3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued to work through the low-level correction that began with an overnight peak, completing wave A within wave 4 of Subbitsy degree, and beginning wave B. A 4th wave correction, like its 2nd wave counterpart, has three waves internally. However, 4th waves have a stronger tendency to extend in compound pattern that result in two or three correctives waves in a row within the parent wave. No change in the analysis. I’ve updated the chart, below.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures reached a new high of 4542.25 in overnight trading and then reversed to the downside. The new high on the index, at the opening bell, was 4537.36.

What does it mean? The peak marked the end of the low level rise that began on August 27 and the beginning of a correction that I expect to take a distinctly down-trending form; the preceding correction within the rise was rather shallow, and two corrections within a movement tend to alternate in form. The correction will be followed by a further push to the upside whose completion will be followed by a larger correction.

What’s the alternative? A swift reversal to the upside would mean that the rise from last Friday is still underway and the correction still lies in the future.

What does Elliott wave theory say? The rise from August 27 is wave 3 of Subitsy degree and the subsequent decline is Subitsy wave 4, all within wave 5 of Bitsy degree. Wave 2 of Subbitsy degree, which ended on August 27, was quite shallow: A Flat formation. Under the rule of alternation within Elliott wave analysis, wave 4 correction is expected to be steeper: A Zigzag formation.

The end of Subbitsy 4 will also be the end of Bitsy 5 and will cascade up three levels of 5th waves to mark the end of wave 5 of Submicro degree. That end point will also mark the end of wave 3 of MIcro degree, which began May 19 at 4059.50, settting off a 4th wave correction.

The same rule of alternation suggests that wave 4 of Micro degree will be a shallow Flat correction, since the preceding wave 2 was a steep Zigzag.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, August 31, 2021

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued to rise until the midpoint of the trading session and then began a low-scale sideways movement. The pattern lends credence to my principal analysis of this morning: The present wave is the 3rd of Subbitsy degree, and I would consider the new sideways pattern as a 4th wave internal to Subbitsy 3. No change in the analysis. I’ve updated the chart.

9:50 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose to a new high in the minutes before the opening bell.

What does it mean? The low-level uptrend that began August 26 is still underway and is now in the middle portion of its rise. Its completion will be followed by a shallow correction and then a further rise to new heights.

What’s the alternative? It’s possible that the overnight sideways movement was the correction, and the further rise is the final portion of the uptrend from last week. It’s a question of what level we’re counting, and I discuss it further in the Elliott wave theory section, below.

What does Elliott wave theory say? The rise from August 26 is wave 5 of Bitsy degree. It’s completion will signal the end of a series of 5th waves of higher degree, up three levels to Submicro degree. The parent, wave 3 of Micro degree, began May 19 at 4059.50.

How far along is Bitsy wave 5? By my principal count, internally it is in wave 3 of Subbitsy degree, which will be followed by a 4th wave correction and then a 5th wave push to new highs.

But what to make of the sideways movement overnight? I’m treating it as a 4th wave within Subitsy wave 3, a level so low I don’t even have a name for it. Using the subscripts method, Subitsy on the chart is {-10} and the unnamed lower wave is {-11}.

It’s possible, however, that what I’m calling the Subitsy, {-10}, degree is really the nameless {-11}, and the sideways stretch overnight was a degree lower, at {-12}. And that is my alternative analysis. Time will unravel the mystery of which analysis is correct.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, August 30, 2021

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has continued to rise during the trading day, reaching 4509.25 so far on the futures, 4512.45 on the index. No change in the revised analysis. I’ve updated the uppermost of the two charts.

10:45 a.m. New York time

Revised analysis. The S&P 500 rose sharply to new highs as Federal Reserve Chairman Jerome Powell spoke about the Fed’s policies at the online-this-year Jackson Hole Symposium. The rise means that the low-level correction discussed in this morning’s analysis ended at yesterday’s low and the push to higher highs, also discussed earlier, is now underway.

The alternative analysis would treat the quick rise as a wave separating two corrective patterns in a compounds correction. With the present evidence, I can’t choose between the two. If the price quickly retreats, then the separator wave scenario will become the principal analysis.

In terms of Elliott wave analysis, yesterday’s low marked the end of wave C of Subbitsy degree within wave 4 of Bitsy degree, and the subsequent rise is wave 5 of Bitsy degree, whose whose completion will also mark the end of two 5th waves of increasingly higher degree, Minuscule and Submicro, and of their parent, wave 3 of Micro degree.

