This would hurt your
emotions as a trader and would lead to the few emotions that we have as humans that may
mess with our trading every day.

Lets get into that.

TRADING EMOTIONS
You are going to feeling upset about a trade, it's inevitable. It will happen. You are going to feel
emotions, because you are human. However, we need to learn to take control of these
emotions as traders because they could be the very reason for your downfall in trading.

These emotions are known as greed, ego, fear, and hope.

Greed prevents traders from locking profits which often times results in turning green trades
into red trades. Greed also inhabits the trader to begin over-trading. You made some cash and
now you want more. Learn to be content with what you have made.
Ego is deadly in the stock market because if you allow your ego to dictate your trades, you will
find it very hard to be consistent. When you allow the ego emotion to take control of your
trading, you will find yourself staying in losing trades because mentally you think that there is
no way you could be wrong on your analysis. The pride and ego of wanting to be right will
blind you from actually analyzing and understanding what is happening in the markets or
within the stock that you are watching. This could also result in revenge trading, which is
when a trader gets so upset with their losing trades that they decide they have to, at any cost,
get their money back. So they begin to take trade after trade, with completely blurred vision,
just to make anything back. Revenge trading, almost always, leads to even more losses. Let go
of that ego! Learn to be okay with being wrong. You will never always be right. Focus on your
game-plan and execute those stop losses when they are triggered. Ego will only take you a
step back from where you are trying to go.
Fear is a hard emotion to control in the market. You may feel a sense of fear before entering a
trade. You may feel a sense of fear during a trade. Again, this is normal as it is a human
emotion. However, when we feel fear it is usually stemmed from a sense of low confidence.
Not feeling confident in your trading, game-plan, or execution skills will leave you feeling
completely afraid of trading. When we are fearful, it may result in us exiting trades too early,
missing out on trades, or feeling completely agitated while trading and even for the remainder

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of the day. This is neither healthy nor helpful. I believe that boosting and building up your
confidence is the very thing needed to combat a fear in trading. One of the best ways to build
up confidence is by practicing confidence. Sounds silly, right? Well, it's very helpful when it
comes down to practicing your trading. The way I like to do this and suggest the same to many
of my mentees is by paper trading. No not on a platform, but rather, actual physical paper. The
way I perform this is by starting my morning as I should; waking up earlier than market open,
clearing my head via prayer and meditation, scanning my pre-market levels, etc. Then I grab a
piece of paper or notebook or whatever feels right, and I wait for the bell to ring. Once the
market opens, I watch my game-plan and prepare for any trades I may want to execute
according to my game-plan. However, I will not be taking those trades on the trading platform.
Instead, I will write down my entry on the paper.
For example, let's assume you are looking to trade a break of stock TSLA's $100 Key Level. To
trade the break of the $100 Key Level on the upside, you decide you will trade the $110 CALL
Strike. This is because the open interest looks great for liquidity and are close enough to ATM
for premiums to move well in accordance to the move in TSLA.
Now, lets assume you get your confirmations for entry, you would then immediately write
down on the paper the time and cost of your entry. For example, you could write something
like, "10:05am entry @cost of 9.00." You would then watch the trade on the screens as you
would if you were actually in the trade with physical cash. This is where you are looking to
practice the discipline of following your game-plan. As we know, it is important that we
immediately set a Mental Stop Loss once we have entered a trade. Thus, this is where you
would write down "MSL is $100" on your piece of paper. Which may mean that if we fake out
of the $100 Key Level break that you looked to take, you would exit.
You are now just watching the trade and looking to lock profits at Price Targets, or exit and cut
positions at Mental Stop Losses. However, you need to allow this practice to feel as if it was
the real deal. This way you can watch and feel your emotions whilst in the trade. Once you
take your exit, whether it is because of fear, a mental stop loss, a price target, or such, you are
to write down your exit the same way your wrote your entry. For example, "10:23am exit @
price of 9.60." This means you would have profited $60 from this trade, right?
The last step is to continue to watch the stock for the remainder of the day and at the end of
the day look back at whatever trades you paper traded and break them down. Find if you
could have had a better entry, where and why? Maybe you could have stayed in for longer,
how and why? Were there any confirmations you maybe didn't notice in the moment? etc.
Journaling and answering these questions will allow you to break down your trades and
understand what actually happened. This will benefit you as it will begin to build your trading
confidence.
Hope is an emotion we feel when we begin to rely on what we wish would happen rather than
what is actually happening. Hope is a terrible emotion to cling onto when trading as it is
usually the reason why traders hang onto losing trades. When we rely on hope, we are
basically gambling our hard earned money. This is because you are no longer trading on any
analysis but rather, hoping it goes in your favor. An understanding that may help with
removing the feeling of hope while trading is accepting the fact that the Stock Market does
not owe you anything. This sounds a bit harsh, but it is the reality. The market is never to
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blame. We are the ones submitting to the market and investing our cash into the market. The
market makers do not care if you are green or red on your trade, so why are you giving them
your glimmer of hope? Hope will never make a stock move; price action will. Focus on your
game-plan and listen to your rules. If a stock is not going in your favor and your stop loss is
triggered and you do not take your exit because you do not want to be red; hope. If you are
thinking of entering a trade because you feel biased that it should or may move but have no
confirmations whatsoever; hope. If you say you want to buy some contracts and walk away
and come back later in the day to see what has happened to your position; hope. Dealing with
hope is not easy, it takes a lot of discipline. However, that practice of discipline will build the
habits you need to find the consistency you are looking for. Discipline will keep our human
emotions away from negatively affecting your trading. Discipline is key here.

