How This Student Made A 550% Winning Trade – February 28, 2022

Typically, when one hears the term “options trading,” it conjures visions of flashy suits and slicked back hair. Though this may have been the case at one point, the ones profiting from this once mystical area of finance are now everyday people, often with other jobs completely unrelated to finance.

As technology has advanced over the years, the dissemination of information has radically shifted. Today, people can learn to do anything across a wide range of topics, thanks to the internet.

Throughout the pandemic, people have increasingly turned to the stock market and options trading as a means to produce an additional stream of income. For many, it was enrollment in the school of hard knocks and a lesson in how to lose money in the stock market. However, many people were able to find massive success in that same market, throughout the same time period.

Whether you have just started or have years of experience, we can all learn just a little bit more. That is why, for years, I have been coaching online classes to teach people the ins and outs of options trading.

Students of my class are instructed on a very simple way of trading the market. It consists mainly of three general elements — identifying the trend, finding your price level, and knowing your entry and exit points.

These years of mentoring and coaching option trading hopefuls makes it that much sweeter when I see my students win.

Today, I want to tell you about a recent trade highlight from one such student.

The trade revolves around SoFi Technologies (SOFI), a personal finance/software stock that saw a nice 180% gain a few months after its IPO… and then fell into a steady decline.

This student saw this trend and decided to act on it. First Element Of A Good Trade: The student picked a stock he wanted to trade and identified the trend. In this case, that trend was down, so the student decided he wanted to look at buying put options.

Next, he looked for his price levels.

Below is the chart of SOFI this student sent me. Let’s walk through, point by point, to see what we’re looking at:

1. In the days leading up to his trade, there had been quite a bit of resistance at the $13.15 level.
2. After shares met resistance up at Level A, they were frequently coming back to this level around $12.90.
3. During the trade, SOFI confirmed the downward trend.
4. After bottoming out around $11.20, shares started to create a new area of support/resistance. This would eventually serve as an important exit level.

Based on what he was seeing at these two levels, this student decided to use Level B ($12.90) as the trigger for entering his put trade. He would buy his put options the next time SOFI traded down to this level. He also decided to keep an eye on the price line at Level A ($13.15). This had clearly been an important resistance line for SOFI, and so a break above this level would likely lead to a continued upward move. If that happened, he would take that as a signal to get out of the trade.

I was delighted to hear this student explain his reasoning. Second Element Of A Good Trade: Make an entry and exit plan based on the stock’s price action.

Now that this student had a plan, he just had to put it into action. SOFI once again tested resistance at Level A before moving back down to the trigger point at Level B. My student bought his puts.

…and then SOFI started to move back up toward resistance again. But did this student panic?

He did not, because he had a plan. Third Element Of A Good Trade: Once you’ve entered your trade, stick to your plan. Because he took the time to make a clear plan, this student had taken all emotions out of the equation. This student knew that SOFI would potentially test resistance again, but as long as it failed to break through, he was still in a good place. If he had panicked, he could have turned this winning trade into an early loser.

And his patience paid off! After this final test of resistance, SOFI finally turned lower and fell to Level C — and then even further — encountering short-term resistance and support along the way. 

Eventually, the student started to see a good exit point around Level D. SOFI had created a low around $11.20 before bouncing around this new resistance area. Based on the technical price action he was seeing, the student decided to make this his area his exit. Overall, he netted a 550% gain over the course of a few days.

Final Element Of A Good Trade: Let your winners run. This student didn’t take his trade off the table after it was up 50% or even 100%. He did exactly what I preach in my coaching sessions: He waited until his trend ran its course. He identified a stock with room to fall, and then gave it the space to do just that. And when he saw that the downward move indicated by SOFI’s technical price action had likely run its course, he exited for a huge win.

This systematic approach to a trade can be what sets you up for success. By setting up a plan around the basic elements we routinely drill in our trading calls for The Profit Machine, this student was able to manage his risk and let his winner run.

These are lessons you can learn the hard way or learn the easy way. By joining an ongoing conversation with traders much like yourself, you’ll be able to tap into trades like this one and be exposed to a wealth of knowledge and experience. Never trade alone again…

Author: Christian Tharp, CMT