The Exact Bullish Trigger in Amazon, Even During a Bear Market
Amazon (NASDAQ:AMZN) : The Exact Bullish Trigger, Even During a Bear Market
Date Published: 2019-01-04
Disclaimer
The results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.Preface
Recently we wrote on The Exact Bearish Trigger in Nvidia. Today we look at the other side for Amazon.There is a technical set up such that it triggers bullish times to trade Amazon, even in a bear market, that has shown triple digit returns during the bear market of late 2018, the Great Recession, and the bull market in between those times.
While the technical requirements for this trigger are not met yet, you can set an alert in Trade Machine so when it becomes you active, you are made aware. In other words, rather than staring at the screen, we let Trade Machine do the work for us.
The Short-term Bullish Option Trade in Amazon
We will examine the outcome of going long an out-of-the-money (40 delta) call, in options that are the closest to 30-days from expiration. But we follow three rules:* Never Trade Earnings
Let's not worry about stock direction or earnings, let's try to find a back-test that benefits from volatility. Here it is, first, we enter the long call.
* Use a technical trigger to start the trade, if and only if these specific items are met. As of this writing, 1-4-2019, the conditions are not yet satisfied.
Wait until the day that the stock price crosses above the 10-day moving average and the 50-day moving average (DMA) is above the 200-DMA and the 21-DMA is above the 50-DMA. Those last two requirements are sometimes called "stacked moving averages." Here is a nice simple image of the technical requirement:
* Finally, we set a very specific type of limit:
* Use a 30% limit
* Close the trade after 20 days, if the limit has not been hit.
At the end of each day, the back-tester checks to see if the long call is up 30%. If it is, it closes the position. If after 20-days the limit has not been hit, the call is closed so not to suffer total time decay.
RESULTS
Here are the results over the last three-years in Amazon:| AMZN: Long 40 Delta call | |||
| % Wins: | 69.6% | ||
| Wins: 16 | Losses: 7 | ||
| % Return: | 612% | ||
Tap Here to See the Back-test
The mechanics of the TradeMachine® Stock Option Backtester are that it uses end of day prices for every back-test entry and exit (every trigger).
Setting Expectations
While this strategy had an overall return of 612%, the trade details keep us in bounds with expectations:➡ The average percent return per trade was 22.1%.
Checking the Moving Average
You can check moving averages for AMZN on the Pivot Points tab on www.CMLviz.com.Back-testing More Time Periods in Amazon
Now we can look at two bear markets. First, We check the six-months from 2018-07-01 through 2019-12-31. AMZN stock was down 12.5% during that time period.| AMZN: Long 40 Delta call | |||
| % Wins: | 75% | ||
| Wins: 3 | Losses: 1 | ||
| % Return: | 93.3% | ||
Tap Here to See the Back-test
In a period where AMZN stock saw a negative 12.5% return, this bullish trigger saw a 93.3% positive return. Here is a chart of the option strategy (in blue) and the stock price (in gray):
Notice how the trigger is 'silent' for a period of time, and active when appropriate. That's exactly the goal.
And finally we can look at the period from 2007-09-30 through 2009-04-01, which was the worst part of the Great Recession and AMZN stock was down 21.4%.
| AMZN: Long 40 Delta call | |||
| % Wins: | 67% | ||
| Wins: 2 | Losses: 1 | ||
| % Return: | 81.1% | ||
Tap Here to See the Back-test
In a period where AMZN stock was down 21.4%, this bullish trigger saw a 81.1% positive return.
WHAT HAPPENED
Trade Machine gives you the capacity to trade beyond luck, with stock or options, with and without technical triggers. Use science and empirical results.Tap here to see it for yourself
Risk Disclosure
You should read the Characteristics and Risks of Standardized Options.
Past performance is not an indication of future results.
Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment.
Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.
Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.