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Trading Earnings Report s?

Trading options before or after a company reports their quarterly earnings can be very
lucrative, but is a very risky strategy. Take a solid growth stock like MSFT (Microsoft), for
example. If MSFT is expected to report great earnings this quarter and beats expectations,
beating EPS, revenue, sales, etc. This does not mean that the stock has to push up. Sometimes,
factors like the stock P/E ratio will cause the stock to drop even though they beat
expectations. When a stock is already drastically overvalued, and earnings are around the
corner, you will usually find that the stock will drop or correct before continuation to the
upside. Thus, if you had purchased calls to play earnings because you assumed they would
have beat earnings, your premiums would have actually been negatively hit and would have
woken up to a big loss the next day.
Playing an earnings call is most definitely a gamble. You have a 50/50 chance that the stock
moves in your favor. You will not know if the stock price is going to move up or down post
earnings call. This is because, again, even if they report great earnings the stock could take a
very big hit on earnings. Or, if they report average or lower than expected earnings, the stock
may stay flat. Either way, purchasing naked Calls or Puts for an earnings play is a gamble and
is very risky as you have no edge into the direction of the trade.
Nonetheless, there are some strategies and upside to playing earnings. Buying calls or playing
the run up BEFORE earnings could be a great play. Investors usually buy the hype of a stock,
and you can benefit off of this before the company actually reports its earnings. Not only will
you benefit off of the stock?s price increase, but you will also benefit off of the Implied
Volatility. As previously mentioned in Part I, an increase in Implied Volatility raises the price
of the premium regardless of which way the stock moves. Implied Volatility will almost always
be higher on option contracts before a company reports earnings due to the uncertainty and
the expected increased volatility after the report.

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W hat Not t o Do W hen Trading Opt ions

This is a list of 'NO's that I use on a daily basis:

NO adjusting triggered mental stop losses to give the stock a ?second chance?, this is hope.
NO entering before confirmation just to get a ?better entry?, this is greed and hope.
NO holding on to a losing trade because of anger, this is ego.
NO holding on to a losing trade because of hope.
NO holding on to a winning trade because of greed.
NO holding on to Out the Money option contracts without direction in the underlying stock.
Just because it is cheap does not mean you should buy it.
NO chasing a trade because of missing an entry. Wait for next entry.
NO adding size to positions that exceed maximum capital risk allowed.
NO taking trades with full account size because of emotions such as, 'maybe just this time I'll
make a lot of money and double it, then I'll have more money to take proper disciplined trades
with."
NO forcing a trade that is not there.

