A Confluence of Squeezes

2017-07-06 | Danielle Shay

A Confluence of Squeezes

We are often asked by new traders who come to us (and by new, this can merely mean traders who are new to our Simpler Trading community and Simpler Jargon), what is the squeeze? Well, let me tell you that the squeeze and its relation to the 21 EMA are the two most important points that you could understand. Why is that? The squeeze is John’s genius put into the form of an indicator that allows us to identify directional moves – and be in them – before they take off. Though as traders, we love a variety of trading styles, including income trading, binary events such as earnings, and the methods behind Fibonacci clusters, directional trading is our forte.

Henry Gambell, our trend-following, directional trader and expert technical analysis, loves a good squeeze – most especially, a quality squeeze that gives him an even higher probability of success and allows him to get aggressively long. But how do you know which squeeze is better than another? How do you find them? Well, I can tell you that Henry spends quite a bit of time on his market homework, which includes running scans through our scanner.

But what is he looking for? There will always be squeezes to play – but which one should you choose? Let’s defer to Henry for a lesson. According to Henry, he only likes to play bullish charts in a bullish way, and bearish charts in a bearish way. Why is this? The squeeze is a trend continuation indicator. We are placing a bet that the stock will explode higher or lower in the direction it is currently going. By riding the trend in the current direction, you’re picking a higher probability play, versus swimming against the tide. What defines a bullish trend? Check out the chart below.

NVDA Daily – Bullish Chart

(Click on the image below to enlarge)

Due to his chart analysis on the daily and weekly charts, he knows the only direction he wants to play NVDA is to the long side. But then the question comes, where does he get his chance to enter? That is where the squeeze and the 21-EMA come into play.

The Confluence of Squeezes
The Entry

If you note the 195-minute chart below, you’ll notice the squeeze on this time frame. What you can’t see, is that NVDA also had squeezes on the lower time frame charts as well, starting with the 78-minute chart. An entry near the 21-EMA on the 78-minute chart, will ideally (and in this case, it did), cause each squeeze to pop higher, and roll into the next, causing continued price action to the upside at an identifiable entry point.

NVDA 78-Minute Entry Chart

Henry entered when price was around $152, before the 78-minute squeeze fired off long.

(Click on the image below to enlarge)

In true Henry fashion, he scaled in, not taking the second piece of his position until Friday morning. He further mitigated his risk by spreading risk across multiple expiration series. Check out his orders below:

Thursday, June 15th 2017 1:26 PM

BUY +1 NVDA 100 (Weeklys) 23 JUN 17 148 CALL @7.25 LMT [TO OPEN] FILLED – Going to start working some fresh positions in NVDA. Staying within 2k of risk. $158 first target.

Friday, June 16th 2017 8:43 AM

BOT +1 NVDA 100 (Weeklys) 23 JUN 17 148 CALL @7.35 C2 and BOT +1 NVDA 100 (Weeklys) 30 JUN 17 146 CALL @9.79 MIAX [TO OPEN] FILLED – Please note the two different series with this entry

NVDA 195-Minute Target Chart

Upon trade entry, Henry used the major 0.618 retracement on the 195-minute chart as his target exit point. The chart below demonstrates how price action acted at this level.

(Click on the image below to enlarge)

Screen shot taken on Tuesday, June 20th after profits were taken at the $158 price level.

Henry’s Exits

A strict follower of his price targets and levels, once NVDA hit his price target of $158, he began scaling out. His 148 call that he bought for $7.25 was now worth $12.35, and a half hour later when he sold his 146 calls, they had gone from $9.79 to $14.50.

Check out his closing orders below:

06/20/2017 @ 8:34AM
SOLD -2 NVDA 100 (Weeklys) 23 JUN 17 148 CALL @12.35 ISE GEMINI [TO CLOSE] FILLED

06/20/2017 @ 9:02AM
SELL -1 NVDA 100 (Weeklys) 30 JUN 17 146 CALL @14.50 LMT BATS [TO CLOSE] FILLED – This wraps up all of my bullish ideas in NVDA. Would love to look at a pull back!

Understanding the terms, picking out which setups you like, and getting comfortable with the triggers ideally leads to one place – making money. Trading is all about identifying and acting on high probability setups and patterns that we see in the markets. And more importantly, understanding how our traders managed the trade and take profits. Our goal is that over time, you will be able to identify high probability setups, and make money with them yourself.

If  you’re not already an Options Gold member at Simpler Trading and would like to follow Henry’s trades more closely, you can try the service for only $7 for 30 days here.

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