Be sure to identify and mark on your chart all gaps, bumps, pressure points and ABC lines, which may influence price movement, and refer to the lessons on each. This will be very rewarding psychologically when you “see” the market play out as you expect it to.
Identify the target line before taking a trade. This will enable you to place a calibrated trailing stop, which will be lifted at the target line.
SPY weekly options. This relatively new instrument has drained volume from the ES (e-mini S&P) and particularly the big S&P, and for good reason! These options offer a sophisticated market timer (that’s us) enormous leverage and with known, minimal risk. It is not complicated. Either chart the ES or SPY for the wave analysis and then simply buy the put or call that would appreciate on a move that you may be forecasting.
When trading SPY weekly options on a Friday pay particular attention to very small time frames. Follow the rules for how to determine the proper time frame, but start on a 5-minute or smaller. Be sure that the wave is well-structured. You will see how a seemingly small wave can generate an enormous profit in options when there are only hours to expiration, and you know the target line.
How to determine the size of a trailing stop. For a stop to effective, that is, not getting stopped out prematurely; one must know the target line. Draw the potential wave. Approximate an entry point. Measure the potential points to the target line. Place a 1/3 trailing stop to the target line. Exit at target line OCO. (A 1/3 trailing stop may seem generous but it is less likely to get stopped out as a price in motion usually oscillates in the top 1/3 of predicted range, until resistance is encountered. In this case the resistance would be the target line. Exit: OCO.)
Incremental stops. Often the target line is a substantial distance away and one may not want to have such a large trailing stop. A good idea would be to identify potential “pausing” points along the way to the target line where the price may encounter resistance/support. (Bumps, gaps, new pressure points etc.) Re-measure to these points and place your 1/3 trailing stop. Exit at the “pause” target OCO (One order Cancels Other). Often one will get another chance at this to the next “pause” point and usually at a better price.
In addition to using the ABC lines to approximate the “sweet zone” try reverse engineering “pressure points.” This can also be helpful in approximating any new high/low.