Sunday; August 1st, 2021 - Hello everybody! Welcome to Unusual Due Diligence, a segment that covers my general end-of-day view of unusual options caught on Unusual Whales, a powerful tool that helps you analyze the live options flow and catch large trades that have the power to move the markets. We’ll take a look at my custom alert notifications and do some analysis on a few trades that catch my eye and discuss the opportunities and risks amongst each. I recently began a small account challenge, which I’ll be consistently updating you on through weekly Newsletters that go over the trades I took, why I took them, and what I’m expecting from them. Make sure you subscribe to stay updated on the market and improve your trading on a day-to-day basis! It’s completely free!
Remember: This is NOT financial advice and nothing I say or do should be replicated without doing proper due diligence. Please only invest whatever you are capable of and willing to lose.
This Newsletter’s going to be slightly different than the rest. If you follow me on Twitter, you’ll know that on Friday I started to attempt to grow a small account on Robinhood from just $100 to my goal of $25,000 - the amount needed to be able to day-trade without risk of being labeled a pattern-day trader. With an account of $25,000 or more, you have no restrictions on how many trades you can open and close within the same day, which is a critical level to reach to be able to rack in larger amounts of profit consistently on a day-to-day basis. In this Newsletter, I’ll be going over the strategy I’m using throughout this process. Remember, this is only an attempt, I just feel like it can be a fun challenge to test how much I’ve improved over the past few months. For all I know, all five of these trades may do the exact opposite of what I expect come Monday, in which case it’ll be an opportunity to fix and improve the parts of my strategy that needs improvement. I cannot stress this enough, please do your own due diligence along the way and do not replicate these trades blindly. I’d like to see if this is possible, why not give it a shot?
This strategy is going to be slightly different from what I was using in the previous Newsletter, as it’s a more safe route to go that gives me more control over my entries & exits. There are multiple tools I’ll be using to help guide me along the way:
UnusualWhales Flow Tool
My custom filter for alerts on UnusualWhales
Yes, it’s that simple. I’m not going to be using many other third-party services or indicators unless I truly do need a second or third opinion. With this strategy, I’m doing my own checking and my own technical analysis & charting, which is crucial for having more control over your account. Honestly, any account size should be trading using this method, it’s a game-changer when you learn how to read charts properly and know for yourself that a price is moving in a certain direction.
Now, there’s been a few changes I’ve made to my UW Alert Filter. First, I lowered the target contract price to be less than $100 so I’ll only be alerted on trades I can actually afford. Second, I’ve made sure to block all alerts that have an upcoming earnings date. Earnings are some of the only times where a chart will not obey its rhythm or momentum. While they can provide massive gains, they can also provide unexpected losses, which is not a risk I’m willing to take with such a small account value. The last change I made was for the expiration date to be more than two days out rather than the previous seven-day+ expiration. With this account, long-term trades are too risky and Theta-decay will eat them away. We’re going to be focusing on weekly trades to give us more control over our targets, entries, and exits. Now that we have that covered, let’s move on to the process. I’ll be using the stock $PINS as an example, I did not take this trade. This is specifically for the purpose of showing my entire process.
The very first step is to identify the trade, which is where my custom alert filter comes into play. This filters out all the unusual trades with the lowest win:lose probability by analyzing their Greeks and filtering for specific numeric values that coincide with historically accurate data provided by UnusualWhales in their 2020 Winners & Losers Report. I then created a document from this report that I used as a guide to create these filters, which provide anywhere from one to twelve alerts in a single day, which is more than enough to put a decently sized watchlist together. I have notifications set so I get alerted every time my filter triggers. Above, you can see the five alerts I was given on Friday. Just ten minutes before the end of the trading day, you can see an alert came in for $PINS which was a $63.00 Call expiring on August 6th, 2021 with an asking price of $0.41 or a contract price of $41.00.
Whenever I click on the alert, I can view a handful of data such as a chart that shows the price movement of the contract, technical information, historic volume & open interest, and even recent unusually large stock purchases or options trades. The technical information, which is shown above, is what will tell us the most about this specific alert. As we can see, since the alert (which happened only ten minutes before the end of the trading session), the contract price has grown from $0.41 to $0.54, which is a 31.71% gain. That means that within only ten minutes of that alert coming through, the price has already risen by 31.71%. This is a great sign that tells us the momentum & timing of the trade is correct. There’s high volume with low open interest, which tells us these are new positions people are opening, not old positions people are closing. This is another great sign. Now, I’d like to gather some more information about this stock before I move any further.
When we look at the $PINS ticker, we can scroll down and look at all the alerts that have occurred. Here, we can see there was a total of four alerts on Friday, two bullish and two bearish. This is a very split ratio, and we’ll need to do some more digging. There is one thing I notice right away, which is my custom alert was the only one that ended the day off with zero loss and only profit. That’s an interesting factor I want to remember, so I’ll stick a pin in it and come back to it. All of these alerts are weekly plays with an expiration of August 6th, so it looks like that’s the date we’re targeting. The two alerts with the highest volume are both bullish, which is also a factor I want to remember. Now, let’s look at the general flow for Friday’s trading day.