Here’s the new chart. I’ve retained the former, now out-dated chart below as reference.

10 a.m. New York time

What’s happening now? The low level correction that began August 24 on the S&P 500 E-mini futures completed its first downward wave in overnight trading and is now in its upward second wave.

What does it mean? The final wave of the three-wave pattern will be a downward movement. The end of the correction will be followed by a push to new highs.

What’s the alternative? Corrections tend to come in groups of three waves internally, although often they extend in compound patterns. So whether this three wave pattern will be the end of the correction is still an open question. If it extends, then the final wave of the first pattern will be followed by a separator wave to the upside, and then a second corrective pattern, most likely also of three waves internally.

What does Elliott wave theory say? The low overnight marked the end of wave A of Subbitsy degree within wave 4 of Bitsy degree, a correction within wave 5 of Subminuscule degree. Bitsy wave 4 will be followed by a 5th wave of the same degree, whose completion will also mark the end of two 5th waves of increasingly higher degree, Minuscule and Submicro, and of their parent, wave 3 of Micro degree. At the lowest level, Subbitsy wave B is now underway and will be followed by a downward movement, Subbitsy wave C.

The question is what will happen at the end of Subbitsy wave C. If the correction proves to be a simple three-wave pattern, then the end of C will mark the beginning of Bitsy wave 5’s journey to new highs. If the correction proves to be a compound pattern, then Subbitsy C will be followed by a separator wave, labelled X and then another corrective pattern of Subbitsy degree, most likely a Zigzag or a Flat, although a triangle of some sort is also possible

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, August 27, 2021

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 declined during the day in a pattern consistent with my alternative analysis, which has been promoted to principal analysis status. Yesterday’s high of 4498 was the peak of wave 3 of Bitsy degree, and Wave 4 of Bitsy degree is tracing a counter-trend correction. Here’s a new chart with the revised analysis.

9:45 a.m. New York time

What’s happening now? The S&P 500 E-mini futures dipped slightly and then rose in overnight trading, remaining below yesterday’s high, 4498.

What does it mean? The small decline will be followed by new highs in the final leg of the rise that began on August 19.

What’s the alternative? A sideways correction that began on August 23 is still underway, pushing off the rise to new highs until later in the future.

What does Elliott wave theory say? It’s hard to choose between the two possible scenarios. I consider them to be of equal likelihood.

Under my principal analysis, wave 5 of Bitsy degree began at yesterday’s low and is presently in a very low-level wave 2 correction internally.

Under my alternative analysis, wave 4 of Bitsy degree is still underway.

See yesterday’s S&P 500 analysis for a detailed discussion of the greater implications of both scenarios.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, August 26, 2021

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Alibaba Group Holding Ltd. (BABA)

1:40 p.m. New York time

What’s happening now? BABA dropped off from its Tuesday high, 174.15, with an opening gap this morning.

What does it mean? The price has completed a 1st wave up within an upward correction a long downtrend and is now falling in a downward correction within the upward correction.

What’s the alternative? The low of 152.80 on August 23 marked the end of a major decline, and the present upward movement is the beginning of a major uptrend that will eventually move above the October 2020 high of 319.32.

Chart note. The subscripts in the wave labels are relative to one another and are unrelated to the Elliott wave theory nomenclature of wave degrees.

What does Elliott wave theory say? By my principal count, the present decline is wave 2 {-4} within uptrending wave A {-3}, the first wave of the wave 4 {-2} upward correction that began on August 23. Fourth waves tend to be shallow, so I don’t expect a great deal of upside from this one. Wave 4 {-2} will be followed by a 5th wave of the same degree that will push the price to below 152.80, the August 23 low.

By my alternative count, the August 23 low marked the end of the correction, and the rise from August 23 is the beginning of a new wave to the upside that will eventually break above 319.32, the all-time high for BABA set on October 27, 2020

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, August 25, 2021

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 rose to a new high in trading today, 4497.25 so far on the futures, and 4501.08 on the index. The wave 4 correction of Bitsy degree has ended, and wave 5 of Bitsy degree is underway. I’ve updated the chart.

1:45 p.m. New York time

Other analysis. BABA dropped off from its Tuesday high, 174.15, with an opening gap this morning. The price has completed a 1st wave up within an upward correction a long downtrend and is now falling in a downward correction within the upward correction. I’ve posted an analysis.

