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Granting Profitable Trades Daily - Trade Genie

https://tradegenie.com - Empowering Your Success Daily: Our commitment to delivering profitable trades daily sets us apart. With a deep understanding of the markets, we provide you with consistent opportunities to capitalize on. Join us to experience a trading journey where success is a constant, and profits are granted every day.

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Granting Profitable Trades Daily - Trade Genie

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  1. TradeGenie.com

  2. TradeGenie Granting ProfitableTradesDaily Contents . . . . . . . . 03 06 Swing TradingStrategy. . . . . . . . . . . . . .09 .10 . . . . . . . . . AboutTradeGenie. MeetOurFounder-NosheeKhan. . . . EarningsPlayStrategy. . . . . . . . . . . . . Indexes, ETF and Ultra Short Trading Understanding Position Sizing Part 1 Understanding Position Sizing Part 2 PositionSizingHow much isenough? . . . . . . . . .. 12 . . . . . . . . .14 . . . . . . . . .17 . . . . . . . . .20 DollarCostAveraging. . . . . . . . . . . . . .22 UnderstandingTargets. . . . . . . . . . . . . .26 ImportanceofRedTarget. . . . . . . . . . . . .28 ExecutingtheTrade. . . . . . . . . . . . . . .30 BeatingtheMarketMakerviaShoworFillRule. . . . . .32 UptickandUpbidRule. . . . . . . . . . . . . .35 ToChaseorNotToChase. . . . . . . . . . . . .36 .38 .39 .44 .48 .49 .50 .52 .59 .62 .65 .69 Eliminating Greed through Conditional Order..... ProtectingYourCapitalviaStopPrice. . . . . . . . UnderstandingExpectancy.. . . . . . . . . . . Exiting theTrade. . . . . . . . . . . . . . . GeneralGuidelinesonSellingYourContracts. . . . . . KeepingtheTradingJournal. . . . . HowITradeGaps . . . . . . . . . . . . . . . . . . . . How I Trade Breakouts . . . . . . . . . . . . . How I Trade Opening Range Breakout........ ImportanceofVolume. . . . . . . . . . . . . LifeCycleofaStock.. . . . . . . . . . . . . 2 MoneyMarketMastery TradeGenie.com

  3. TradeGenieOptionsTradingStrategies About TradeGenie Our Master Trader, Mr. Noshee Khan, has an extensive background inprogramming,systems analysis,softwaredesign,and implementation. Healso holds anMBAinfinance. In hiscapacityasanenterprisesoftwareconsultant fortheGerman multinationalsoftwarecorporationSAP,Nosheespecializedinthe implementation of business processes for many Fortune 500 companies includingIntelandAppliedMaterials. “AlthoughI enjoyedmywork, all thesepositionsofgreatresponsibilitydid notreally satisfymeenoughin termsofarewarding lifestyle, oratruesense ofaccomplishment.” In 2003 Noshee developed an interest in trading and the latest software being usedin thebrokerages. He soon found himself immersed in the subject andexchanginginformationwiththeleadingindustryexperts throughtheearlyonlinetradingforums. Nosheesoondiscovered thattheanalyticalskillsfrom hisdayjob transferred perfectlytounderstandingandpredicting theintricacies of thestockmarket. “I quickly startedtomakewinning tradesconsistentlyandaftersevenyears oflearning,I wasabletoquit my$120 perhourjob,startacareerin trading,andbeginmydreamlifestyleoftradingforaliving” Beforelong, friendsandfamily startedasking Nosheefortrading tips, andtheirfriendssoonfollowed. “In 2010 I foundedTrade Genietohelpothertraders,aswellasoffering subscription servicesfor mydaily stocksand optionstradealerts. I nowlook forward to each day with great anticipation and excitement, I have found my calling.” MoneyMarketMastery 3

  4. TradeGenieOptionsTradingStrategies Overthepastdecade,tensofthousandsofindividualtradersand investorshavejoined Trade Genie’s subscription servicesand stayedwith usduetothecontinualoverallsuccessofthetradesNosheerecommends. “I takegreatpride in offering apremium servicetoour subscribers byreplying toanyquestionsclientshave,personally.” Nosheeispassionateabouttradingandhisnearlytwodecadesof knowledge andexperiencepositionhimtobeoneofthemost knowledgeable andsuccessfultradersin theUS today.Nosheedoesnot tradebecauseheneedsto,hetradesbecauseitishispassionand enjoyment. “The reason I started Trade Genie wasthat I realized that there is no greater satisfactionthanhelpingotherstoachievetheirfinancial securityandtheir owngreatestdreams.” Eachday beforethemarketopens, Nosheeperformsapsychological workout,developedoveryearsinassociation withkeymentors,ashe preparesfortheopportunitiesofthedayahead. During trading hours, heanalyzesthe marketsand tradesfor his account andprovidesthe trading alertsfor ourmembers.After themarketcloses Nosheegoesthroughadebriefingprocess,reviewingthemarketsashe prepareshimselfforthenextday. AttheweekendNosheeprepareshisteachingmaterialsforthe‘free’ coachingwebinarsofferedwithallTradeGeniememberships. Between times, Noshee compiles our newsletter which is full of pertinent marketinformation,commentsonthepreviousday’stradesaswellas masterfultipsandinsightstohelpyouelevateyourtradingskills. “I realized thatall myyears ofexperienceanalyzing themarketstofind the righttradestoexecutewassomuchmorerewardingwhenI sharedmy knowledgewithotherswhodon’thavethetimeto dotheanalysisorthe experiencetotradesuccessfullythemselves.” TradeGenie.com 4 MoneyMarketMastery

  5. TradeGenieOptionsTradingStrategies At TradeGenie, weofferanelevatedlevelofservice,keepingintouch withyouthroughout thetradeif thesituationchangessoyoucanmake themostofopportunitiesastheyarise.Our tradesarehand-pickedin real-timeafteranalyzingthetradeopportunitiesthoroughly withrespect totheriskandrewardratio. We provideourmemberswiththeexactbuypricealongwithmultiple exit targetpriceswhich allowyou to assessthe relativerisksof eachin an easyto understandway.We then keepyouupdatedthroughout thetrade if these exit targets can be adjusted to your advantage while the trade is in play. Wegive youprecisetrademanagementstrategiesandguidancealong withthetradealertsthatrequireit.Allmembershipscome withour ‘TradingSystems’guidebookand‘OptionsTradingStrategies’manual. These guides outline the recommended steps to take in order to maximize gains andminimizelosses, andassuchareessentialtradesecretswithin themselves. Our tradingstatisticsareliveonourhomepagewhereyoucanseeour win rates, averagepercentagegain, and loss, aswellasthe averagetime it takestoclosethetrades.Itgoeswithoutsayingthatthese resultsare excellent,andnaturally,thededicatedtraderwhojudiciouslyselects tradesbasedonfocusedanalysis,caneasilymultiplytheaverage percentagegainmanyfold. However, it isourlevelof support, transparency, in-tradeguidance, free coachingwebinars,newsletter, andourmarketstrendandstrength reports,thatreallytaketheweightoff yourshouldersandgive youthe knowledgeandconfidenceyourequiretotradesuccessfullylikeapro. Take alook atour testimonials pageandseewhatourclients say, then try usandseeforyourselfwhyweareundoubtedlythebeststock options advisoryserviceavailableintheUStoday. Welookforwardtowelcomingyouintoourcommunityoffinancially successfulindividuals,growing their portfoliosandprofits.whileliving theirdreamsandenjoyinglifetothefullest. TradeGenie.com 4 MoneyMarketMastery

