Markets can't be Predicted. But they can be Traded.

Weekly Plan 2.23.25

Hey there-

This will be a continuation of my post from Friday where I briefly touched upon the Obvious and “Not so obvious” aspects of these markets.

So on Friday, the “obvious” trade was to “load calls” at 6100 which I think a lot of retail folks did. The “not so obvious” trade was us coming down overnight from 6140, breaking 6106 and then remaining below it.

This 6106 level is a level which I have been talking about for weeks now. I don’t have an issue with anyone buying 6106 as long as they are cognizant that if we break this level, we would sell off big. I only have an issue with someone who buys 6106, then sees it give up to go below 6090, 6080 AND still holds on to the long! Assuming it was a day time frame trade.

This whole obvious versus not so obvious thing is an extension of NLP techniques which I shared in my earlier educational posts, essentially the markets are inherently unpredictable but at times they can be cornered by an individual or a group of individuals to a desired end.

What I mean by this?

Any market at any price has the same likelihood of going higher and the same likelihood of going lower. So in other words, if a market is going up, it is equally likely to keep going up than fall, and when a market is going down, it is equally likely to keep going down than go up. This is not my opinion, all the option pricing models are based on this principle for instance. A chart can show you where the market has been in the past, it cannot tell you where it will be in the future.

For a passive trader using limit orders to make money when he buys at 6100 for example, someone else has to come in and take all the offers sitting at 6101. If this happens, you are now in profit of one point. What if they never come? You can’t see this on the charts. You can only see this on the orderflow if someone bought after you did, how much they bought, at what price they did!

Look at this 5 Minute Chart A on SPY from Friday.

Chart A SPY 5 MINUTES

Now I want to put a disclaimer that I don’t use these charts. A lot of folks do use charts as charts come from a trading education industry. I am simply sharing this to make an educational point too.

The purple line above is the VWAP. Look at this chart carefully, and think if you want to long this market, at any point in the day, where will your long entry be?

1. Do you see any sort of balancing above the VWAP?

2. Do you see any sort of attempted breakout from this balance below or above the VWAP?

3. Do you even see a single trade above the VWAP?

A lot of institutions use the VWAP to enter trades. They consider VWAP as a “fair price”. When a large order comes in, they will often break it down to trade at touches of the VWAP. So you can see on Friday, we did not even touch the VWAP. Even once! This is a tell tale sign of a market in free fall, a one way trend down, a liquidation- pick your own euphemism.

Now you can add another price action based indicator on it like the Money flow or Cumulative delta, you will the Delta also corroborates the same story. Not a single higher high, higher-low on the Delta- All day!

Now if you are a chart trader, on Friday, at the open, you see the market come down to Thursday lows, and you see support on charts. This is completely ok in terms of analyzing the price action using historical charts. But you also must add some sort of real time aspect to your analysis using orderflow, or a VWAP or cumulative delta etc to show you the buy and sell pressure.

Here is how I would have done it if I were a chart trader.

1. I see the market sell down to Thursday lows.

2. I now need to see it go back above the VWAP with a rising Delta.

3. I then buy it on a pullback into the VWAP with a stop right below the prior intraday low. This is simply an example of an intraday strategy. I do not need to know if the Candle had a lower wick or not, if the Candle was a Doji or a bullish engulfing, all I need to know is there will probably be other buyers at the VWAP due to the reasons I outlined above.

The business of the markets is in the now. It is in the real time. The markets do not care above what they did yesterday, what they did last week, they care about what they are doing right now. And orderflow, price action offers very good clues, what these markets are doing right now. If you have a 60-65% edge in these markets, they can offer you a lot of opportunities. Know that you will be wrong 35% of the times, but you have a 65% win rate! This is a huge edge!

Now if you want an 80% edge, you will have fewer trades in the day. You want to have a 100% edge? You have no business in trading. You will almost have 0 trades in the market on any given day on average.

The reason I am sharing this is for anyone on the wrong side of the tape on Friday and sharing my views on how it can be avoided, how it can be filtered out using some of the orderflow concepts.

The other aspect of this is trade size. I personally find higher volatility days with higher VIX as more tradable for me. There are folks who prefer slower days.

If you find higher VIX days harder to trade, consider trading small. So instead of SPX options, try SPY options. Instead of trading the Emini contract, consider the Micro emini contract. The reason these contracts exist is to allow professional traders to breakdown their trades into smaller pieces. SO if my stop loss usually is 3 dollars as example, on a day like Friday I may need an 8 dollar stop for instance. So this may mean instead of 5 emini contracts, I could use 50 micro contracts. Again this is one example of managing the entries and exits using all these tools exchanges provide us.

The last aspect of this is being a good loser.

If you can’t be a good loser, you won’t win in this.

What does this mean? You have to really be ok with losing. And not think much of it. Once way you can do is using my NLP technique of actually practicing the event of losing. Let us say you are down a 200 dollars, let us say you are down a 2 grand on a trade. How will you mentally process it? There is only way to process it- move on to the next trade. If you find yourself disturbed by this visualization of losing 2 grand, you need to practice it several times until it does not bother you. These are battle tested techniques used by the CIA and other highly competitive agencies to train their personnel. Give it a shot.

I will wrap up this segment by sharing something which you may have never heard before…

One of the easiest ways to determine if you have a consistent methodology that works or not is to compare your paper trading results with your real trading results.

1. If you can consistently make money on a demo or SIM account but fail to profit on a live account, this means you have a solid technical methodology but you need to work on mindset. While you have a solid technical technique, the mindset battle will be as hard, if not harder.

2. If you cannot yet make consistent money on a demo account either, you do need to work on a 60-65% win rate methodology first.