9:50 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued their sideways course overnight, remaining below yesterdays high of 4492 on the futures, 4492.81 on the index.

What does it mean? The movement is a low-level correction that will be followed by a rise to new heights.

What’s the alternative? Yesterday’s high marked the end of the rise of August 19, triggering a series of completions up to the rise that began on May 19.

What does Elliott wave theory say? The sideways movement from yesterday is wave 4 of Bitsy degree, following the peak at 4492 that marked the end of Bitsy wave 3. Fourth wave corrections tend to be shallow, and this 4th wave so far is adhering to that tendency. It will be followed by wave 5 of Bitsy degree, which will break above the previous peak of 4492, with no formal limits on how high it can go. Ideally, it would hit the upper boundary of the price channel, but that’s a bit of a stretch for a wave of such a small degree.

The end of Bitsy wave 5 triggers completion of a series of 5th waves of greater degree, up three levels to Submicro degree, which in turn completes wave 3 of Micro degree, which began on May 19 at 4055.50 on the index. The ensuing wave 4 of Micro degree will be shallow correction, albeit of far more impactful size than the Bitsy-degree correction we’ve seen since yesterday.

The less likely alternative: Yesterday’s peak at 4492 was the end of wave 5 of Bitsy degree and of the parent waves discussed above, and the sideways movement is a very muddy, tentative step in what will prove to be a significant decline correcting the Minor-degree wave 3 rise that began on February 23, 2020 from 2191.86 on the index.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, August 25, 2021

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Alibaba Group Holding Ltd. (BABA)

11 a.m. New York time

Elliott wave analysis updated. I’ve updated the Elliott wave analysis with a paragraph on the internals of wave 5 {-2}. Also, I’ve updated the chart.

10:40 a.m. New York time

What’s happening now? BABA rose sharply, with an opening gap, in this morning’s trading.

What does it mean? Big picture, BABA has been in decline since October of last year and has fallen to a bit more than 20 points above the December 2018 low. On the chart, I’ve treated the subsequent decline as a correction within a long-term rise, for reasons discussed in the Elliott wave analysis section.

What’s the alternative? The decline could be understood as the beginning of a long-term downtrend. I’ve rejected that for reasons discussed in the Elliott wave analysis section.

The chart In the chart below I’ve added in a 6-day moving average, in red, to clarify the subwaves. The wave labels on the chart are relative to each other and don’t correlate with the Elliott wave-naming system.

What does Elliott wave theory say? The nature of the decline is revealed by the internal count within the three waves. If the count is 3-3-5, then it’s a correction. I read the chart as 3-3-5 and have labeled the subwaves. The count within wave B {-1} is a bit ambiguous, but under the Elliott wave rules, B waves tend to have three waves internally. So from that structure, I conclude that the decline that began October 27, 2020 is a correction within an uptrend and will be followed, eventually, with many ups and downs, by a rise to new heights.

Under my principal analysis, the rise from 2018 is still underway. The alternative would be to consider the October 2020 peak to be the end of the rise that began in 2018. For this to work, I would have to break the first wave of the decline into five subwaves. It’s possible most of the time, if I squint real hard, to make that work. In this chart, I think it’s an unlikely conclusion to draw from the evidence.

The question comes down to whether wave 5 {-2} is complete. Fifth waves tend to extend, and that might well be the case here. So there may be more downside ahead before the rise begins. The shortness of the 3rd wave within 5 {-2} is troubling, since under the rules of Elliott wave analysis, a 3rd wave cannot be the shortest wave within a trend. And indeed, wave 1 {-3} is 32.63 points long, and wave 3 {0-3} is 36.93 points long. So it’s a legitimate count within an extension, but just barely. I consider that to be a caution flag.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, August 24, 2021

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 spent the day in a narrow range, staying below the early morning high of 4992 on the futures, 4492.81 on the index. No change in the analysis. I’ve updated the chart.

Also posted. See my analysis of BABA, posted this morning.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose to 4492 in early morning trading and then pulled back slightly.

What does it mean? My principal analysis treats the peak as the end of the third wave of a five-wave uptrend that began on August 19. It will be followed by a shallow correction and then a final push to higher highs.

What’s the alternative? Equally plausible, the alternative is that the third wave is still underway and the subsequent correction lies in the futures.