  6. TradeGenieOptionsTradingStrategies MeetOurFounder NosheeKhan • InMarch2010Ilivedinanordinaryworld: • WorkingasaITConsultant:Check. • Dealing with the earlymorning commute:Check. • Constantlyreportingtomyboss:Check. • Feelingasifthedailyroutinewassuckingthe life outofmy body:Check. • Hereismystory • I worked at an IT consulting job. So, I wasdoing the typical consulting workroutine.I’dgetupearly tomakethemorningcommute,run around all day helping clients, and attend long meetings. It was a stressful and unhealthy lifestyle. Whenever When I got any breaks, I would grab somethingquickandcalorie-filledatMcDonald’sanddrink waytoo much coffee to keep my energy up. Once the day finally ended, I’d leave work at 6 pm, grab something again from afast-food restaurant because traffic would back-up and I wouldn’t get home until 8 pm. Then I would crawlintobedwithoutspendingtimewithmynewwife. • Itwasdefinitelyatryinglifestyle.I reachedmybreakingpointin March of 2010 whenI wastold I wasbeing laid off. At thatmoment, everythingin mylifecametoascreechinghalt.I hadnomoney comingin.Yetgetting backintotheproverbialratracewas disheartening. • I could find another consulting job where I would just become miserable again and not spend any time with my wife. And then, whatabout the futurewhenkids becameapartof ourlives?I didn’t lookforwardto barely seeing them day in and day out if I went back to IT consulting. I wouldmissseeing themofffromschoolorpickingthemupinthe afternoons.I wouldn’tbethereforschoolconcertsortosingholiday songsorattendDad’s Donuts Days. They would growup neverreally knowing who the man was that would rush out the door in the mornings andwhatparthehadintheirlives. TradeGenie.com 4 MoneyMarketMastery

  7. TradeGenieOptionsTradingStrategies “Whatawasteoflife!”Iaskedmyself.“WhyamIworkingsohard? Forwhom?” I wanted to reclaim my dignity. I wanted to provide my wife with a happy life and providemy futurechildren with theDad thattheydeservedto know. I wanted to feel the inner satisfaction of helping others while being myownboss.I wantedtoenjoyeverythingthatI hadmissedouton before,suchastraveling aroundtheworld andworking atanylocation whilechoosingthehoursIwantedtoputinatthejob. WhileIhadthat constantfear, aboutmakingaliving,completely wrecking my life andpossiblymy marriage,I did theonly thing thatI coulddo.I evicted myselffromthemisery.I didn’tpreparemyIT consulting resume. I shut down the recruiters trying to get me involved in various projects across the country and overseas. I burned that past bridge down. Yet I still neededtoprovidefor my family’s financial security.So, I went to snipping down my monthly budget. Every unnecessaryexpensehad to go as I focused on what was necessary for our lives. Then, I sat down and poured my energy into my life’s passion: becoming afull-time stocks and optionstrader. There wasjust somuch moreinformation I neededtoabsorb.Luckily, with thetrading knowledgethatI had acquiredtrading part-time while working asanIT consultant,I had enoughtostartmyjourneyatfull steam.I alsoluckedoutandhadsomewonderfulpeople,myguiding angelswhoprovidedmewith mentorshipsthatallowedmetogoalong theright track. I readall theonline literatureI could find aboutstocks and options trading. I soaked up the knowledge from books, as my angels lookedonandadmiredmypassionandtalentforthetrade. I quickly held my ownasastock andoptions traderandexceededeven my own expectations. It wasat that time I founded Trade Genie to share mysuccesseswithothers.My wife andI soonownedhomesin several countries.I couldnowtradefromanywherein theworldasI enjoyed creature comforts and outdoor activities. I could play on sandy beaches in thesummer andgokayaking,zip-lining,andbungeejumpinginthe mountains. TradeGenie.com 7 MoneyMarketMastery

  8. TradeGenieOptionsTradingStrategies I evenhadtheopportunityto goon excitingelephant ridesin foreign countriesduring thedayafterputting in somehourson thestock market. Itwasadreamcometrue. After having received such an excellent mentorship, I paid it forward and offeredadvicetoothertraderssotheycouldcreatetheirownfortunes through my stockmarketadvisoryservicesandcoachingprograms.As I furtherhonedthetechniques andmyknowledge ofthestockmarket,I started to notice an interesting pattern. Much of my time was being spent learning everypossible technique out there,which forcedmetoexpenda lotoftimeandenergytryingtomesh togetherallofthedifferent techniques. Instead,IlearnedthatIcouldreachfurthersuccessby changingmyfocusand concentratingontrulymasteringjustafew techniquesthatmostprofessionaltradersusetoreachfinancialsuccess. Through thisnewstocks andoptions tradingstrategy,I sawenormous gains at a rapid pace and my portfolio grew at light speed. I was absolutely shocked.WhileIhadmasteredseveralchartpatternsandtrading techniques,therewerethreespecifictechniquesthatcontinuallyproved highlyprofitabletome. And now I want to sharethesethree techniques with you for free. I want you to break out of the corporate cubicle wars and instead reach the same financialsuccesswithstockmarkettradingthatIhave. You no longer need to worry about how to master stock trading. You can spendmoretime with your family andpursueall theluxuries thatlife has to offer. In my “Mastering the Stock Market” guidebook, I go into greater detail about these three simple trading techniques and how mastering these willtransformyouintoanindependentandhighlyprofitabletrader. Simply drop mealine via our contact pageand I will send you your free “Mastering the Markets” guidebook today so that you can find the success thatmy traderfollowersandmembershavefound. You canfinally burn the bridges that are holding you back from true financial freedom and the happinessitprovides. TradeGenie.com 7 MoneyMarketMastery

  9. TradeGenie Granting ProfitableTradesDaily SwingTradingStrategy Successfulswingtradingrequiresskillfulinterpretationofthe herdmentalitythatdrivespricechange. Swingtradingcombinesthe betteroftwoworlds–theslowerpaceofinvestingandtheincreased potentialgainsofdaytrading. Byrollingoveryourmoneyrapidly throughshorttermgainsyoucanquicklybuildyourequity. Thebasicstrategyofswingtradingistojumpintoastronglytrending stock after its period of consolidation or correction is complete. Strongly trending stocks often make a quick move after completing its correction whichonecanprofitfrom.Onethensellsthestockafter2to7daysfora 5-10% move. When you combine options with swing trading the return could be somewhere 25 – 100% in a short period of time. This process canberepeatedoverandoveragain. Onecanalsoplaytheshortsidebyshortingthestocksthatfallthrough the strong support. In brief a Swing Trader’s goal is to make money by capturingthequickmovesthatstockmakesinitslifespan,andatthesame timecontrollinghis/herriskbypropermoneymanagementtechniques. In swing trading or any form oftrading knowing the exact stock targetprice to exitthe trade willkeep you in trade and minor pullbacks will not give you worries that you are losing the profit. Similarly knowing the exact stop price will also not shake you out in case the stock pull backs severely. These two price levels are crucialtoone’ssuccess. No matter how strong the chart looks ifthe stock does not havepotentialtomovefurtherup(incaseoflongtrade)ordown(in caseofshorttrade)thenthereisnopointinenteringthetradeastherisk is higher than the reward. At certain price point the buyers start accumulating the stock preventing from further fall and stock make abigmovetotheupside.Thesamephenomenonhappenswhenthe stockismakingupsidemoveandsuddenlyreaches a pricepointand collapses. MoneyMarketMastery

  10. TradeGenie Granting ProfitableTradesDaily time we would enter into the trade which is coming up for earnings. Let’s assume that tomorrow morning CMI is reporting earnings. .30and we bought out-of-the-money Puts May 65 for $1.00. Our basket Calls and Puts cost is $4.40 Forecast = CMI can gap up above 72 or gap down to65. Let’sassumeCMIgapsupenoughthatourcallwhichweboughtfor $3.30tradesabove$4. basket. . If Puts are trading near 10 cents then we don’t sell PUTS rather sell calls and hold PUTS. Selling PUTS for 10 cents do not make sense as some brokers may be chargingyoumorethan 10 centstosellonecontract. IncaseCMIpullsbackthePUTSwillgainsomevalueandwecan getbettersalvagevalue.However,PUTScouldexpireworthlesstoo. Scenario2 Everything sameasscenario1 abovebut it seemsit is bettertogetout of Calls and PUTS at the same time to make decent profit in the basket. The volatility after earnings go away and even stock moves upward the optionsdonotmove. MoneyMarketMastery