3. Your results on a demo account are the Gold standard of what you can achieve if you can master the mindset. If you are not able to achieve those, it almost always means you lack the mindset which really means you are making execution mistakes in real trading stemming from fear and greed/missing out.

Hope this was helpful. Please share with other traders like your self if you find this helpful.

The other thing I want to talk today about is a continuation of the income generation post I did on Thursday but I did not include the PUT write strategy in that post.

So PUT write simply is an income strategy where you will write the PUT on a stock you are bullish on and receive a credit for doing so.

I will use PUT selling as a very tactical strategy and I will tell you what I certainly won’t do.

I won’t sell a PUT on a stock far out. So even if it is a monthly PUT for March 21, unless it is a 10-20 dollar stock, I won’t do it. I will forego juicy premiums because they are too risky for me personally unless hedged by buying a PUT which will reduce the credit.

Now a TSLA 335 PUT for March 21 is like 20 bucks. If you sell this, you receive 2000 dollars. Now while this is on paper a 20 dollar cushion you have, for a stock like TSLA this is simply too much risk for me since it will lock down $33500 of my capital for a month- as an example. Also I think TSLA support could be lower than $315, so that is an unnecessary 20-25 dollar heat which I dont want to take potentially.

I will rather sell a PUT on a 10 dollar stock a month out, which may give me a 100 dollars but it only locks down a 1000 dollars of my capital. This is potentially a 10% return.

Let's say an asteroid comes near the Earth next week and this stock sells off. Where will this 10 dollar go ? 0? So be it, my risk in dollar terms is capped. I am not losing sleep on it. But even though that 2000 dollars TSLA PUT credit sounds enticing, my return is also around 8%, but in dollar terms that is a harder pill to swallow for me personally.

For more expensive stocks like a TSLA, or even a PLTR is a great example, a better option for me will be like PLTR the other day. The 90 PUTS were trading 2 dollars with only 2 days to go to expiry with the stock still sitting at 96! Then you have the 110-112 CALLS selling for like 3 dollars with a day to go to expiry. These are some asymmetric trades which don’t come every day though.

In case of TSLA, the 330 PUT on Friday was also bid at 2 dollars with 35 minutes to go to expiry. These can be tactically good trades but they dont come every day. So these are some of the trades which I find lower risk in terms of time risk.

So to summarize: if I am going to be a PUT seller for monthly expiries, I am going for a 10-20 dollar stock, may be a 30 dollar stock MAX. If I am going to write PUTS on a 200-400 dollar stock, either my time frame will be the same day expiry, OR MAX a couple of days to expiry with the stock being atleast 5-10% above the strike that I am selling. Normally this is your extremely high IV options, a lot of fear and you having a solid support level which you dont mind owning the stock at, if assigned. Like TSLA 300 if I get assigned, then so be it. If I get assigned on PLTR at 90, so what? I already wanna buy these stocks at these prices!

Levels for next week

Is this a bear market now?

Bear markets can be of 2 varieties:

1. Sudden onset of sell off due to an unknown-unknown. When this Black swan comes is anyone’s guess.

2. Structural bear market. Sustained new lows on various longer time frames like weeklies. Often driven by the FED, MACRO, and/or Econ data.

You do have to however understand where we are in overall market structure, even though I do not think this is a proper bear market yet. There is a time in the markets when you can have really good stocks at really good prices. This is where no one knows about these stocks, they couldn't care less. So this is your PLTRs at 20s. This is your SMCI at 18. BABA at 70s. I can go on. All of these given by me here before they were fashionable.

"Often, nothing looks compelling; very infrequently we find ourselves knee-deep in opportunities."

- Buffett

Not all prices are the same. When you pay for a stock in accumulation phase, by logic you are paying less.

Now you can pay at start of the mark up phase and this is ok too. This is where you have NVDA at 110, COIN at 230 etc. But then there is a phase in markets when everyone wants a particular stock. This is often climactic tops in stocks when your Uber driver and your barber starts talking about these stocks. This is when you end up buying PLTR at 120 dollars.

This may sound like cliche but this is a fundamental truth to understand about the stock market. If you do not understand this, you will remain in a FOMO mode at the tops and fear mode at the lows.

Now the Friday sell off can be unnerving but know that we could sell off another 100 points, a 200 points and yet technically not be in a bear market. At the same time, do know that I think we are atleast 300-400 points in the S&P500 from any semblance of “fair prices” despite the Friday sell off.

Now you can do all sort of post mortem why we sold off on Friday. I think the consensus appears to be due to the highest jump in inflation expectations going back some decades where a survey respondent said they expect inflation to stay above 3.5% for years to come.

The survey respondents mostly were Democrats so it may be a little biased, but there is one aspect to it which I think is noteworthy.

In past years, I have spoken with many folks who say they do not trust the official numbers whether that is CPI, NFP, PMIs or even the GDP, they these are artificially propped up to pain a better picture of economy than it really is.

For a thought exercise let us say this accusation is true. Let us assume that the economic data last few years were massaged and not real. Now let us further assume for the same exercise that these data will be more accurate going forward.

If true, this should automatically mean that the data going out a few months to may be even a year or so could be really bad. If this is indeed the case, I think this market will need to learn to live with it.

In terms of news risk next week, the core PCE on Friday I think is quite important.

Everyone and their dog has an opinion on NVDA next week, so I won’t spend a lot of time on that but I do have some levels I am interested which I shared below.

With this out of the way, let us talk about some short term levels for next week.

So from a continuous auction perspective, my main expectation on Thursday was to see 6100 bid for a move back to 6140. At 6140 on Friday, I was bearish for a move down to 6100 and if 6100 broke, I expected more selling which is exactly the scenario that played out on Friday.

So what’s next here?

Continue reading for support levels on PLTR, TSLA, NVDA, HIMS etc