How Technical Analysis Can Help Kick The Irresistible Itch To Trade

technical analysis

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This past weekend while I was at the beach I spent the first night out on the porch drinking beer with my brother-in-laws.

Naturally we all forgot to apply ample amounts of bug spray - I'm sure you know where the rest of this goes right?

We got peppered with bits the next morning leaving the rest of the week hot, sunny and itchy. Common sense says that you shouldn't scratch because it will only spread. But our natural instinct is to scratch the hell out of them until it doesn't itch anymore.

Trading On Facts Not Itches

In all this drama, I found myself thinking of trading. What else is new. I freaking love the markets and am always looking for uncommon ways to help you all learn more about options.

Back to the point here. As traders, we often find ourselves trading as a way to facilitate an itch we have. Whether it's for money, free time, perceived power, a new car or whatever. There is something we need, and trading fills the void.

The reality is that we should not itch just because we can. We shouldn't make a trade just because the order is up, and we might make money on it. This kind of thinking we know wrong yet we continue to do it year in and year out.

Start The FREE Course on “Pricing & Volatility” Today: A complete and full understanding of how options are priced and where we get our "edge" as options traders using IV percentile. This section includes mastering implied volatility and premium pricing for specific strategies. Click here to view all 12 lessons ?

Learn To Trade ONLY After Confirmed Signals

Those of you who have been a reader for a long time know that I'm a fan of following multiple technical indicators. I don't use just one, but I also don't use 425 either.

After you have picked your favorite indicators teach you not to trade (itch that bug bite) unless you have a confirmed signal. Sure it may take a long time to show up and in the meantime you are just dying to itch that scratch you have - but hold fast.

On the SPX chart below you'll notice that sometimes it may look like you are going to get a signal but the market will then turn even faster in the opposite direction. Patience will help make the right decision more often than not.

A few good indicators will do just fine for what we need to accomplish. From there risk management will take care of the rest and ultimately separates the weak traders from the strong traders.

1 Cool Trick That Might Help

I'm sure as obsessed with the price chart of a stock as I am. But just for kicks, try to make a calculated decision without looking at the price chart. Remove the pricing history and just look at the indicators on a full screen.

At first you'll get freaked out and almost lost without the pricing data but after a while you'll find that you make a smarter decision without it. Try it in your paper trading account next month and see what the results are.

Free Coaching Session Up For Grabs

Just to make things interesting, via comments below add your best guess as to which chart I posted above without the price data. No repeat entries and the first commenter to guess correctly gets an hour free coaching session ($100+ value).

I'll give you one clue to help: it's a major ETF. Good luck!

About The Author

Kirk Du Plessis

Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he’s a Full-time Options Trader and Real Estate Investor.

He’s been interviewed on dozens of investing websites/podcasts and he’s been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and two daughters.

  • Joseph


    • Kirk

      @Joseph, Nope good guess though.

      • Joseph

        Darn, I really need that coaching session too. Since I can’t guess again, I’ll try and help someone else. Here’s a list of the top ETFs listed in order of average trading volume. Learning from Kirk’s videos, I know he is using the prophet charts on the TOS platform. On the left hand side of the chart will be “Breakout Studies” where you will find indicators that Kirk has displayed. Using the default colors, I think the three indicators Kirk is using are RSI Wilder, CCI, and Stochastics. I plugged each of the top ETFs traded and compared their indicators to the ones in this blog. I really thought VWO was the closest match, but it wasn’t it. Kirk may not be using the default settings of each indicator, which may have thrown me off. Maybe go to his previous videos and look at what his exact settings are. Good luck to everyone else.