  11. TradeGenie Granting ProfitableTradesDaily Forexample,Callsmaybetradingat4.80andPutsat$0.40and basedonchartandvolatilitywe decideitisbettertosellbothandget $5.20, rather sell Calls and hold Puts (or hold Calls and sell Puts) and laterPUTSexpireworthlessorCallslosevalue. Scenario3 Lets assume everything what wedescribed above in scenario 1 happens but CMI looks so good after gapping up that it falls in gap trade criteria. In this case we can add more to CMI calls either May 70 or May 75. We treat it as brand new trade and maximize gains. If webuy May 75 Calls then maybe wecan hold May 75 Calls to sell near $75 but sell May 70 Callstolockgains. Scenario4 There aretimes that both Calls and Puts trade such away that overall basket is in loss. In this case wetry to salvage by selling one leg first by determining which way stock is headed and hold the other leg till we get thebreakevenpriceonthebasket. MoneyMarketMastery

  12. TradeGenie Granting ProfitableTradesDaily Indexes,ETF andUltra ShortTrading IfyouhavesubscribedtoIndexOptionstradingthenthissectionis foryoutoreadandunderstand. DependingonthemarketdirectionItradethefollowingfifteen symbols. DIA($INDU) SPY($SPX) QQQ($NDX) 4.$OEX (S&P100) $XAU(GoldandSilverIndex–PhiladelphiaStockExchange) $HGX– Housing Index GDX–MarketVectorsGoldMiners DXD–UltraShortDowJones30ProShares SDS–UltraShortS&PProShares QLD-ProsharesUltraQQQ QID–UltraShortQQQQProShares DUG–UltraShortOil&GasProShares MoneyMarketMastery

  13. TradeGenie Granting ProfitableTradesDaily SKF–UltraShort Financials FAZ-FinancialBear3xShares TZA-SmallCap Bear3xShares Pleasefamiliarizeyourselfwiththesesymbolsspecially$OEXand $XAU. Different brokers and trading platforms have different symbols for these. For example, OEX, $OEX, $OEX.X, OEX.X etc. $OEX has weeklyandmonthlyoptionchains.Ibuymonthlyoption. Totrade$XAUyoumusthaveaccesstoPhiladelphiaStockExchange quotes. Otherwise you will get delayed quotes. In Trade Station platform I pay $1 per month to get the real-time quotes from Philadelphia Stock Exchange. MoneyMarketMastery

  14. TradeGenie Granting ProfitableTradesDaily UnderstandingPositionSizingPart1 “Hewhothinks heknows,doesn’tknow.Hewhoknows that hedoesn’tknow, knows.” —LaoTse InthisChapter, wewilltalkaboutPositionSizing-oneofthe mostimportantconceptsthatwillstopyoufromgoingbrokeon yourfirsttrade! Position sizing is simply the how much of trading. It answers the question such as “How many contracts or shares per trade you should buyforyouraccountsize?” When you enter a position, it is essential to know the point at which you will get out of the position in order to preserve your capital. This is your “risk”. It is your worst-case loss - except for slippage and a runaway market goingagainstyou. One ofthe most common position-sizing systemsinvolvescontrollingyourpertradesizeasafunction ofthisrisk. TherearevariousPosition-sizingmodel.Inthischapterwewill discusspositionsizingbasedonPercent-Riskmodel. To implement position sizing concept you need to know three variables. These are your portfolio size, risk tolerance percentage and stop loss percentage. Risk tolerance is defined as how much you are willingtoloseononetradeaspartofyourtotalportfolioamount.Stop loss is defined as how much you are willing to lose in a given trade. Pleasemakesuretounderstandthedifferencebetweenthetwo. MoneyMarketMastery

  15. TradeGenie GrantingProfitableTradesDaily To illustrate position sizing lets assume your portfolio size is $50,000. Let’salsoassumethatyoudonotwanttoriskmorethan2percentofyour capital in any trade. This means you are willing to lose $1000 ($50,000 * 0.02) on one single trade. Let’s say that based on your technical analysis you have determined that your stop loss percentage will be around 50 percent. Let’stake the example of AAPL. Youare bullish in AAPLand are interested in buying AAPLCalls as you think AAPLwill rise in price. Let’sassumeoneAAPLCallcontractistradingat$20.Sinceonecontract controls one hundred share, therefore, purchasing one contract of AAPL at $20 will require $2000 ($20 *100) investment. Aswe know not all trades are successful and they hit our stop loss. Yourtechnical analysis tells you that when AAPL trades at a certain price your Call contract will be trading at $10 thus you will incur 50 percent loss. This is your stop loss percentage. In other words you will lose $1000 ($10 *100) in this tradewhichis 2 percent ($50,000/$1000) ofyourstartingcapital. Inotherwordsyourriskisdefinedas2percentandyourstoploss is at 50 percent. Therefore based on your portfolio size of $50,000 you should not invest more than $2000 in AAPLtrade. This investment amountiscalculatedasfollows. InvestmentAmount=(PortfolioSize/StopLossPercentage)*(RiskTolerance) InvestmentAmount=($50,000/0.5)*(0.02)=$2000 TheaboveequationfordeterminingtheInvestmentamount showsthatifweincreasetherisktolerancewhilekeepingthePortfolio sizeandStopLossPercentagesamewewouldbeabletoinvestment moreinAAPLtrade. MoneyMarketMastery

  16. TradeGenie Granting ProfitableTradesDaily For example, ifweincreaserisk tolerance percentage to 4 percent thentheinvestmentamountasdeterminedbytheequationwillbe $4000 calculatedasfollows: InvestmentAmount=($50,000/0.5)*(0.04)=$4000 Similarly you can keep the risk tolerance to 2 percent but if you decrease thestoplosspercentageto25percentthenyouwouldbeabletoinvest $4000 inAAPLtradeandiscalculatedasfollows: InvestmentAmount=($50,000/0.25)*(0.02)=$4000 Asyou can seeyour Investment amount in asingle trade isafunction of your portfolio size, risk tolerance percentage and stop loss percentage. It is suggested that risk tolerance level should remain constant (e.g. 2 percent) whereas your stop loss percentage and your portfolio size will fluctuatefromtimetotime. As your portfolio size increases or decreases your investment amount per trade hasto beadjusted accordinglybasedon your risktolerance and stop loss percentage. Let’s say your portfolio has grown to $60,000. Keeping risk tolerance and stop loss percentage same we would be able to invest $2400 inourAAPLCallswhichiscalculatedasfollows: InvestmentAmount=($60,000/0.5)*(0.02)=$2400 Based on $2400 investment if you lose in this trade the loss amount wouldbe $1200 whichis 2 percentofyourportfoliosize. In summary proper position sizing will eliminate fear level, rate of errorsand willbuild your confidencein trading. Th iswillleadyou toimprovementin yoursuccessrate,and higherprofitsin gradual systematic way. Above all few bad trades will not wipe out your account andyouwilllivetotrade in thefuture. MoneyMarketMastery

  17. TradeGenie Granting ProfitableTradesDaily UnderstandingPositionSizingPart2 Moneymanagementisaveryconfusingterm.Whenwelooked itupontheInternet,theonlypeoplewhouseditthewaythatVanwas usingitweretheprofessionalgamblers.Moneymanagementasdefined byotherpeopleseemstomeancontrollingyourpersonalspending; givingmoneytoothersforthemtomanage,riskcontrol,makingthe maximumgain,plus 1,000 otherdefinitions. Toavoidconfusion,Vanelectedtocallmoneymanagement“Position Sizing.” Position sizing answers the question, “How big of a position shouldyoutakeforanyonetrade?” Position sizing is the part of your trading system that tells you “how much.” Once atrader hasestablished the discipline to keep their stop loss on every trade, without question the most important area of trading is position sizing. Most people in mainstream WallStreet totally ignore thisconcept,butVanbelievesthatpositionsizingandpsychology countformore than 90% of total performance (or 100% if every aspectoftradingisdeemedtobepsychological). Positionsizingisthepartofyourtradingsystemthattellsyouhow manysharesorcontractstotakepertrade.Poorpositionsizingisthe reasonbehindalmosteveryinstanceofaccountblowouts.Preservation ofcapitalisthemostimportantconceptforthosewhowanttostayin thetradinggameforthelonghaul. MoneyMarketMastery

