Build ‘Formula’ For Stock Market Trading


Simpler Trading Team

Jul 08th 2022  .  6 min read

In this article:

  • Commodities reveal downtrend holding
  • Longer time frames help define moves
  • ‘0 day’ options trades can limit risk

A muted jobs report on Friday set up the stock market to start down for the day, rebound into midday, and then chop heavily before settling into mixed results across the indexes at the close.

It was another day of, “What is going on with this market?”

Expecting that the bear market will continue toward a bottom, Simpler’s traders are working through this volatile environment based on the movement at hand.

(Check out the free video, above, for insight into trading this changing market.)

Build a ‘formula’ for trading volatility

To formulate a big-picture view of how the market is moving, Simpler’s traders dive into specific assets and then back out to the larger indexes.

Key assets include crude oil, copper, and gold. How these commodities are performing provide a better idea of where stocks, sectors, and the indexes may be moving.

Crude oil has been choppy over the last few sessions, closing at $104.90 today. Analysts emphasized again today that crude oil is likely moving higher into the end of summer. Benchmark crude oil was trading below $100 per barrel days ago before rebounding above the century mark. The $100 price level is a significant target that signals strength or weakness in the commodity.

Copper, the third most widely used metal in construction and technology, has been declining for weeks. The “new PhD” market indicator has toppled from a yearly high in March of $4.93.

Copper is reflecting that there is an economic slow down, but just because there is weakness across commodities doesn’t mean that copper losses indicate a recession at hand.

Gold may have entered a new territory – the “death cross” – that may signal a longer bear market than investors and traders want. The death cross is a technical analysis signal where the 50-day moving average crosses the 200-day moving average.

This lagging indicator in gold may have signaled the “definite” transition from a bull market to a bear market, and solidified the beginning of the “bottoming process” across the board. Simpler’s traders do not believe a “hard” bottom has been reached in this market.

The 200-day moving average (MA) is an important technical indicator for the team at Simpler Trading. This longer-term moving average helps reveal bullish movement, support, and bearish movement on stock charts. This MA is such a long-standing indicator that any movement toward or away from it can result in definite asset and overall market reactions.

Using technical analysis – crunching chart signals, highs, lows, opens, closes, etc., into a working formula – helps Simpler’s traders develop potential trade setups no matter how the market is moving. 

Trading commodities in a bear market

Commodities trading is a strategy to expand a trading portfolio as the market chops along in neutral.

Traders who are learning commodities – futures – trading or are seasoned veterans can always use extra insight to apply strategies to navigate an uncertain market.

Gain access to live-trading sessions where you can trade with a professional, get real-time trade alerts, and study the learning center to build personalized strategies in the futures market.

There are futures trading learning opportunities at Simpler Trading.

Lengthen stock chart time frames

The market is responding in such a way that traders can lengthen the time frame on their charts.

While day trading is at this point the focus for most of Simpler’s traders, the weekly chart can reveal movement in the indexes thanks to outside influences on the market.

As shared in Simpler Insights, this market is responding to news events and announcements which do not happen on a daily basis. These occur weeks or months apart and can come from the Federal Reserve or data releases such as the Nonfarm Payroll (NFP) report today.

U.S. employers added 372,000 jobs during June compared with 390,000 in May. June numbers are muted relative to month-over-month numbers and the fact that job numbers are still short of pre-pandemic levels more than two years ago.

Simpler’s traders process these “touch point to touch point” influences using technical analysis signals, like the 200-day moving average. Analysis can be bolstered by adding into the mix the 34 exponential moving average (EMA) in combination with the 8, 13, and 21 EMA signals.

When in proper alignment, these moving averages can signal bullish or bearish movement in individual assets, sectors, and indexes.

As the data points happen monthly or longer, traders can follow the movement across a longer time frame using weekly charts within a technical analysis formula.

All this data combined – technical analysis formulation – indicates that a bottoming process has begun in the market. This process could get even more volatile for traders.

Is day trading part of your formula?

All the chaos of this market has created a new level of stress for traders.

One strategy to consider is day trading. While day trading is considered a higher level of risk, the team at Simpler Trading understands what traders go through when the market maintains an extended level of uncertainty.

Simpler Day Trading allows members to follow experienced traders as they “get in, get out” with trades that limit capital exposure. What is appealing to traders in this market is the community of professional traders delivering live-trading insights during market sessions.

Avoid the stagnation of trading alone, and check out this daily training and learning option.

‘0 Day’ options plays limit risk

In this volatile market, consider setting up trades that close out risk at the end of each day.

An example of this is using setups on the S&P 500 (SPX) that close out by the end of the day.

These are unbalanced butterfly setups that target ODTE options plays. Zero Days To Expiration (ODTE) options plays are taken on the last day of expiration of an options contract. These setups can limit risk because the contract is closed at the end of the day (the SPX settles in cash) with no overnight exposure and no worry about having shares added to the trading account.

Traders can determine an options setup by midday and allow the contract with rapidly decaying premium to continue to close. Simpler’s traders use this as a risk vs. reward setup that takes advantage of the unique nature of this options contract. 

This is a unique way to participate in this market with an added tool in the trading toolbox.