Simply put, follow your trading plan. Enter for a reason, and exit for a reason. Do not keep
adjusting your trading plan during the trade, your trading plan should be set PRIOR to entering
the trade. You should also set a profit taking level or profit taking levels. Once my highest PT has
been hit I exit immediately. Often times, I will exit the whole position if my trading plan was to do
so. There's nothing wrong with taking profits before other traders do. If you were to follow what
the majority of traders do, you would be part of the 90% that face failure. Join the 10%.

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TH E TH REE P' S
The following are three terms that I find important to exhibit as a Trader:

PERSEVERANCE
It's crucial to note that becoming a consistent and successful Day Trader is NOT a race. You
can't just warm up in the morning and win the battle in one round. Success in trading is NOT
found over-night. Treat trading as you would any sports team or any college degree. You
need to show up every day for practice.You need show up every morning for class. You will
be tested many times. You will find obstacles and difficulties along the way. You will lose
some, you will win some. This is all to be expected, however, you need to have the
perseverance and determination to make it yours. Show up every day, set your goals, set
your game-plan, and execute only according to your discipline!

PATIENCE
Many give up, and maybe it's a bit too early that they do. You can't graduate university in one
year. You can't become a lawyer, a doctor, a nurse, or an accountant in one year. So, why are
you treating trading any different? Patience is virtue in this field. Again, things will not
happen over-night, but once it all starts clicking you will be so proud of yourself for being so
patient. This also means that you, as a trader, should understand when to sit on your hands
and prevent yourself from taking on any trades if the opportunities are not there. Being
patient enough to follow your plan and only executing according to your plan. Having the
patience to wait for key levels, candles to close, price targets, and stop losses. Patience!
Can't say it enough.

PROFIT
Profit appreciation is big! Letting go of greed, ego, fear, and hope will lead you to proper
results. Focus on building a cushion of profits, this will allow you to begin scaling. The market
does not owe you anything. You are the one supplying the markets with your hard earned
cash. Learn to let go of these emotions and understand the importance of profit taking.
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 Section End

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 TH A N K YO U
H A PPY TRA D I N G!
Writing this e-book has been a trying but ultimately rewarding experience,
beyond what I could have ever imagined. The book walked me back through
my own trading journey, and nothing excites me more than sharing it with all
of you. To my readers, the success of this book would not be possible
without your interest and appetite for trading knowledge. Thank you for
taking the time to read this e-book. I would only hope that it has truly
opened up a new and diverse perspective of trading for you. As a full time
options trader, I wish you nothing but the best of success in your trading
journey. You can always reach out to me via socials, and I would actually love
to hear about your journey as you go!
I also wanted to take the time to thank the few special individuals who have
helped me complete this project with the utmost efficiency. First, I would
like to thank my parents, both of whom have always given me my "why."
Everything I do and will continue to do is for them. I then would like to thank
the Tradeswithrama Team for always being the backbone to the company. To
Nilufar Mogtehidi, thank you for being a great community manager, but an
even better best friend and business associate. I would also like to thank
Sahar Khan, Joanne Vo, and the Customer Service Team for all the hard
work they put in on expanding this brand. Thank you to my incredible
editors, Dania Mohammad and Sarah Saeh, for your time, energy, and hard
work on this e-book. Not only was this team helpful, but I had a few friends
and family take big part in the success of this e-book, as they took hours out
of their days providing me with important feedback and constant
motivation: a tremendous thank you to Taha Mustapha, Tarek Mustapha,
Farrah Jalanbo, Aldin Rue, Shaza Ahdab, Hoda Dalati, Raya Khatib, Sami
Dee, and Ranya Halbouni. I am nothing without you all; you made this
e-book more remarkable than it otherwise might have been.

Thank you all from the bottom of my heart,Tradeswithrama

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