  18. TradeGenie Granting ProfitableTradesDaily Imaginethatyouhad$100,000 totrade.Manytraders(or investors, or gamblers) may just jump right in and decide to invest a substantial amount of this equity ($25,000 maybe?) on one particular stock because they were told about it by a friend, or it sounded like a great buy;orperhaps theydecideto buy10,000 sharesofasingle stockbecausethepriceisonly $4.00 ashare(equatingto$40,000). Theyhavenoper-plannedexitorideaaboutwhentheyare goingto getout ofthe tradeifit happensto goagainstthem and theyaresubsequentlyriskingaLOToftheirinitial$100,000 unnecessarily. Toprovethispoint, we’vedonemanysimulatedgamesin whicheveryone gets the same trades. At the end of the simulation, 100 differentpeoplewillhave100differentfinal equities,withthe exception of those who go bankrupt. And after 50 trades, we’veseen finalequitiesthat range from bankrupt to $13 million--yet everyone startedwith$100,000andtheyallgotthesametrades. Positionsizingandindividualpsychologyweretheonlytwo factorsinvolved. Vansaysthatthisjustshowshow importantpositionsizingis. Sohowdoesitwork? Supposeyouhaveaportfolioof$100,000andyoudecidetoonly risk1%onatradingideathatyouhave.Youarerisking $1,000. This is the amount RISKED on the trading idea (trade) and should not beconfusedwiththe amount that youactuallyINVESTED in thetradingidea(trade). Sothat’syourlimit,youdecidetoonlyRISK$1,000onanygiven idea(trade).Youcanriskmoreasyourportfoliogetsbigger,butyou onlyrisk1%ofyourtotalportfolioonanyoneidea. MoneyMarketMastery

  19. TradeGenie GrantingProfitableTradesDaily Nowsupposeyoudecideto buyastockthat waspricedat $23.00 per share and you place a protective stop at 25% away, which means ifthe price drops to $17.25 you are out of the trade. Yourrisk per share in dollar terms is $5.75. Since your risk is $5.75, you divide this value into your 1% allocation(whichis$1,000) and youareable topurchase173shares,roundeddownto thenearestshare. Workit outforyourself,soyouunderstandthat ifyouget stopped out ofthis stock(i.e., the stockdrops 25%), youwillonly lose $1,000 or 1% of your portfolio. No one likes to lose, but if you didn’t have the stop and the stock dropped to $10.00 per share, you can seehowquicklyyourcapitalvanishes. Anotherthingto noticeisthat youwillbepurchasingabout $4000 worth ofstock.Workit out foryourself.Multiply 173 shares bythepurchasepriceof$23.00pershareandyou’llget$3979. Itwouldprobablybearound$4000 whenyouaddcommissions. Thus,youarepurchasing$4000worthofstock,butyouare onlyrisking $1000 or1%ofyourportfolio. Andsinceyouareusing4% ofyourportfoliotobuythe stock($4000),you can buyatotalof25stocksthiswaywithout usinganyborrowingpowerormargin,asthestockbrokerscall it. Thismaynot soundas“sexy”asputtingasubstantialamount ofmoneyin one stockthat “takesoff,”but that strategyisarecipe fordisaster and veryrarelyhappens. Therefore it isbest left on the gamblingtables in LasVegas. Tocontinueto tradeandstayin themarketsoverthelong term,learningpositionsizingandprotectingyourinitialcapitalisvital. Vanbelievesthat peoplewhounderstandpositionsizingand haveareasonablygoodsystemcanusuallymeettheirobjectives throughdevelopingtherightpositionsizingstrategy. MoneyMarketMastery

  20. TradeGenie Granting ProfitableTradesDaily PositionSizingHowmuchis enough? Startsmall. Somanytradersthataretradinganewstrategystart byriskingthefullamountthattheyplanonusingforthelongterm withthatstrategy.Themostfrequentreasongivenisthattheydon’twant to“missout”onthatbigtradeorlongwinningstreakthatcouldbe justaroundthecorner.Theproblemisthatmosttradershaveamuch greaterchanceoflosingthantheydoofwinningwhiletheylearnthe intricaciesoftradingthenewstrategy. Therefore,startsmall(verysmall) andminimizethe“tuitionpaid”tolearnthenewstrategy.Don’tworry abouttransactionscosts(suchascommissions),justworryaboutlearning totradethestrategyandfollowtheprocess.Onceyou’veproventhat youcanconsistentlyandprofitablytradethestrategyoverameaningful periodoftime(months,notdays),thenyoucanbegintorampupyour positionsizing. Managelosingstreaks.Makesurethatyourposition sizingalgorithm helpsyouto reducethepositionsizewhenyouraccountequity isdropping. Youneed to have objective and systematic waysto avoid the “gambler’s fallacy.” The gambler’s fallacy can be paraphrases like this: after a losing streak, the next bet has a better chance to be a winner. If that is your belief, then you will be tempted to increase yourpositionsizewhenyoushouldn’t. Don’t meet time-based profit goals by increasing your position size.Alltoooften,tradersapproachtheendofthemonthortheend of the quarter and say, “Ipromised myself that I would make “X” dollarsbytheendofthisperiod. MoneyMarketMastery

  21. TradeGenie Granting ProfitableTradesDaily The only wayI can make my goal isto double (or triple, or worse) myposition size.This thought processhasledto manyhuge losses. Sticktoyourpositionsizingplan! We hope this information will help guide you toward a mindset of capitalpreservationonyourjourneytowardsuccessfultrading. “Ihavetalkedtomanyfolkswhohaveblownuptheir accounts. I don’tthink I have heard one personsaythat he or she took small loss after small loss until the account went downto zero.Withoutfail,thestoryoftheblownupaccount involvesinappropriatelylargepositionsizeorhugeprice moves,andsometimesacombinationofthetwo.” ~D.R.Barton Tofurtherunderstand theconceptofPositionSizingandmore pleasepurchase the Dr. Tharp’sbook “TradeYourWayto Financial Freedom”. MoneyMarketMastery

  22. TradeGenie Granting ProfitableTradesDaily DollarCostAveraging Thedollar-cost-averagingstrategyisbasedondividing thetotalamounttobeinvestedinatradeintothreelotsandinvesting thesethreelotsatdifferentstockprices.Theideaistoaddtoouropen positiononstockweaknessratherthanclosingoutthetradeatloss.We willalwaysbeginourtradewiththeinvestmentof2%ofourportfolio balance.Incasewearewipedoutinthistradeforanyreason,suchas stockgappingdownorgappingup,themaximumwewouldloseis2% ofourportfoliobalance.Bydefaultthefirstprofitobjectiveis20-25%. Ifstockpulls-backafterourentryandhitourfirstpullbackprice thenweinvestthesecondlotatreducedcost.Thiswillbringdownthe averagecostpercontract.Aftersecondpurchasetheprofitobjectiveis 30-35%.Incasestockdoesnothitourprofitobjectiveandratherwent tooursecondpullbackpricethenweinvestthethirdlotatapriceper contractlesserthanthesecondpurchase.Thethirdpurchasewillreduce theaveragecostpercontracttoevenfurther.Oncewepurchasethethird lotthenwesettheordertosellatprofitobjectiveof35-40%.Afterthe thirdpurchasewealsomonitorourtradeforourstop.Ifstophitsthen wecloseourtrade.Theexpectedlosswouldbebetween40-45%. Example–CF–January185Calls Letusassumetheportfoliosizeis$26,500.Wetake6%ofthe portfolio balance which comesto $1,600. Divide $1,600 into threelots whichcomesto$533.LetusalsoassumewearebuyingCF Jan185 Callswhicharetradingat$530. MoneyMarketMastery

