December 26, 2024 | Read Online

Don Kaufman here.

If you've ever wondered why markets seem to hit invisible walls on some days and explode through them on others, the answer lies in Expected Moves.

Whether you're trading Tesla's wild momentum, navigating the S&P 500, or just trying to make sense of this volatile market, understanding Expected Moves is your key to trading smarter, not harder.

Today's session was a classic example of how Expected Moves shape the market.

SPX hovered near its upper edge, Tesla pulled back after its monster rally, and volatility surged.

These weren't random moves—they were part of a larger, predictable framework.

What Are Expected Moves, and Why Should You Care?

Expected Moves are the market's way of setting boundaries. Derived from options pricing, they tell you the range in which a stock or index is likely to trade over a specific period.

For example, the SPX had an Expected Move of about 26 points today. This means the market was pricing in a 68% probability that the S&P 500 would stay within 26 points up or down from its opening price.

Why should you care?

Because Expected Moves aren't just numbers—they're roadmaps. They show you where the market is likely to gravitate and where the real action begins if those levels are breached.

Today's Case Study:

The SPX started the day near its upper Expected Move of 60.32.
Tesla came off its highs but stayed within its weekly Expected Move after a $60 rally earlier this week.

Volatility surged, but the market respected its Expected Move levels, hinting at indecision rather than full-blown panic.

How to Use Expected Moves in Your Trading

Want to stop chasing trades and start anticipating them? Here's how you can leverage Expected Moves:

1. Start Every Day by Checking Expected Moves

Before you place a single trade, know the Expected Move for the S&P 500, Nasdaq, or any stock you're watching.

It's the baseline for understanding market behavior.

Example: Today, the SPX had a $26 Expected Move.

As the market approached the upper edge, traders began to take profits, and momentum slowed.

Click here to learn how you can get my Auto Expected Move indicator.

2. Watch for Breaches

When the market breaks above or below an Expected Move, volatility often accelerates. These breaches are where traders can find opportunities to ride momentum or fade exhaustion.

Example: Tesla's rally earlier this week pushed above its Expected Move, signaling momentum that carried the stock $60 higher.

Today, it pulled back, but only to settle near its weekly Expected Move—a sign the rally might still have legs.

3. Use Expected Moves to Structure Trades

Expected Moves help you pick the right strategies.

Neutral Market: Use butterflies or iron condors, betting the market stays within its Expected Move.
Trending Market: Place directional trades targeting the edge of the Expected Move.
Breakout Market: Position yourself for increased volatility if the move is breached.

4. Combine Expected Moves with Volume and Volatility

A rally that stops near the Expected Move on light volume is often a sign of exhaustion. Conversely, a breach on heavy volume with rising implied volatility is a signal of further action ahead.

Today's Expected Move Insights

Let's talk specifics from today's session:

SPX: The market opened near the upper Expected Move of 60.32. Despite some early volatility, it respected these levels, signaling indecision rather than trend continuation.
Tesla: After breaching its Expected Move earlier this week, Tesla settled near the upper edge today. This kind of behavior is a classic example of how stocks often gravitate back toward their Expected Move after extreme moves.
Volatility: The VIX and 9-day VIX rose sharply, a sign that traders are bracing for larger moves ahead. However, the SPX staying near its Expected Move suggests this volatility is more anticipatory than reactive—for now.

Why Expected Moves Are Essential for Every Trader

Here's the truth: trading without understanding Expected Moves is like driving without a GPS.

They help you set realistic profit and loss targets.
They show you where institutional money is likely to defend or attack.
And most importantly, they keep you from overreacting to market noise.

Today's light volume in the S&Ps—meant the moves we saw were rotation-driven, not conviction-driven.

When the market respects its Expected Move levels, it's a signal to stay patient and wait for the next breach or bounce.

The Big Take

Expected Moves are the market's cheat code.

They define the boundaries of normal behavior and highlight when the market is ready to break out of its shell.

If you take one thing away from this, let it be this: the market isn't random—it's predictable within the framework of Expected Moves.

Stop chasing trades. Start anticipating them. Learn to read Expected Moves, and you'll trade with confidence, clarity, and an edge.

For just $7, you can unlock 30 days of TheoTrade—the strategies, the tools, and the support you need to master concepts like Expected Moves.

Click here to start trading with purpose today.

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