July 5th, 2023

Stocks Poised To Keep Moving Higher

We all experience losing trades sometimes. Yes, even those of us who write newsletters and host webinars, talking about trade ideas, still manage to get it wrong sometimes. That’s where I find having a trading plan works for me.

I don’t ‘celebrate’ wins anymore, as those are expected outcomes.

I don’t ‘hope’ the market reverses course when a trade goes against me.

I have a trade plan. I know of trade adjustments that I can potentially make. I have profit targets and exits planned out ahead of time.

Despite all the research and planning, some things still go wrong. And when they do, I bail on positions and move on.

One trend that I’ve been seeing lately is traders with a hyper-focus on winning percentage. I’m in webinars all the time and everyone asks about winning percentage.

Think about an American Baseball player. They come up to the plate maybe 3 or 4 times a game and are lucky if they get on base 25 – 30% of the time.

Think about the emotions involved in getting ready to play a game in front of thousands of people each night and only being successful 25-30%. That’s maybe one successful at-bat per night.

My point is that losses happen. I don’t like them as much as anyone else, but mastering your emotions, having a trading plan, and understanding the risks involved and how you will feel in various situations will help you be better prepared for the time when your trade goes against you. It also helps keep your greed in check when you ask yourself, “Should I hang on for just a little bit more profit?”

Here’s an equity curve from one of my accounts.

I didn’t like going from $1800 to $1100 in a couple of days, especially in a small account. Percentage-wise, it was rough.  I had some bad trades.  But look at what happened right after.  I’ve worked my way back, and still trade the same strategy, even after a string of losses. A month later I’ve recovered and keep moving on.

Consumer Discretionary has been on a nice run starting in the middle of May.  It broke out of a consolidation zone, came back to retest that area, and then took off.

One of the stocks in that sector is BJ’s Wholesale (BJ). That is the stock I want to look at for today’s trade idea.

Here’s a weekly chart of BJ’s Wholesale. It is in a consolidation period, and I think there’s a strong possibility that it will break out to the upside during July.

How you want to trade it is ultimately up to you. It’s a cheap enough stock that you could sell a 21 JUL $60 option for about 0.40. That would be about a 0.5% return in 21 days, a 7% annual return.

Another way would be to buy the 18 AUG 60 call and sell the 21 JUL 65 call for around 3.60. I’d look to roll the short-dated option after seven to fourteen days to bring in more credit and reduce your cost basis on the long option.

No matter what you do, have a safe and happy celebration to those starting their holiday early!

If you have any questions, comments, or anything we can help with, reach us at any time.
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Jeff Wood

Editor, Filthy Rich Dirt Poor
Coach, Options Testing Lab

Any trade or trade idea discussed is for educational purposes only.  They will not be tracked as an official trade recommendation.