  23. TradeGenie Granting ProfitableTradesDaily FirstBuy Theamountof$530 willbringonecontract.Setthesellorder immediatelyat25%profitorthetargetbidprovidedwiththealert.In thisexample,thetargetbidis$6.60.Thereisnohardstopsetatthis moment.Iftargetbidhitwewouldgain$1.30 percontractandthe tradewillbeclosed. SecondBuy However,letusassumethetargetbiddidnothitandstockpulled backandhitourfirstpullbackprice.Youwilleitherbeprovidedthe pullbackstockpriceinadvanceorreal-timeemailalertwillbesent. Lets assumeCF contract at the pullback price istrading is$2.90. Wewouldinvest$580topurchasetwocontracts.Afterthispurchasethe total amount invested will be $1110 ($530+$580) and we would have three contracts on hand at the average cost of $3.70 ($1110/3). After the purchase set the conditional good till cancel order to sell either at the stock target price or at the target bid provided. There is no hard stop set. Inthisexample,thetarget bid is$5.00. Iftarget bid hits thegainwillbe $1.30 per contract. The return on investment will be 35.14% and the tradewillbeclosed. ThirdBuy However, let us assume the target bid did not hit and stock either pulled backand hit our secondpullbackpriceorwentsideways.In thiscasethirdpurchasewilltriggerandwewouldbuymore contracts.LetusassumeatsecondpriceCFCallsaretradingat $2.40. This means we will buy two more contracts for the total amount of $480. After this purchase we will have five contracts at theaveragecostof$3.18andtotalamountinvestedwouldbe $1590. After this purchase set the good tillcancel order to sell all contracts either at stock target pricegiven or targetbid given. In ourcasetargetbidissetat$4.30.Ifourtargetbidhitswe standtogain$1.12percontract.Totalgainwillbe$560. MoneyMarketMastery

  24. TradeGenie Granting ProfitableTradesDaily StopPrice Suppose afterthirdpurchasethestockfurthermovedown(in caseofCalls)then our stop would trigger at either stock stop price givenorthestopbidgiven.Inourcase theestimatedstoppriceis $1.90.Ifstophitswewouldlose $1.28 percontract. Totalamountwewillbe$640.Thelosspercentagewillbe 40.25%whichwillbearound 2.42% ofourportfoliobalance. Reward-to-RiskRatio Reward-to-RiskRatio=(ExpectedProfit *ProbabilityofProfit)/(MaximumLoss* ProbabilityofLoss)=(25%*80%)/(40%*20%)= (2.0)/(0.8)=2.5:1 Assumption Theassumptionsareasfollows: Onceweenterthetrade–stockwouldtradesuchthatit willgiveus25%profit. Incasestockpullsbacktoourfirstpullbackprice–itwill bouncebackup. Ifstockdoesnotbounceafterhittingfirstpullbackprice thenthereisahigh. Probabilitythatstockwillbouncebackafterhitting secondpullbackprice. Ifstockfurthergoesdownthenthetrendischangingand weneedtocloseourTrade. Theexpectedwinratiointhisstrategyis80%. Thefirstprofittargetis25%. MoneyMarketMastery

  25. TradeGenie Granting ProfitableTradesDaily Thesecondprofittargetis35%. Thethirdprofittargetis35%. Expectedlossisbetween40-45%. Expectedlossaspercentageofportfoliopertradeis2-3% MoneyMarketMastery

  26. TradeGenie Granting ProfitableTradesDaily UnderstandingTargets “The professional concerns himself with doing the right thing ratherthan with making money,knowing that the profit takescareofitselfiftheotherthingsareattendedto.” —JesseLivermore Whenyoufullycommittoagoal,thefocusofpositiveenergyonto adesiredresultislikeprogrammingamissileto“lockon”toamoving target;themissileautomaticallypursuesthetargetnomatterhowelusive itbecomes.Theactofcommitmentalsoattractsexciting,newpossibilities toyourdoorstep, leadingtodramaticchangesinyourlife. Green Target - This is the immediate target which I expect the stock to hit very quickly and the probability of it hitting is 95%. I usually sell one-fourth of my position on this target. I expect stocktocontinueitsjourneytowardsnexttargetwhichis“yellow target”. If the target is given in percentage then it means it is basedon option buyprice. Yellow Target - This is the second target after green target. The probability of hitting the yellow target is 85%. The difference betweenyellowandgreentargetbesidestheprobabilityisthat after hitting the green target I expect stock to continue towards yellow,whereas,afterhitting yellowtargetI expect stockto pullback somewherein the middle ofgreenand yellowtargets. I sell75% of my position on yellowtarget unless stock gapsup or down or blows through the yellow target without stopping. If I see reversal after hitting yellow or market direction changing then I liquidate my rest of the position which could be below yellow target in case of long position or above yellow target in caseofshortposition.Inotherwordsthelastone-fourthposition couldbeliquidatedatlesserpricethanwhatIsoldatyellow. MoneyMarketMastery

  27. TradeGenie Granting ProfitableTradesDaily When the stock is in the middle of “yellow” and “red” target my stopissetjustbelow“yellow”target. Red Target - This is the third target after “yellow”. This is the target where I am expecting the stock to hit and pullback all the way to yellow target. Therefore, I sell all my contracts whatever I have left after selling at yellow target. The probability of hitting red target is around 70%. Once the stock travels towards red target my stop is set just below yellow target. The reason it is set belowyellowisthatIamexpectingstocktoreboundafterhitting yellow target. In case it does not rebound then I am out of the positioncompletely. Revised Red Target - If I am watching my trade and I see more potential in the trade and confident that stock will go through the “Red” target then I revised my “red” target. The stop is set justbelow“red”targetto participate in furthergains. Pullback Price - This is the price which I expect that stock could pullback after I enter the trade. Thisservesvariouspurposes. For example, if I have spread trade long then I can close out the short leg once the stock hits the pullback price and starts moving upward. The second purpose is that there are trades where I do not put all my investment in the beginning as I expect that stock could pullback. Therefore, in this case I divide my investment intotwolots.Thesecondlotwillbeinvestedincasethestock pulls back to the “pullback price” and rebounds. The pullback price is determined based on various methods. Example, it could bepurelybasedonchartsanalysisoncandles,itcouldbeprevious support, it could be a simple moving average, weighted moving averageorvolumeweightedmovingaverageora trend line. MoneyMarketMastery

  28. TradeGenie Granting ProfitableTradesDaily Importance ofRedTarget “The professional concerns himself with doing the right thing ratherthan with making money,knowing that the profit takescareofitselfiftheotherthingsareattendedto.” —JesseLivermore InthepreviousChapterIhaveexplainedgreen,yellowandred . targetsInthisChapterIwillexplaintheimportanceofRedtarget. Red target is the target where the stock is expected to hit and reverse orpullbackseverely. Ifyouarelongandstockgapsaboveatopenandstaysabovethered targetthenyouaresafe.Ifitgapsaboveredtargetandreversesandgoes downbelowredtargetthenitisbettertosellyourcontractsandlock yourgains.Thereversephenomenonisapplicableincaseofshorts. You should pay more attention to the stock if it hits red target aftermarketisclosed.Ifthestockhitsredtargetaftermarketclosethen it must continue upward movement next day pre-market or at least when the market opens. This means it should gap-up and continue movingupward.Ifitdoesnotthenitisinyourbestinteresttosellyour contracts and lock your gains or minimize your loss or get out at breakeven.Youcanalwaysgetbackinoncethestockstabilizes.Thereis alwaysanewtradearoundthecorner.Preservationofcapitalisthefirst goalintrading.Makingprofitissecondary. Letmegiveyouanexampleofhowyoucanprotectyourprofitand whatyouneedtodo. Suppose red target is $18.50 and stock closes at $17.40. After marketisclosedthestockjumpsto$18.55.Thismeansstockhashit theredtargetandredtargetisnolongervalid. MoneyMarketMastery

  29. TradeGenie Granting ProfitableTradesDaily Nextdaythestockshouldcontinuemovingupwardbeyond$18.55 atpre-marketandalsoafterthemarketisopened.Ifitdoesnotcontinue movingupwardthenyouknowmustlockyourgainswithinfifteen minutesofthemarketopen. Inshortwatchyourstockafter-marketandpre-marketforhittingthe red target whether you are long or short and when market opens take the decision to hold or sell. Sometimes you may want to add to the position as it could be gapping up due to some extra-ordinary news. I usually send alert pre-market or right after the market is open advising members what to do in suchscenario. Theaboveconceptisalsoapplicablewhenyouareshortorhaveputs inyourportfolio.Thismeansifredtargetishitwhenmarketisclosed thenwhenmarketreopensstockshouldimmediatelycontinuegoing downbeyondredtarget,otherwiseyouhavetosellandlockgains. MoneyMarketMastery

