Preparation is Key to Success

03/12/2014 9:58 am EST


Gregory Harmon, CMT

Founder and President, Dragonfly Capital Management

Technician Greg Harmon of Dragonfly Capital shares the process he goes through to identify opportunities in the markets every week.

SPEAKER:  I am here talking with Greg Harmon about options.  Hi Greg.

GREG HARMON:  Hi, how are you doing?

SPEAKER:  Your book comes out tomorrow, Trading Options.  Why did you write the book?

GREG HARMON:  Well it is actually an extension of the process that I have been putting in place over the last five years since I started moving into social media.  I think that technical trading is the only way to trade.  Fundamentals are good to know, but that technicals are important for trading.  I have taken that a step further in moving into the options world as well.  I took the book, I wrote it in four parts and I am a top down technician.   The first part is about identifying the trend, because 60%, 70% or more percent of stocks move with the trends, so it is important to know that before you get started looking for individual securities to trade.  The second part is about how I identify those securities and I use a myriad of different technical analysis, classical, I use patterns, I use Japanese candlesticks, Fibonacci’s, harmonic patterns, you name it, indicators and everything that works.  Then the third part of the book is where it gets into more of what an options trader or someone who wants to get into options trading is looking at.  You start out with some basic, what is a put, what is a call, how do they work and then combine that and I have detailed 13 different strategies in there about straddles, calendars, butterflies and everything that has a cool name, but you do not understand until you start to break it down into little pieces.  Then the final part of the book is really, I think, one of the most important parts and it is about executing, how do you create a plan, stick to the plan, when do you execute, how do you adjust, how do you position size and proper risk management. 

SPEAKER:  You talked about process and that interests me a great deal, process as opposed to a strategy.  Do you have a daily process that you work through in your own trading career?

GREG HARMON:  Yeah, this book is my daily process.  I look through, on a more extensive basis every weekend I go through a thousand charts looking at this process starting with the macro perspective.  I look at the big indexes to spy the NASDAQ, the Russell and what can influence them, such as things like gold, oil, bonds, dollar and things like that, foreign markets.  Therefore, that is every week I am doing that.  Every day I am then following up in these indices to see how they may have changed and how my view might change.  Looking at then a thousand individual charts to determine 10 or 15 that I am going to focus on for the week based on their technical setup.

SPEAKER:  How long does the process take you and what happens if, in the midst of that process, you come out with a ton of ideas?

GREG HARMON:  Yeah and that happens a lot.  We are in a raging bull market.  If you take a look at, we are talking today, February 17, if you look about a week ago when the market bottomed and started moving back up, there were a ton of setups.  There were probably 100 stocks that could have been traded that week.  I like to try and diversify what I am looking at, so I look at the nine sectors that I use the i shares sector indices and try and pick two or three in each index so that I have some diversification if there is a shift in the focus of the indices along the way. 

SPEAKER:  Well, it is awesome information and a focus on processes, a critical component of trader success.  I really appreciate you talking.  Thanks Greg.  You are watching the Money Video Network.

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