Trading below the 200D MA

B

Bodrey

I know this rule isn't set in stone, but I've read that in most instances it's not advisable to place bullish trades on stocks currently trading below their 200D MA.

What about a situation such as the following:

AMZN has been trading below its 200D MA since Sept 19. In addition, over the last 5 consecutive trading days it has dropped about 8%. It closed on Friday less than $1 up from its 1-Month low (and then rose slightly post-market close). It seems like now might be a good time to place a Put Credit Spread on it.

I'd like to get the opinion of some experienced Options traders what they think. TIA
 
Regarding to your question 200 MA question:
Yes, most people generally regard a stock below 200 MA to be bearish, but I think you made a typo and meant 50 MA, right? Look at the chart. (I make typos all the time)

Anyway, stocks under 50 MA is also bit of a red flag, but I would not base any trades on moving averages.


Regarding to your put credit spread question:
When experienced option traders construct spreads, they take into account many variables, and they’re also thinking few steps ahead. I don’t think you’re ready for options yet, you need to continue to study and practice.


On a side note, I don’t think that you’re not ready to trade even stocks live yet, I think you should:

  1. Stop trading for time being (it will save you money)

  2. Design your own trading system so that you know exactly when to enter and exit trades (based on your own backtested expectancy).

  3. Learn how to setup option spreads (options are very deceptive, you can be right on direction and still lose money, while experienced option traders might be wrong on direction and still make money)
Right now what you seem to be doing is more less gambling rather than trading. You really need to be on top of things.

 
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Might be good for a short term pop, but I expect overall equity markets to move lower.

Here's AMZN daily chart with 50 (Cyan) and 200 (Magenta) SMA's (as PPC mentioned, you must of meant below 50) with TD Pressure (range/volume measurement) @ 0.00. Note it has been pegged there last 3 trading days, also last two times it bottomed 3/10/23 and 3/28/23 there were multi-day reactions. Then TD ROC, also near the low end of the range. Finally on the bottom an indicator called ValueCharts, which is objective valuation based on recent price history - it is also near the low end of the range. All pointing to possible reversal soon. But if I were to look to enter a long trade I would first wait for a up close, preferably above the previous close, better yet the previous bars high.

! AMZN.png
 
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I'Ve bought plenty of ETFs below 200 dma; \
but inverse like PSQ etc= for ALL PRACTICAL purposes means QQQ is above 200dma, when i did that. SO no, for good probabilities .
Adding any leverage most likely makes it worse + worse.
Exceptions would -could be [ dont gamble=stupid risk], cash markets , cash private markets, that I'm in for years .
I would not mind making money off a mistake but i wouldn't not keep attempting to make money off my mistakes+ AMZN is above 200dma , but QQQ is to early for me to buy.
 
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