        SPY SPDR S&P 500 167,154,156 $99,307.9 M
        XLF Financial Select Sector SPDR 82,955,805 $6,120.9 M
        IWM Russell 2000 Index Fund 54,183,238 $14,255.1 M
        EEM MSCI Emerging Markets Index Fund 54,064,949 $32,675.1 M
        QQQ QQQ 52,459,117 $31,545.7 M
        VXX S&P 500 VIX Short-Term Futures ETN 51,597,602 $1,832.6 M
        VWO Emerging Markets ETF 23,299,422 $48,769.4 M
        TZA Daily Small Cap Bear 3X Shares 23,175,844 $736.1 M
        EFA MSCI EAFE Index Fund 21,017,625 $32,576.5 M
        SDS UltraShort S&P500 19,836,260 $1,984.2 M
        FXI FTSE China 25 Index Fund 19,379,850 $4,658.8 M
        EWZ MSCI Brazil Index Fund 17,302,563 $6,933.5 M
        XLI Industrial Select Sector SPDR 17,264,604 $2,658.7 M
        FAZ Daily Financial Bear 3X Shares 16,453,504 $793.3 M
        GDX Market Vectors TR Gold Miners 16,360,756 $8,481.8 M
        XLE Energy Select Sector SPDR 15,659,031 $6,100.3 M
        EWJ MSCI Japan Index Fund 14,600,064 $4,784.6 M
        TVIX Daily 2x VIX Short-Term ETN 14,112,762 $366.5 M
        TNA Daily Small Cap Bull 3X Shares 13,824,291 $713.1 M
        SLV Silver Trust 13,502,049 $8,708.1 M
        XIV Daily Inverse VIX Short-Term ETN 12,188,788 $232.9 M
        UVXY Ultra VIX Short-Term Futures ETF 11,324,190 $309.0 M
        UNG United States Natural Gas Fund LP 11,129,677 $1,060.3 M
        GLD SPDR Gold Trust 10,987,400 $64,812.7 M
        XLB Materials Select Sector SPDR 9,731,763 $1,947.8 M
        XLK Technology Select Sector SPDR 9,558,882 $8,965.4 M
        TLT Barclays 20 Year Treasury Bond Fund 9,105,805 $3,830.5 M
        XHB SPDR Homebuilders ETF 8,483,502 $1,279.7 M
        TBT UltraShort Barclays 20+ Year Treasury 8,439,049 $3,103.4 M
        XLY Consumer Discretionary Select Sector SPDR 8,191,117 $3,132.8 M
        FAS Daily Financial Bull 3X Shares 8,172,335 $1,190.3 M
        SSO Ultra S&P500 7,973,628 $1,211.7 M
        USO United States Oil Fund 7,797,594 $1,168.7 M
        XRT SPDR S&P Retail ETF 7,572,320 $705.9 M
        IYR Dow Jones U.S. Real Estate Index Fund 6,883,765 $3,920.8 M
        EWT MSCI Taiwan Index Fund 6,772,768 $2,054.3 M
        DIA Dow Jones Industrial Average ETF 6,541,263 $10,905.2 M
        XLV Health Care Select Sector SPDR 6,380,960 $4,521.9 M
        XLU Utilities Select Sector SPDR 6,013,762 $6,556.7 M
        JNK SPDR Barclays Capital High Yield Bond ETF 5,743,228 $10,618.6 M
        XLP Consumer Staples Select Sector SPDR 5,615,166 $5,532.3 M
        IAU COMEX Gold Trust 5,498,854 $9,198.6 M
        QID UltraShort QQQ 5,403,961 $609.5 M
        RSX Market Vectors Russia ETF 5,395,863 $1,600.7 M
        XOP SPDR S&P Oil & Gas Explor & Product 5,386,559 $791.5 M
        QLD Ultra QQQ 5,043,689 $675.9 M
        OIH Market Vectors Oil Services ETF 4,871,071 $954.4 M
        EWG MSCI Germany Index Fund 4,736,074 $2,418.7 M
        GDXJ Market Vectors Junior Gold Miners ETF 4,251,077 $2,113.1 M
        XME SPDR S&P Metals & Mining ETF 3,974,928 $718.5 M
        SPXU UltraPro Short S&P500 3,599,427 $531.2 M
        HYG iBoxx $ High Yield Corporate Bond Fund 3,570,786 $14,411.3 M
        EWH MSCI Hong Kong Index Fund 3,496,683 $1,519.0 M