  30. TradeGenie Granting ProfitableTradesDaily ExecutingtheTrade DeterminingwhichOptiontoBuy Theoptionselectionisbasedontargetpriceandhowfast Iestimatethatthestockwillhitthetargetprice.Ifstockistrading at$60.00andmytargetis$63.00andIamexpectingthatstockwill hitthetargetwithinthirtydaysthenIwouldbuynextmonthand strikeclosertothetargetwhichis$62.50inthiscase.Thismeanswhen stockreaches$63.00myoptionwillbeinthemoneyandthetime valuehasbeenconvertedintointrinsicvaluegivingmethemost bangforthebuck.However,sometimesitisprudenttobuyin-the- moneyoptionforvariousreasons,suchasout-of-the-moneyoptiondoes notlookattractiveduetofarawayfromthetargetprice,openinterestor simplyoverpriced. DividingtheCapitalintoTwoLots Nomatterhowgoodthetradelooks,Ineverputallmymoneyat once. I buy contracts worth 50% of capital as determined by position-sizingandtherest50%aftertestingthewatertoseeifIam right.Iletthetrade develop.OnceIamprettysurethattradeisgoing mywaythenIbuyanother 50%ofallocated fund(based onposition- sizing). UsingLimitOrdersIntelligently Watchyourlimitorderscarefully.Youcannotwalkawayfromlimitorders thewayyoucanwithstocks.Sincethetruevalueofanoptiondirectly dependsuponthepriceoftheunderlyingstock,your“bargainbid”of15 minutesagomayeventuallybeexecutedataverydisadvantageousprice. Forexample,let’slookatastockat$50witha45calloptionbidat$6.00 andofferedat$6.50. MoneyMarketMastery

  31. TradeGenie Granting ProfitableTradesDaily Youbid $6.00, the stock drops quickly to $48 and you are the proud ownerat$6.00.Unfortunately,youshouldnothavepaidmorethan $4.50 atastockpriceof$48.00. Therefore,youshouldwatchyour limitorderconstantlytocheckwhetheritshouldberevisedor cancelled. 4.HandlingPartialExecution Don’tbeoveranxiousonapartialexecution.Afteryouhaveplaced anordertobuy10 optionsat$8.70, youmaygetamessagesaying, “youboughtfiveat$8.70, it’syourbidat$8.70 fortheremaining five,andtheoptionisofferedat$9.20’.Insteadofimmediately payingtheextra$0.50forthefiveoptionstofillyourtotalorder,wait awhile.Sinceitis“yourbid”,anyoptionsthatcomeintobesoldat themarketorat$8.70 (orless)willbeyours(uptoalimitoffive, ofcourse).Yourchancesareprettygoodaslongastheunderlying stockremainsinareasonabletradingrange.Ofcourse,youshould remaininclosecontactwiththebrokeroryouronlineorderscreenso thatadjustmentscanbemadeinyourordertorespondtosignificant movementsinthestock. MoneyMarketMastery

  32. TradeGenie Granting ProfitableTradesDaily Beating theMarket MakerviaShow orFillRule “ShoworFillRule”or“LimitOrderDisplayRule”isgreathelp forthosetraderswhobuytwentycontractsorless.Therulewasenacted throughExchangeActrule11 Ac-1-4. Thisrulerequiresthemarket makerstoshoworpublishanyorderthatimprovesthecurrentbidorask pricesunlessitisfilled.Anyorderbetweenthecurrentbidaskspreadwill improvethemarket. Before we go into the details of this rule, we need to understand the basicsof option quotingsystem: Letssayyou(John)wanttobuy3contractsofFebruaryCAT90CallswhicharetradingatBid $6.00andAsk$6.75 Sowhatdoesthismean? It means the market maker is bidding $6 for the option. This is the price he iswillingto payifyou want to sellyour contract. On the otherhandheisasking$6.75percontracttoselltoyou.Inthisbuy andsellprocessheismaking75centspercontract.Inotherwordswe, theoptiontrader,alwaysgetstheworstprice.Thisisourcostofdoing the trading business, besides paying commission to the broker. Whereasmarketmakermakeshismoneybyprovidingliquidityinthe market. Whenwegetthequote,thebidpricerepresentsthehighestbidder, andtheaskpricerepresentsthelowestofferorseller. MoneyMarketMastery

  33. TradeGenie Granting ProfitableTradesDaily The general rule of thumb is that spread should not be more than 5 percent.Therefore,ifthebidis $6.00 askshouldnotbe $6.30. So, based on this rule you do not want to pay $6.75 rather willing to pay $6.30 as you think this is the fair value of the option. Therefore, you placed the order to buy 3 contracts of February CAT 90 Calls at $6.30. Thisisyourbid.Youarebiddingforthecontractsat $6.30. Prior to the “Show or Fill Rule”, the market maker was not obligated to show your bid of $6.30. He would simply leaveit asbid $6.00 and ask$6.75. Underthe“ShoworFillRule”,themarketmakerhastwooptions: Eitherhegivesyouthreecontractsat $6.30 or ShowstheBidas $6.30 andAskas $6.75 Ifhedecidesnottosellyouat$6.30thenwhenheshowsthebidandask thespreadwillbe 45 centsandisreducedfrom 75 cents. As soon as you place your order, your bid will be shown on the top whichis $6.30. Now lets say another trader (Tom) wants to sell 20 contracts of Feb 90Callsbuthedoesnotwanttosellat$6.30ratherat$6.50.Assoonas heplaceshissellordertheBidandAskwillbedisplayedasfollows: Bid$6.30-Ask$6.50 Spreadisfurtherreducedandnow itisat 20 cents. Remember,you(John)arebiddingtobuyat$6.30andanother trader(Tom)isaskingtosellat$6.50. Accordingtotherule,thebidandaskisvalidforatleast20 contracts.Thismeansthemarketmakermustfillyourorderof20 contractsorlessatthecurrentbidandaskprice. MoneyMarketMastery

  34. TradeGenie GrantingProfitableTradesDaily So, if you are buying three contracts of CAT Feb 90 Calls at $6.30, the market maker isobligated to either sellyouat $6.30 or showthe bid at $6.30. At this time market maker is thinking that if I do not fill the order at $6.30 and rather show and post the order then by law I am obligatedtohonorthepriceof$6.30for20contracts.Inthisprocessthe other seller (Tom) can sell at $6.30 instead of $6.50 or $6.00. Therefore, Tomwillgetbetterpricewhichis $6.30 insteadof $6.00. Therefore, market maker will fill your (John) order of three contracts at $6.30 quickly to get you out of the way and so he does not have to show your order to the market. The other seller(Tom) willnot be able to get $6.30 and has to sell at $6.00 if he wants to sell or wait for the bid toimprove. It isadvised that first place the order in between bid and ask and see if you get filled. This will make huge difference on your profits in the long run. However, if the stock is moving fast in your direction and the potential in the trade issignificant then fighting with the market maker is not worth, as the trade may slip away. If my order does not get filled within 15 seconds at my bid price I either improve my bid or pay at ask andmoveonwiththetradeas Idonotwant tomissout ontheprofit. MoneyMarketMastery

  35. TradeGenie Granting ProfitableTradesDaily UptickandUpbidRule AftertheSECreinstatedanewversionoftheuptickrulefollowing the2008financialcrisis,therehasbeenverylittleinformationavailable online.Ifyousearchfor“uptickrule”mostoftheinfoyouwillfindis ontheolduptickrule.Thecurrentversionisn’treallyanuptickruleat all,butratheranup-bidrule.Thisnewversionwasfirstputintoeffect inNovember 2010. Simply put, shares of a stock cannot be sold short at or below the best bidwhentheruleisineffect. Theshortsellermustsellontheofferand wait for abuyer to fillhis offer. Therule goesinto effectwhen astock’s pricedecreases by10% ormorefromitspreviousday’sclose.Once a stockhasdropped10%fromitspreviousday’sclose(evenifjustbriefly droppingthatfar)therulewillthenbeineffectfortherestoftheday and the next trading day.Therule canonlybetriggeredduring regular tradinghoursalthoughifitistriggereditremainsinforceduring after-hoursandpre-markettrading. ForthosewhouseInteractiveBrokers’TWSplatform,alittlered circlewillappeartotherightofthestockdescriptionwhenthe uptickruleisineffect.Ifyoumouseovertheredcircleitwillsay “Shortsalerestrictionisineffectfrom[date]to[date].” MoneyMarketMastery

