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Best Learning Doc

The document outlines trading lessons based on SPY's market movements, focusing on key levels and potential outcomes. It emphasizes the importance of recognizing when to expect pullbacks or breakouts, and the need for quick decision-making in response to market changes. The lessons illustrate how to analyze market behavior and adjust trading strategies accordingly to maximize gains or minimize losses.

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Andrew Sharrock
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19 views6 pages

Best Learning Doc

The document outlines trading lessons based on SPY's market movements, focusing on key levels and potential outcomes. It emphasizes the importance of recognizing when to expect pullbacks or breakouts, and the need for quick decision-making in response to market changes. The lessons illustrate how to analyze market behavior and adjust trading strategies accordingly to maximize gains or minimize losses.

Uploaded by

Andrew Sharrock
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 6

Lesson #1 - How the day started

Premarket Thoughts:

Why was this 410.3 chosen?


1. It’s our level (this one only for guide members I teach them to find the levels)
2. Specifically why this level: Well remember yesterday, I wrote up a whole post about how
at 408.8 and 410.3 the market made large moves. If you don’t remember, well, just to
summarize, if you scroll back in time on the 4hr chart, the market made large moves
both at 408.8 and 410.3. So if in previous times it made large moves on the 4hr chart,
what do I expect today? Another large move off that level.

What ended up happening:

Our most ideal scenario. 410.3 held exactly, passed right into 412.67, then into 414.42, and
finally close to 415.38.
How did the calls move? 412 for example moved up from $1.3-1.6 all the way up to $3.5.
$130-160 turns into $350 per contract
Lesson #2 - SPY is up - now what?

Within the first 40 minutes of the day, SPY has already provided an opportunity to make 100%.
(Now do not confuse the % gain with - “but wait Lorenzo we have seen 1000% plays before” -
this is completely different. Remember we see 1000% plays when options premiums are
cheaper. These 412 calls were $1.3-1.6 at open, to see 1000% from open, SPY would need to
move to 425/428 - that’s 13-15 points, unheard of now days)

Notice here: SPY has moved 5.56 points within the 1st 1 hour of the day! We still have hours left
until close and it’s already moved most of its average points.

Now at this time, I notice everyone discussing, hey I’m going to get calls on this, or calls on that.
I’m just thinking in my head, you guys do realize, SPY has moved up 5.5 points right? In like 30
minutes. The day potentially may already be over within 30 minutes.

What do you think happens next? It either goes dead or pulls back slightly and then chooses a
crash or mini pullback.

So 30 minutes into the day I realize this. Why? 5.5 points moved 30 minutes. Average move
only 6.8. Hours of day left.
Odds are we pull back.
Lesson #3 - SPY is pulling back - now what?

So let’s draw up some cases:


Case 1:

Spy keeps going and breaks out. Here we start understanding, SPY may go for more then the
average daily move 6.8 and instead go for 7.5 - 8.5.

So getting 415 calls, we are saying top would be around 417/418


Low of day 409.5 - 409.5+ 7.5 = 417 - 409.5+ 8.5 = 418

Looking at it: We see a downtrend line has formed and the only way this makes sense is if we
catch a breakout upwards above 414.42. Now this is more like a momentum play, as when calls
rise, they may be closer to $1.2 and even if we ended the day at 417, calls would be only $2.
But, in the case 414 rips to 416.83 really quick, those calls would be higher than $2 giving you
100% gain.
Case 2:

In chart 1 above, you can see near that 413.4, there was some support that may have held.
Ideally you waited for the push back up. Assume it held, remember at 414.2, those calls were
worth $1.02

So within those 80 cents SPY dropped, calls had fallen from $1.02 to $0.67. Now if they pushed
up to 413.85 or so right away, on it holding, calls would have gone up to .8 or so. As you can
see in chart 2, it did try to make a move up, and failed right away, all within 1 minute. So within
this 1 minute you should have realized it’s not holding.

Remember, we are imagining plays here. If it held right there 413.4, ripped to 413.85 and
jumped .67 to .8, and then slowly built support and ran up past $414.42 it would have been
already closer to $1.2 and then broken out more.
In chart 2 (also on page before), you can see as it comes close to that level, 412.67, calls at this
time were worth .56. As you can see below:

This had failed within 4 minutes.


Now assume your too late to cut, here is a possibility:

So from .56, you realize it’s failing and within 2 minutes, the calls have now dropped to .33.
The whole point of this was:

Now we already knew going into this expect two things:


1. Pullback, hold, run back up.
2. Pullback, too large, crash.

As you can see, this type of post is written in this format for a reason.

For example: Near 413.4 support, near 412.67 level we would have thought of this as a
pullback. Remember, we are looking at the chart knowing the result now. But in real time, this
could have just as easily slowed down, built support there.

But you can see, if someone wrote enter here: within minutes you would already be down a
large %.

Versus the reality of the play: if 412.67 didn’t hold, we should have switched to puts, as pullback
to large, expect a crash.
So as you can see, this format is much better than writing out points people should enter at.

Things to remember:

1. Scroll up to Lesson #1, notice how simple & easy that looks. Well, it’s because there was 0
points moved on the day. So if you are right on the direction, that play will always look super
easy.

2. Lesson #2, confirmed we felt a bit bearish. SPY up 5.5 points in 30 minutes, we had
somewhat already expected a pullback. The best move here, may have been to eye a level to
directly go for puts.

3. Lesson #3, now these are more of attempts. If SPY pullsback: hold and run up, or too large
and crash? Need to change direction quickly, before the play ends up down -50%. Cannot rely
on people moves happen within 2-3 minutes.

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