        IVV S&P 500 Index Fund 3,465,201 $28,790.2 M
        SH Short S&P500 3,368,045 $1,959.2 M
        NUGT Daily Gold Miners Bull 3x Shares 3,124,048 $204.1 M
        KBE SPDR S&P Bank ETF 2,966,491 $1,416.5 M
        EPI India Earnings Fund 2,859,049 $744.3 M
        VEA Europe Pacific 2,831,429 $7,838.2 M
        UPRO UltraPro S&P 500 2,804,945 $236.4 M
        KRE SPDR S&P Regional Banking ETF 2,682,134 $1,055.4 M
        EWW MSCI Mexico Index Fund 2,600,037 $1,024.1 M
        EDZ Daily Emerging Markets Bear 3X Shares 2,511,509 $135.5 M
        EWA MSCI Australia Index Fund 2,368,374 $2,206.0 M
        ERY Daily Energy Bear 3X Shares 2,362,135 $65.6 M
        EUO UltraShort Euro 2,359,492 $902.4 M
        DBC DB Commodity Index Tracking Fund 2,344,792 $5,374.2 M
        VNQ REIT ETF 2,286,737 $12,635.3 M
        EWY MSCI South Korea Index Fund 2,277,469 $2,594.0 M
        TWM UltraShort Russell2000 2,254,965 $338.2 M
        IWF Russell 1000 Growth 2,222,128 $15,228.0 M
        BGZ Daily Large Cap Bear 3X Shares 2,216,726 $179.7 M
        MDY SPDR MidCap Trust Series I 2,198,128 $9,102.7 M
        UUP DB USD Index Bullish 2,101,528 $1,156.7 M
        VGK European ETF 2,094,009 $2,298.3 M
        ITB Dow Jones U.S. Home Construction Index Fund 2,082,757 $699.8 M
        LQD iBoxx $ Investment Grade Corporate Bond Fund 1,971,154 $22,333.9 M
        ERX Daily Energy Bull 3X Shares 1,960,498 $383.3 M
        SMH Market Vectors Semiconductor ETF 1,942,391 $267.1 M
        VTI Total Stock Market ETF 1,928,542 $20,624.9 M
        EWS MSCI Singapore Index Fund 1,925,328 $1,326.6 M
        AMLP Alerian MLP ETF 1,828,809 $3,255.5 M
        PFF S&P US Preferred Stock Fund 1,791,423 $8,948.9 M
        IJR S&P SmallCap 600 Index Fund 1,784,398 $7,000.0 M
        TQQQ UltraPro QQQ 1,716,749 $199.5 M
        EWC MSCI Canada Index Fund 1,705,272 $3,970.0 M
        UWM Ultra Russell2000 1,684,595 $119.2 M
        IWD Russell 1000 Value 1,684,418 $11,471.8 M
        RWM Short Russell2000 1,668,131 $437.4 M
        EWM MSCI Malaysia Index Fund 1,645,146 $870.7 M
        AGQ Ultra Silver 1,626,911 $650.8 M
        UCO Ultra DJ-UBS Crude Oil 1,626,845 $423.3 M
        AMJ Alerian MLP Index ETN 1,595,800 $4,783.3 M
        IWO Russell 2000 Growth 1,571,334 $3,658.8 M
        SHY Barclays 1-3 Year Treasury Bond Fund 1,555,117 $10,941.5 M
        EWU MSCI United Kingdom Index Fund 1,507,703 $1,261.5 M
        IWN Russell 2000 Value Index Fund 1,480,291 $3,735.2 M
        SCO UltraShort DJ-UBS Crude Oil 1,417,255 $79.7 M
        SQQQ UltraPro Short QQQ 1,350,075 $130.3

      • Kirk

        While I didn’t ever say (or not say) that you had to only guess one ETF I think this has to be one of the more creative comments I’ve ever seen Joseph! Congrats – you won! The correct ETF was EEM to celebrate the continued euro-zone crisis. I’ll email you the details on setting up your free coaching session soon!

      • Joseph

        Thanks Kirk! I can’t wait!

  • Derrick


  • Tim


  • Bill Place


  • Kirk

    Nobody has guess it yet! Coaching is still up for grabs!

  • Bill Place

    I am itching for somemore great trades from Kirk

  • Nick