"Most traders spend more time trying to find playable setups then actually planning tham." Nate Bear, Lead Technical Tactician, Monument Traders Alliance Unlike most people, I'm not waiting for the Fed announcement to start looking for trades… …but I can't ignore its potential impact either. Take Vertiv Holdings (VRT) for example. This stock has been an absolute monster stock lately. In the past two weeks, it's jumped 26% …more than 5x the Nasdaq 100. I used that strength to knock out some killer trades in the LIVE ROOM last week. So, I was pretty excited when it popped up on my scanner S.A.M. AI-Powered Trading Scanner for the second week in a row. But if I wanted to play this setup, I needed to make some adjustments to my trading plan. Most of you probably assume that means cutting your position size. And while that's a big part of it, there are other key changes I made that anyone trading this week should consider. Assessing the Risk Before I can make any adjustments, I need to get an idea of what I might expect this week. That doesn't mean trying to guess where the Fed might send markets. Rather, I want to clearly define my setup for the stock. So, let's take a look at the 30-minute chart which is where S.A.M. AI-Powered Trading picked up on the latest trade. This chart gives us a clean look at an A+ Setup. Listing all the components, we've got: - Strong upward TREND
- Clear consolidation PATTERN
- A SQUEEZE indicated at the bottom with the dots turning red
- A STACK of the exponential moving averages with the 8 on top of the 21, which is on top of the 55.
You can also see the momentum shifting higher down at the bottom where the bars coming out of the squeeze indicator are light blue and increasing in size. Taken together, this tells me there is a lot of buying momentum behind this stock. With the pattern defined, and the moving averages marked, we can assess where a potential profit target might be. To do that, I create a 127% extension from the range. Using the high and the low, I draw the extension using the Fibonacci tool, and arrive at $96.29. For my stop out area, I'm looking at the lower end of the pattern or the lower Bollinger Band. In this chart they're close enough together that it's basically the same thing, around $92.75. Now that I have my parameters set up, I can assess my risk and trade potential. Typically, I like to enter a trade between the 8 and 21 EMA, which is what I did, putting the stock at roughly $94. If I took straight shares, my risk and reward would be: - Risk = $94 - $92.75 = $1.25
- Reward = $96.29 - $94 = $2.29
This gives me a nice setup with almost 2x the potential reward as the risk. With that in mind, I can now structure the trade. Crafting the Play This trade is built off the 30-minute chart. That means it should finish within days, not weeks, which makes Friday expirations this week or next week ideal. Sooner expirations come with more volatility, but the cost is less. So, how do I decide how many contracts to purchase? Here's an easy way to think about it. Let's say on a normal trade I'm willing to lose $1,000. Since this one comes with more risk from the Fed, I'd cut that in half to $500. I'd split that $100 towards this week's expiration and $400 towards next week's expiration. Both of these trades are riskier than normal. However, the expirations for this Friday are going to pay out big or be worth nothing. The ones for next Friday will probably still have some value. So, I adjust for the risk of the overall setup first. Then I split the amount I'm willing to lose amongst the expirations accordingly. For the expirations this Friday, I'd buy as many contracts as $100 would get me (or close to it). For next week's expirations, I'd have to figure out how much value might be left at the end of this week if the stock were to fail. You can use the calculators on your broker's platform for this or just ballpark it at 20%. Assuming I'd be able to recapture 20% of the value, I'd purchase $400 / 80% = $500 worth of options. Making these adjustments allows me to cap my potential losses at an estimated $500 while participating in the upside. | 
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