Options Trading: How the Markets Work

Options Trading Pro, John Napolitano emphasizes the importance of watching the broader market instead of just individual stocks, using top-down analysis to track market dynamics and avoid common mistakes. He explains how to use non-directional strategies like credit spreads, condors, and butterflies. Options can be used for day or swing trading. He advises viewers to manage their risk, look at the market as a whole before making decisions, and encourages them to learn more about options trading through free content, coaching, and community.

00:00:00 In this section, John discusses the importance of watching the broader market instead of just individual stocks. He explains how he uses top-down analysis to track market dynamics and avoid making common mistakes that new traders often do. John also talks about how the recent downturn in the market was caused by economic data coming out of Europe and emphasizes the importance of keeping track of global markets and emerging markets. He concludes by saying that he is taking a wait-and-see approach and monitoring how markets react to certain events.

00:05:00 In this section, John discusses how as an options trader, one can consider strategies other than going long in case of strong dollar and slumping gold. They can consider credit spreads, condors and butterflies, which are more non-directional in nature. The speaker also mentions that options can be used for day trading as well as swing trading. The viewers are encouraged to learn more about options trading and join the website and Discord channel to get access to free content, coaching, and community. John advises viewers to manage their risk, look at the market as a whole first before making decisions, and wishes them happy trading.

Hey, John Napolitano here with you this morning. How’s everybody doing? I hope you’re having a wonderful day or evening whenever you’re watching this video. Hi. Reason why I’m creating this video this morning is we had an interesting game plan meeting on Sunday e mornings. We have them, usually my students and I. We talk about what our procedures are for the week, what types of trades we’re looking at, and what type of analysis that we’re going to be doing.

My analysis is pretty much the same every single week. I do stuff being called top-down analysis, which I teach my students how to do. It’s a fairly simple process but basically it allows you to watch the markets as a whole instead of focusing on individual stocks. I think one of the main mistakes new traders make is that they build their watch list and that’s all they trade.

They look at maybe a handful of names that they’re comfortable trading. And what generally happens in a situation like that is that the market dynamics might change and the new trader might not be aware of what’s happening as a whole. They might be following the news, they might be following specific news stories.

For instance, AI is a very big topic lately, and Ev is a very top new topic as well. These are great things and these are potential things you should be watching. But one of the things you have to look at is the big picture, and that’s what I think a lot of new traders overlook. So one of the things that happened on Friday was that the market was obviously down.

We had a down week last week, which was understandable. We had a little bit of a pullback. We had eight weeks in a row. Basically where the s and p and the Nasdaq the Nasdaq was eight weeks. The s and p was five weeks in a row. That, it was up consecutively. So a pullback was pretty much long overdue.

And one of the topics that we talked about is how do we, how do we know when a pullback is over? How do we know exactly what’s going on? And so on and so forth. So I’m going to show you my screen right now. As you can see, this is just a quick chart of the s p y. We talk about this in our classes.

You had this huge big run up and then this rundown, so it looks like a pretty orderly pullback and on, and what happened interesting on Thursday. It was a little bit of a fake out, and I’ll show you what I’m talking about. If you look at Thursday, you have this huge not huge, but a decent bullish engulfing candle here.

And usually after that you might get confirmation to the upside. So we talk about candlestick charts and candlestick patterns in our classes. It’s really important to know what each one of these candles is telling you, whether they’re bullish or bearish signals. Sometimes there’s a pattern of several candles in a row that kind of tell you what’s going on, and this is stuff that we go over in our classes as well.

But basically on Friday, we did not get our confirmation that the market obviously kept on going down. And you know what happens here? This is actually just now. Monday’s pre-market candle just happened. But basically on Friday you have this down kind of candle, and the reason for it, Was basically coming out of Europe.

The US market was actually okay. The market shrugged off the meeting that Powell had in Congress and all the different things they were talking about. And what happened in Europe. There were just some nasty inflation numbers, some nasty economic data that came out, and basically it caused the markets to roll over.

So what you have to realize is that in the long term global markets are correlated with one another, and there are days, obviously when Europe is down and the US is up, or the US is up and Europe and Asia is down. But for the most part, these markets tend to be correlated over the long term. So what’s happening now is that Europe is not in as good of shape as the us.

So basically the question now is, does the US. Does Europe bring the US down or does the US bring Europe up? And that’s the push and pull that’s going on right now. So you have to be aware of this as a trader. You don’t necessarily have to trade Europe or trade Asia, but you should be aware of what’s going on overseas and in emerging markets.

What I’m showing you right now we’re going to get into this down here. If you have this is basically the v vk, V G K, it’s the Vanguard European etf. I look at this basically to let me know how Europe’s doing. So I look at a lot of different ETFs and this is part of my top down analysis. I will look at emerging market ETFs.

I will look at Asian ETFs as well as Europe. And as you can see, it is not doing very well. It’s the bottom of its Bollinger Band here. It had a really nasty gap on Friday. Due to the economic numbers that I was mentioning to you guys, and that is what dragged down the market. So overall, I’m waiting and seeing for this week.

I want to see if, like I said, the US can bring the European markets higher or vice versa with the strong dollar and with gold slumping. I have my reservations. So as an options trader, if you have those types of reservations, There are strategies you can do without just sitting on your hands and doing nothing.

Going long is only one of many options you can do as an options trader, there’s credit spreads, which we did a whole ton of them in our classes last week and in my Discord channel. There are other things you can do as well, like condors and butterflies, which are more non-directional in nature. So if you’re curious about how to use options, you could actually trade options alongside stocks, which a lot of people do.

Options are, you could use them for day trading as well as swing trading. If you have any interest in learning about this stuff, spend some more time with us. Our videos are very informative. Please subscribe to this channel. If you want to learn little tidbits and how to look at certain things from time to time on our website, top trading pros.com, we have a ton of free content that you could look through and get to know our system.

What’s the most important thing is obviously the coaching and the community. Those are the things that you really need as a new trader in order to be successful. So please join us. Please become part of us. Check out our website if you want to take some classes and learn more about this. That’s available there for you as well.

Okay, so I hope you guys enjoy the rest of your day. Remember Happy trading, be careful out there and make sure you manage your risk. Make sure you look at the market as a whole first and foremost before you start making decisions. So enjoy their day, everybody. Take care.

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