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The Vat Setup For Stock And Option Trading

Jan 10, 2008
The VAT setup was designed to take advantage of explosive moves that change and/or accelerate the trend in a stock's price action that can be exploited with online stock trading and stock option trading. This technique was inspired by a similar method detailed in Victor Sperandeo's work as written in his book, "Trader Vic II: Principles of Professional Speculation". The VAT setup can be implemented with either the stock itself or stock options depending on your preference. To use the setup for stock trading or stock option trading you will need to be able to determine whether the market is in a confirmed rally, to select the stocks with strong fundamentals and price action, have access to stock charts, know how to draw a trendline, utilize Bollinger Bands, spot gaps or laps in a stock's price action, and have a trading plan once a trade is entered.

To confirm a rally in the general market I use a method developed by William O'Neil, author of the book "How to Make Money in Stocks". When the market shows a rally equal or greater than one percent of that particular index with greater volume than the previous trading day then that marks Point 1 or Ground Zero as I call it. Once that occurs then ideally you want to see the same type of rally again at one percent or greater on higher volume than the previous day within 4 trading days. This day is the Follow Thru Day or FTD, and confirms the market is set to rally.

You must then have a list of stocks that are high in price volatility as well as possess strong earnings along with low debt. For online stock and option trading, you will watch these stocks daily on your stock charts to review their performance while watching for certain types of price patterns which I will detail later. On your charts, you must have a technical indicator called Bollinger Bands on the screen. These bands measure the fluctuation of volatility in a stock's price action. If the bands are expanding then that shows that price is accelerating in a particular direction. If the bands are constricting or the ends of the bands are turning outward then it indicates low volatility as price action becomes constricted.

By developing this list, you can watch for any explosive price action in any of the stocks that is bullish which results in a gap in price or a lap in price. A gap results when a stock opens higher than the previous day's high but still within the previous day's high of that day while a lap (which is the most powerful pattern of the two, in my opinion) results in a opening above the previous day's high of the day and never comes down within that previous day's price action. Once a gap or lap occurs, it must break an established downward or flat trendline on the stock as well as reach the upper Bollinger Band. This shows that there has been a strong price reversal and momentum is showing.

The VAT setup presents the opportunity for stock and option traders to make explosive gains several times a year. I recently made portfolio adjusted gain of 75% off of Apple Computer and a 100% plus gain on Blue Nile in 2007 using this trade setup. In past years, Google, Goldman Sachs, Chicago Mercantile Exchange, and many others have resulted in huge gains for myself and other online stock and option traders. Spend some time mastering the fundamentals in this article and you can reap huge rewards with trading with this powerful method.

This is a powerful method of getting in early on stocks that are fixing to make huge bull runs in price and, with practice, you can become an expert in trading them as well as profitable. These moves are explosive and make accelerated gains in a short time that can be exploited with a proper trade management as well as make huge gains making intelligent use of stock options. Take the time to build a "hit list" of high performing stocks and watch for these types of trades and you will be rewarded.
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Discover more stock and option trading methods and how to profit today's markets with online stock and option trading
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