A lot of people have been talking about a short term “tax strategy”. This article is to describe this strategy in details.
At the end of the year, a lot of traders want to sell their stock positions that have not gained them any profits this year. They want to declare the loss on their taxes. Most of this selling occurs around the option expiration Friday of December. Therefore, this Monday is critical because it is the first trading day after the Friday. For this strategy, you are looking for a sell off on the instrument to a point it is oversold. Since the instrument is oversold, people expect a short term bounce upward (pull back). The upward movement is typically lasts for about 1 to 2 months.
Here is the basic scanning criteria for the stocks:
1. Stock was trading on the Friday of December Option expiration around the 52 week low.
2. The difference between the 52 week high and the 52 week low is 25% or higher. Varies companies vary this parameter. Some are looking for 50% or higher.
3. The instrument is over sold the daily time frame (optional)
4. Daily Volume 50,000 or higher (optional)
5. A certain Market Cap (optional)
6. Dividend (optional)
Some people will add a technical analysis components to filter the list future.
Below is the unfiltered list for 2014.
If you are using Ichimoku, you want to see if these stocks are on a higher time frame support. If they are, then you would look for a bullish setup on a day trading or swing trading time frame to enter.
Click on the File to View the List for 2014: EII_Tax_Stocks_2014
If you would like to learn how to trade like an institutional trader or learn more about our multi-timeframe email alerts, go to www.ichimokutrade.com or email us at info@eiicapital.com
EDUCATIONAL USE. Commodity Futures Trading Commission, Forex, Futures, Equity and Options Trading has large potential rewards, but also has large potential risk and may not be suitable for everyone. You must be aware of the risks and be willing to accept them in order to invest in these markets. Do not trade with money you can not afford to lose. This is neither a solicitation nor an offer to Buy/Sell. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this document. The past performance of any trading system or methodology is not necessarily indicative of future results. All information provided on the Blog is for educational purpose.