I had to fit a lot of information here in a single screenshot, so I’m sorry if it’s a little hard to read. Here, I set two filters when viewing the options flow. I am looking for whales that spent more than $25,000 on their trade, and I am looking for Ask-Side only. Ask-Side is always the best-side. When doing so, I can see that most whales with those specific parameters were massively bearish, especially on the strike prices of $60, $67.50, and $70 with the most popular expiration dates being 7/30, 8/06, and 1/20/22. Most trades with these parameters were puts as well. However, when looking at the very top data bar, we can see the entire flow for today without going by my specific parameters, which was actually mostly bullish. That tells us that the bullish plays are on the bid-side or right in the middle, with most of the plays of the day actually being calls rather than puts. This is very interesting and also conflicting with what we’re seeing in the alerts, and again, this requires further investigation to get a real idea of what direction this market is actually heading in.
When we get onto WeBull and pull up $PINS on the chart, there are a few things that we can see are going on here. My chart may look a little bit different from yours because I removed the graph lines from the background to keep the chart nice and clean for presentation purposes. I’ll begin by pointing out the three lines that are following the candlesticks that are light in color. The long, grey line that separates itself from the other two lines is what’s called the 200EMA (Exponential Moving Average), which is a moving average that gives you a view of the long-term momentum of the chart’s movement. If the 200EMA is above the candlesticks, the market is in a falling momentum. If the 200EMA is below the candlesticks, the market’s in a climbing momentum. The other two lines are 20EMA & 50EMA, which tells us the short-term momentum in which the chart is moving. If the lines cross upwards, the momentum is switching to an uptrend. If the lines cross downwards, the momentum is switching to a downtrend. Next, we have the indicator at the very bottom with the blue line chart called the RSI. This indicator lets us know whenever the market is either in oversold or overbought conditions. Whenever the market is oversold, there has to be substantial buying power to bring that down. Whenever the buying power is too great, the market will move into overbought conditions, in which selling power is then expected. If the blue line is above the 70.00 mark, the market is overbought. If the blue line is below the 30.00 mark, the market is oversold. Those are all we’ll be using for now, but there’s a chance we may add some more later. However, I like to keep things simple, and this should really be all you need to be successful with your entries & exits.
Now that we have everything set up, I like to start off by looking at the daily candlestick chart. This immediately brings my attention to what’s happening in the long term, which is extremely important regardless of the length of your trades. I then zoom out about as far as I can and space everything out evenly to fit my screen entirely. What do we see here? Well, we see that around March of 2020, $PINS hit a low of $10.10 per share before climbing all the way up to $89.90 by the same exact date of 2021. If you look at the EMAs, you can see that the 20 & 50 crossed upwards in May of 2020 and then crossed the 200EMA in July. We also see that at the lowest share price, the RSI became massively oversold. All indicators were correct historically, and it’s safe to say we can trust the movements of this chart. We’re able to see a large climb and then a break of trend into a period of consolidation, which is when the movement of the stock’s price stays in the same area for a substantial amount of time. Now, it’s time for us to gather even more information and map this out.
It’s important to start at the daily chart because it will give more accurate points of resistance and support compared to higher timeframes. In the chart above, you’ll now notice a bunch of grey lines and a couple of white, shaded boxes. These areas reference the strongest areas of support and resistance I was able to identify. For every point of support and resistance that stands out on the daily chart, I’ll mark it with a light, grey line. The two I shaded in a white box were just for reference to help guide you with exactly what I’m looking at. As you can see, there are multiple bounces off of these specific areas. Whenever the candlesticks keep coming back to a specific point, it’s because that is an important area on the chart. Each and every timeframe has points of resistance, but we’re looking for some of the strongest. This is why we focus on the daily candlesticks right off the bat, as it gives us the clearest perspective of what’s actually occurring within the market. If I’m being completely honest, mapping out the points of support and resistance is my favorite part of this strategy. Coming from somebody with an annoying case of OCD, this is extremely satisfying to do. It doesn’t have to be exactly perfect or precise, so don’t stress yourself out about it. Like nature, the market is messy but it all comes together in one beautiful machine.
We now have even more information about how the market’s performing than we had before. We’re able to see exactly what prices the chart seems to be most attracted to, along with some visuals on our next target areas in an uptrend or downtrend scenario. Now, we’re going to expand out one more time before expanding all the way in.
When zooming out as far as we possibly can on the weekly candlesticks, we’re able to immediately identify a downtrend at its current position, which I’ve drawn some dotted lines around to help me keep a reference on the shorter timeframes. This was easier to find than Waldo, and dammit, I love Waldo and I know you do too. This is why I zoom out one more time before zooming in - you will never know what you weren’t able to identify beforehand. We’re also able to see that the 20EMA & 50EMA are spread out in an uptrend, but looking like they’re coming closer together. Finally, we also see that the RSI is in a central position; not too oversold, not too overbought - but it is going down. Now that we were able to identify this critical piece of information, I’m feeling extremely educated on the movement of this market. We’re able to see that the market is currently in a highly rhythmic downtrend between two very specific points of reference. If I was taking a monthly trade, I’d be setting alerts above $75 and below $50. If it breaks $75, you buy the Call. if it breaks $50, you buy the Put. It’s literally as simple as that. However, I’m not taking a monthly trade or longer, so unless we’re lucky enough to catch the breakout in only a week, we have to play on the movement between the lines. Let’s zoom in.