  36. TradeGenie Granting ProfitableTradesDaily ToChaseorNotToChase Mostofthetimealertscanbefilledeasilywiththebuyprice provided.However,sometimesthetradeseemstobeslippingawayfast. Atthismomentmembershavetodecidetochaseornottochasethe trade. Thefollowingguidelineswillhelpyouinknowinghowmuchextra canbepaidforthetrade: Ifrecommendedoption buypricementioned isin the range of $0.70 - $1.00 then wecan pay 5 cents over the buy price mentioned. Ifrecommendedoption buypricementioned isin the range of $1.05 - $2.50 then we can pay 10 cents over the buy price mentioned. Ifrecommendedoptionbuypriceis intherangeof$2.55-$4.00 thenwecanpay 15 centsoverthebuypricementioned. Ifrecommendedoptionbuyprice isintherangeof$4.05-$6.00 thenwecanpay 20 centsoverthebuypricementioned. Ifrecommendedoptionbuyprice isintherangeof$6.05-$8.50 thenwecanpay 30 centsoverthebuypricementioned. Ifrecommendedoptionbuypriceisintherangeof$8.55- $12.00 thenwecanpay 40 centsoverthebuypricementioned. Ifrecommendedoptionbuypriceisintherangeof$12.05- $20.00 thenwecanpay 50 centsoverthebuypricementioned. MoneyMarketMastery 54

  37. TradeGenie GrantingProfitableTradesDaily Itis alsosuggestedthatwhenyouarepayingabovethe recommendedbuyprice forthe optioncontractsasperguidelines givenabovethenyoushouldbuyonlyone-halfofthe number of contracts asper Position Sizing. The rest of the contracts should be boughtatmuchlower pricetoaveragedownpercontractcost. Another factor in deciding whether to pay extra is to look at the yellowtarget. If stock isstill far enough from yellowtarget then it isok to pay extra. However, if you see that by paying extra there is not much potentialleftinthetradeconsideringyellowtargetthenI suggest toleave thetradealoneandeitherwaitforthenexttradeorsendmeemail.There isalwayssomethingtotrade. MoneyMarketMastery 54

  38. TradeGenie Granting ProfitableTradesDaily EliminatingGreedthroughConditionalOrder “Myplanoftradingwassoundenoughandwonoftener thanitlost.IfIhadstucktoitI’dhavebeenrightperhapsas oftenassevenoutoftentime.” —JesseLivermore AfterbuyorderformycontractsarefilledIsettheordertosellmy contractsbasedontheconditionalordertakingintoaccountthethree targetsandnumberofcontractsIhavepurchased. TheconditionalorderforCallscontractissetasfollows: “SellXYZcallscontractsatmarketwhenXZYstockpriceisequalto orgreaterthancertainprice”. IncaseofPutscontractsIsetmyconditionalorderas follows: “SellXYZputscontractsatmarketwhenXYZstockpriceisequaltoorlessthanXYZstockprice”. Setting the conditional order eliminates the need to calculate target bid pricesaswellasgreedfactorfromtrading. Somepointstoremember: Orderissetat“market”notatlimit MakesuregreaterthanorequalissetforCallsand LessthanorequalissetforPuts TesttheConditionalorderforonecontractfirstandwhenit worksfineandyoufeelcomfortablethensetforactualcontracts youhave. MoneyMarketMastery 54

  39. TradeGenie Granting ProfitableTradesDaily ProtectingYourCapitalviaStopPrice “Your protective stop is like a red light. You can go through it, butdoingsoisnotverywise!Ifyougothroughtownrunning every red light, you probably won’tgetto your destination quicklyorsafely.” —RichardHarding Youdonothaveatradingsystemunlessyouknowexactlywhenyou willgetoutofamarketatthetimeyouenterit.Yourworsecaseexit, whichisdesignedtopreserveyourcapital,shouldbedeterminedahead oftime.Inaddition,youshouldalsohavesomeideaabouthowyouplan totakeprofitsandastrategyforlettingyourprofitsrun. MarketlegendWilliamO’Neilsaid“Thewholesecrettowinning in the stock market is to lose the least amount possible when you’re notright.” MoneyMarketMastery 54

  40. TradeGenie • Granting ProfitableTradesDaily • Therearemanyvarietiesof stoplossanddependingonyourrisk toleranceandinstrumentyouaretradingyouwouldselectthestoploss methodaccordingly. • Belowaresomeofthefewstoplossmethodsusedbyprofessional tradersaroundtheworld: • FixedLossAmountStop • FixedPercentageStop • PriceTrailingStop • PercentageTrailingStop • VolatilityTrailingStop • MovingAverageCrossoverStop • SupportandResistanceBreakStop • ChannelBreakoutStop • TrendLineBreakStop • InactivityStop • TimeLimitStop • Inthisarticlewewilltalkaboutfivestoplossmethodsandtherest youcandotheresearchonyourownandimplementinyourtrading.So let’sbegin. • FixedLossAmountStop • Manyprofessionaltraderssuggesttousefixedlossamountstop.It givesthemsomepsychologicaladvantage.Youdeterminebeforehand howmuchyouarewillingtoloseonatradeandsetthatasastop beforehand.Forexample,youinvest$2000inatradeandbought 100sharesofastockat$20pershare.Youhavedecidedtolose$500 inthetrade.Thismeanswhenstockistradingat$15youwanttoget outofthetrade. MoneyMarketMastery 54

  41. TradeGenie Granting ProfitableTradesDaily FixedPercentageStop Sometradersset stopsby allowingthe priceto retraceacertain percentage ofthe entry price. For example, youdo not want to lose morethan 10 percent in atrade. Youbought 100 sharesat $20 per share so you would set the stop at $18. In case stock retraces and goes below$18youareoutwith 10 percentloss. Sinceyou’retrading can take you on aroller coasterofemotion, this discipline helps to calm those emotions and take them out of your trading,sothatyou’retradingwith yourmindagain,andnot your heart. Sounds good, right? However, there are a couple of problems with thisapproach. The first problem is that your stop loss may not take into account the dailymovementofthestock(calledtheAverageTrueRange,orATR). Thisisthedailyfluctuationthatastocknaturallyoscillatesthrough during a day. Youcan find the ATR of a stock by looking at a daily chart, and seeinghow much the stock movesup or down in aday,and ensure that your stop loss is set outside of this range, to prevent you being taken out ofapositiondueto normalmarket fluctuationand not simplya minor pullback. Thesecondproblemisthatthestockmaybeonashort-term downwardtrend,butmay be positionedtorecoverandclimbbackupto even higher highs, and by setting a very tight stop, you may lose out on the upswingbyexitingearly. There are a number of ways to implement stop loss rules to avoid the situation described above. One such way is to use a trailing stop that will movewiththemarketasitadvancesbutwillstaystatic if thetrademoves against you. Apopular method is to trail the stop based on the low for long trades and the high for short trades or the open or previous day’s close can be used. The only problem with this type of trailing stop is that you have to move and set the stops manually each day, since there are very few trading platforms that can do this for you automatically. Some moreautomated solutionswouldbe: pricetrailingstops,percentage trailingstop,andvolatilitytrailingstop. MoneyMarketMastery 54

  42. TradeGenie GrantingProfitableTradesDaily PriceTrailingStop Aprice trailing stop usesafixedprice distance to trail eachbar’s stop. This is useful especially where you may want to limit your stop distance to a fixedpredetermined value, i.e. $0.50, $1.00, $5.00 etc. One drawback of this stop isthat $1 could be alarge move for one stock and very small move for another. This is why the price trailing stop should mainly be used on individual stockswhosemovement iswell known toatrader. PercentageTrailingStop For stocks with similar volatility levels,the percentage trailing stop can offer better results. Here you can start with say a 5% stop loss, but haveit trail with the market higher while allowing for inter-day and intra-dayvolatility.However, similarto thepricetrailingstop,for somestocksa5%isalargemove,andforothersnotsolarge. VolatilityTrailingStop Athird trailing stopoption isthe volatilitytrailingstop.Asthe namesuggeststhestopdistanceismatchedtothevolatilityofthe individualstock. Atrader can obtain this information by checking the ATR (Average True Range) indicator. For those not familiar with ATR, the indicator measuresthe opening and closing priceseachdayovera 14 to 30dayperiod.It then averagesout the movementto provide the average daily trading range for the stock. This ensures that whether the stockusuallymoves1% or10%daily,it willnot whipsawyou outofthetradeonnormaltradingmovement. The best stop strategy and settings are best left up to you and your risk tolerance. I even know a number of traders that use a combination of strategies. They initially use a price stop to keep losses small in case they madea mistake ontheentry. Butthen,oncethetradeisshowingaprofit, theygivemoreroomusingapercentagestop. Ultimately, you want to keep another important rule of successful trading in mind when you set your stops: “Keep your losses small and let yourwinnersrun.” MoneyMarketMastery 54