What does Elliott wave theory say? Under the principal analysis, used on the chart, the overnight high marks the end of wave 3 of Bitsy degree within a series of 5th waves: In ascending order, Subminuscule, Minuscule and Submicro degrees. All of this is within wave 3 of Micro degree, which began its rise on May 19 from 4055.50

The subsequent decline begins a correction, wave 4 of Bitsy degree, which will be shallow and will be followed by Bitsy wave 5 which will attain new heights and mark the end of the 5th waves and of wave 3 of Micro degree.

Under the alternative analysis, wave 3 of Bitsy degree is still underway. That will be confirmed if the price rises above 4492 without having completed a correction of at least three waves internally.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, August 24, 2021

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 has continued its rise throughout the day, reaching highs of 4485.75 on the futures, 4489.88 on the index. No change to the recount analysis posted at noon. I’ve updated the upper chart.

1:35 p.m. New York time

My trades. I’ve exited my AMD options position for a wash and updated the entry analysis with my reasoning for doing so.

12 noon New York time

A new high forces a recount. My alternative analysis proved to be the path the market took this morning, as the price pushed to new highs, so far reaching 4482.25 on the futures and 4486.08 on the index. The new highs mean that the decline from August 16 was a correction within an ongoing uptrend, wave 3 of Micro degree.

The new count: The August 16 high was the peak of wave 3 of Subminuscule degree, the decline to August 19 was Subminuscule wave 4, and the ensuing rise from that low, which is now underway, is wave 5 of Subminuscule degree. All of this is happening within, in ascending order, wave 5 of Minuscule degree within wave 5 of Submicro degree within wave 3 of Micro degree.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to rise after trading resumed Sunday afternoon, reaching a high of 4455 shortly before midnight and then moved higher after the opening bell, reaching above 4460.

What does it mean? Under my principal analysis, an upward correction of the decline that ended August 19 is now underway. It is occurring within a larger downward correction that began from the August 16 peak of 4476.50.

What’s the alternative? If the present rise exceeds the August 16 peak, then the long rise that began on February 23, 2020 from 2191.86 on the index is still underway and the decline after August 16 was a downward correction within that large-scale uptrend.

What does Elliott wave theory say? Under my principal analysis, the August 16-19 decline is wave 1 of Subminuscule degree and the subsequent rise is Subminuscule wave 2, within in ascending order wave 1 of MInuscule degree within wave A of Submicro within wave 4 of Micro degree, a downward correction of the MIcro-degree rise that began on May 11.

Under the alternative analysis, which is triggered if the price exceeds 4476.50 on the futures and 4480.26 on the index, wave 3 of Micro degree is still underway and the fall from August 16 is a correction within that wave.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, August 23, 2021

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

I’ve added an updated shares section to the Trading Rules drop-down on the menu. Here’s what it says:

Lower Risk: Shares

Shares are considered to be lower risk than options because they can be traded without leverage and are generally have lower volatility.

On the other other hand, options positions can be positioned in a way that limits the possible loss if the price moves against the trader. Shares can drop to zero. I’ve had it happen.

The one tool that shares offer to mitigate that risk is the stop-loss; setting a price at which shares will be sold if the market price reaches that level.

I use a trailing-stop loss. For long shares, if I set a, say, 3% stop-loss, and the price of the shares rises, then the stop-loss will also rise, reamining 3% below the peak price.

I will use 3% occasionally as a very short-term insurance to limit loss, but my normal practice is to give shares room to maneuver. For that purpose, I use a 20% trailing stop. I’ve based based choice on three research papers:

Han, Yufeng and Zhou, Guofu and Zhu, Yingzi, Taming Momentum Crashes: A Simple Stop-Loss Strategy (September 24, 2016). Available at SSRN: https://ssrn.com/abstract=2407199 or http://dx.doi.org/10.2139/ssrn.2407199

Yusupov, Garib and Shorrason, Bergsveinn, Performance of Stop-Loss Rules vs. Buy-and-Hold Strategy (2009). Available at Lund University: https://www.lunduniversity.lu.se/lup/publication/1474565

Kaminski, Kathryn and Lo, Andrew W., When Do Stop-Loss Rules Stop Losses? (January 3, 2007). EFA 2007 Ljubljana Meetings Paper. Available at SSRN: https://ssrn.com/abstract=968338 or http://dx.doi.org/10.2139/ssrn.968338

By Tim Bovee, August 22, 2021, Portland, Oregon

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.