When we zoom in, we can see all of the lines of support and resistance we previously mapped, along with the massive downtrend we mapped out on the weekly candlestick chart. Now, we repeat the previous process of identifying the trends. I marked a downtrend I was able to identify in white, where you see it break out to the upside. If you were day-trading, this would have been a great opportunity for an entry, or even if you were only looking to hold your trade for a couple of days. After the growth, you see a rejection of the 77.16 point of resistance we mapped out on the daily candlestick chart. After the rejection, it then broke the trend to the downside and went to a minor point of support that was created with the break of the previous uptrend. After breaking this minor point of support, it then went all the way down through our 65.44 point of support to finally rest at our 57.96 support line, just before hitting the bottom of our weekly candlestick trendline. There’s even some consolidation and even some divergence at the bottom where the price currently stands. Divergence is when the candlesticks are moving in one direction and the RSI is moving in the opposite direction. As you can see, the candlesticks are moving downwards in a consolidated trend, while the RSI is moving upwards from its massively oversold position. What we have here is what’s called bullish divergence, but I do want to point out that the divergence you’re seeing is actually fairly minor, as it will be more viewable on the 5min candlestick chart.
So, after all this, what am I able to conclude? Well, there are a few things here. First off, we are almost at the bottom of our trend on the weekly candlestick chart. I cannot stress the word almost enough, as it doesn’t look like we’re fully quite there just yet. However, as I stated earlier, the market is messy. It doesn’t always have to be perfect, and there’s a chance that this can actually be the start of the minor uptrend we’re expecting. The RSI is massively oversold, not just on one timeframe, but multiple. We do see that we are generally in a downtrend, so you always need to be cautious when placing Calls in this type of environment. At the current position of the price, I think it’s safe to say that I am not comfortable taking a trade just yet. There are a few things I’m looking for come Monday, so let’s take a look at them.
For the last and final step, we zoom in one final time to the 5min candlestick chart. Here, you’re able to get a clear view of this divergence at the bottom. However, the RSI on the 5min candlesticks is closer to overbought than oversold, which is slightly worrisome. As I keep saying, the market is messy and there is always a chance it will not obey. So, what exactly am I looking for then? Well, I’m looking for a change in momentum. As you can see, the current price has been slightly moving downwards before starting a very slight curl up. If I’m going to buy a Call, I’m looking for the current price to break its previous high in the recent market state. If I’m buying a Put, I’m looking for the price to break about $1 or more below its current line of support. I always will go slightly under what I’m expecting to give me a cushion if the market swings a little further than expected. So, what are the price targets? Well, my bullish target would be $65.44 at the next line of resistance, whereas my bearish target is $53.95 at its previous lowest low on the daily candlestick chart. Here, we have no line of support marked, but it wouldn’t hurt to add it because it does seem to be an important area historically. Scroll up to the daily chart to take a look at exactly what I’m talking about if you’re confused. Now, what strike price or expiration date should we choose? Well, that’s where I turn back to my custom alert notifications. If I have an alert that matches my direction, I’ll play that exact trade, even if it’s far OTM, as I’ll just be focusing more on a premium play. If I don’t have a custom alert that matches my direction, then I go into the general alerts that have recently occurred and choose a position from there. I like picking positions of alerts, as those are the same positions the whales hold. I like to follow the Whale, but that’s just me.
And that is literally it! You just did a complete walkthrough on identifying a trade with Unusual Whales and doing your own technical analysis on a stock and its underlying chart. As I said, this is purely an example and I haven’t actually taken this trade, nor am I planning on it unless I pull out of other positions due to me attempting a small account challenge. However, every single action I took analyzing this stock can be replicated on each and every alert that you may receive. Make sure you add $PINS to your watchlist so you can test yourself and see if this analysis was accurate! Remember, we never took any specific position, we set alerts that will tell us which position to take. This is the safest method to trading stocks, as you are the most confident in your trade whenever you press that button.
Alright, Apes! That is all for today! I hope you enjoyed this segment of Unusual Due Diligence, please be sure to stick around for more coming soon! This is going to be part one of this Newsletter, as I’ll be releasing another one in the next couple of days specifically about the five trades I took as the start of my small account challenge. I’ll be going over exactly why I took each of them and how they played out on Monday! Make sure you subscribe, as I’ll be keeping you all updated through these Newsletters!
I’m constantly looking for ways to improve my segments and make sure I’m giving out the most beneficial information possible. Please leave a comment and let me know how I can improve! I’d love to hear of different types of Analytics you’d like to see on a daily basis, things I’m missing, or even things that I should take out. Thank you, please let me know!
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