The Volume is Key

I've been learning and living the stock market now for 5 months. While I've learned a lot of concepts, I will say that volume is key.

I've established a process that works for me. I had great success with it before I broke my own rules, but in the process of it, I realized that the process needed some enhancements. I don't know what to call it yet, I'll think about that later. To recap:

• Observe daily sector rotation change
• Drill down to holdings within highest performer within top sector
• Observe a two-three day uptrend within asset and execute trade (call or put)

While the above worked in the past, I realized that I wasn't paying close attention to the volume for each stock, but in doing so, it help me avoid losing money yesterday by not trading $AMZN or $BKNG on May 28. Yesterday allowed me to then expand this and use volume within the sector rotation observation. I considered volume in sectors because I realized that the data I use daily only coming from Koyfin.com only focuses on price change, but the volume is what leaves footprints. I decided to apply volume and price change analysis to the sector rotation analysis, then to the stocks within the top two sectors I observed; it played out well and in the past I had a favorite trading day, but I think today surpassed that. Let's look at why:

In my preparation last night , I mentioned that even though XLE had the highest trading volume, but this was controlled by sellers. The second highest traded sector was XLF, with a 50/50 split between buyers and sellers, while the change was -0.29% yesterday, it still gave me a clear picture of where the masses were headed. After looking at this, I drilled down to Citigroup, one of the top 10 holding companies within XLF, and while the day hasn't finished today, my trading for today is complete. Let's look at the chart for Citigroup:

In the above chart, I've highlighted the uptrend today, while Citigroup dumped this morning reaching a low of $123.52, this changed later on reaching a high of $126.84. As shown above, it also has outperformed XLF today so far.

I used yesterday's analysis to decide whether to trade $AVGO or $C – while $AVGO certainly had a spectacular morning, the best trade was Citigroup for me. I opened a contract expiring on June 5, strike price $125 for a $2.00 contract. At the time 10:25AM the price was about $124.67, so it wasn't too far out the money, so I saw my entry. I then sold at 11:15AM for $3.05 when the price was $126.26. This gave me a ~52% return, which for now is in my goal range.

Lastly, based on yesterday's analysis I did see that XLK had a good ratio between buyers and sellers, which is what made me consider AVGO. When tying that analysis to today so far, it's proven to be true as the top sectors are only XLK and XLF, see below for reference:

Overall, I am very satisfied with the last two days. I feel inspired to say the least. It's almost as if the last weeks that were low for me were necessary to re-frame my approach and analysis. It helped me find blind spots, and now that I have a rough draft of it, I can begin polishing it by creating automation of it for myself for now. My enhanced approached protected my capital yesterday by avoiding trading, and today it got me a ~52% return, how couldn't I be happy?

The weekend is here. While Sunday I will prep for Monday, Saturday will be used for me to work on my portfolio using my new enhancements. I'm not even sure where to start, but just like this blog, starting is the first step 😄