  43. TradeGenie Granting ProfitableTradesDaily Moneymanagementisacomplextopic,andcancertainly coverseveralmorearticles,but thesearethebasics,andyoucan startfromhere. The most important factor in determining the nature of your stop isto determine ifit makessensegivenyourobjectives, the instrumentsyouaretrading,andyourtemperament.Youmust usestoplosswhichmakessense. MoneyMarketMastery 54

  44. TradeGenie Granting ProfitableTradesDaily UnderstandingExpectancy “At the heart of all trading is the simplest of all concepts--that the bottom-line results must showa positive mathematical expectationinorderforthetradingmethodtobeprofitable.” —ChuckBranscomb Whatisexpectancyinanutshell? Atradingsystemcanbecharacterizedasadistributionofthe R-multiplesit generates.Expectancyissimplythemeanoraverage R-multiplegenerated. Whatdoesthatmean? Bynowyoushouldknowthatinthegameoftradingitismuchmore efficienttothinkoftheprofitsandlossesofyourtradesasaratioof theinitialrisktaken(R). Butlet’sjustgooveritagainbriefly: One of the real secrets of trading success is to think in terms of risk- to-reward ratioseverytimeyoutakeatrade.Askyourself,beforeyou takeatrade,“What’stheriskonthistrade?Isthepotentialreward worththepotentialrisk?” So how do you determine the potential risk on atrade? Well, at the timeyouenter anytrade,youshouldpre-determinesomepointat whichyou’dgetoutofthetradetopreserveyourcapital.Thatexit pointistheriskyouhaveinthetradeoryourexpectedloss.For example, if you buy a$40 stock andyou decideto getout if that stock fallsto$30,thenyourriskis$10. MoneyMarketMastery 54

  45. TradeGenie Granting ProfitableTradesDaily The risk youhavein atradeiscalledR. Th a t s hould b ee asy t o rememberbecauseR is short for risk. R can representeitheryour risk per unit, which in the example is $10 per share, or it can represent your totalrisk.If youbought100sharesofstockwithariskof$10per share,thenyouwouldhaveatotalriskof$1,000. Remembertothinkin termsofrisk-to-rewardratios.If you know that your total initial risk on aposition is $1,000, then you can expressall of your profits and lossesasaratio of your initial risk. For example,if youmakeaprofitof$2,000(2 x$1000or$20/share), thenyouhavea2Rprofit.Ifyouhaveaprofitof$10,000(10x $1000)thenyouhaveaprofitof10R. The samethingworksonthelossside.Ifyouhavealossof $500, then you have a 0.5R loss. If you have a loss of $2000, then you havea2Rloss. But wait,you say,howcould you havea2R lossif your totalrisk was$1000?Well,perhapsyoudidn’tkeepyourwordabout takinga$1000 loss and you didn’t exit when you should have exited. Perhaps the market gappeddownagainstyou.Lossesbiggerthan1R happenallthetime.Your goal as a trader (or as an investor) is to keep your losses at 1R orless.WarrenBuffet,knowntomanyasthe world’smostsuccessfulinvestor,saysthenumberoneruleof investingistonotlose money.However,contrarytopopularbelief, WarrenBuffetdoeshavelosses.Thus,amuchbetterversionof Buffet’snumberonerulewouldbetokeepyourlossesto1Rorless. Whenyouhaveaseriesofprofitsandlossesexpressedasrisk- rewardratios,whatyoureallyhaveiswhatVancallsanR- multiple distribution.Asaresult,anytradingsystemcanbe characterizedasbeinganR-multipledistribution.Infact,you’ll findthatthinkingabouttradingsystemasR-multiple distributionsreallyhelpsyouunderstandyoursystemandlearn whatyoucanexpectfromthem inthefuture. MoneyMarketMastery 54

  46. TradeGenie Granting ProfitableTradesDaily Sowhatdoesallofthishave to dowithexpectancy? WhenyouhaveanR-multipledistributionfromyourtradingsystem, you need to get the mean of that distribution. (The mean is the average value of a set of numbers). And the mean R-multiple equals the system’s expectancy. Expectancy gives you the average R-value that you can expect from the system over many trades. Put another way, expectancy tells you how much you can expect to make on the average, per dollar risked, over a number oftrades. So when you have a distribution of trades to analyze, you can look at the profit and loss of each one of the trades that was executed in terms of R(howmuchwasprofitandloss basedonyourinitialrisk)anddetermine whether thesystemisaprofitablesystem. Let’slookatanexample: EntryPrice,Stop,1R,ActualExitPrice, Profit/Loss TradeOne=$50.00$45.00$5.00$60.00=2RgainTradeTwo=$22.00$20.00$2.00$16.00=3RlossTradeThree=$100.00$80.00$20.00$300.00=10R gainTradeFour=$79.00$70.00$9.00$70.00=1R lossTotal=8RGain Expectancy(Mean=8R/4)2R Sothis“system”hasanexpectancy of2R,whichmeansyou can “expect” to make two times what you risk over the long term using this system,basedonthedatathatyouhaveavailable. Pleasenotethatyou canonlygetagoodideaofyoursystem’s expectancywhen you haveaminimum ofthirty trades to analyze,and the preference would be to have 100 to 200 trades to really get a clear pictureofthesystem’sexpectancy. MoneyMarketMastery 54

  47. TradeGenie Granting ProfitableTradesDaily So in the real world of investing or trading, expectancy tells you the net profit or loss that you can expect over a large number of single unit trades. If the total amount of money in the losing trades is greater than the total amount ofmoney in the winning trades, then you areanet loser and have a negative expectancy. If the total amount of money in the winning trades is greater than the total amount of money in the losing trades,then youarea netwinnerandhaveapositiveexpectancy. Example, you could have 99 losing trades, each costing you a dollar. Thus,youwouldbedown$99.However,ifyouhadonewinningtradeof $500,thenyouwouldhaveanet payoff of$401($500less$99)--despite thefactthatonlyoneofyourtradeswasawinnerand99%ofyourtrades werelosers. We’llendourdefinitionofexpectancyherebecauseitisasubjectthat canbecomemuchmorecomplex. Van Tharp has written extensively on this topic and it is one of the core concepts that he teaches. Asyou become more and more familiar with R-Multiples, position sizing and system development, expectancy willbecomemucheasierto understand. To safely master the art of trading or investing, it is best to learn and understand all of this material. Although it may seem complex at times, we encourage you to persevere because like any worthwhile endeavor, as soon as you truly grasp it and then work towards mastering it, you will catapultyourchancesofrealsuccessin themarkets. MoneyMarketMastery 54

  48. TradeGenie Granting ProfitableTradesDaily Exiting theTrade “Amanmustbelieveinhimself andhisjudgmentifhe expectstomakealivingatthisgame.” —JesseLivermore Therearetwostrategiestoexitthetradewithprofit.Theseare: BasedonProfitObjective Ifmytargetistomake20%onthetradethenIcalculatethetargetbid based on 20% profitand placeGood TillCancelOrder. I alsoput the sell order for 20% to 25% profit when I don’t have time to calculate the target bid and the stock is moving fast. If I am out on the same day with 20% to 25% profit then I am happy. The target profit objective varies based on option price.Foroptioncontracttradingat$6andabove myprofit objectivecould be 10% whereas for option trading at $3 my profit objective would be 20%. In both scenario I am targeting $0.60 per contracts. BasedonTargetPrice If I am basing my exit on stock target price then I place my good- till-cancelorderto sellone-fourthatfirsttarget,one-halfatsecond targetand one-fourth at third target. If the stock has not reached its targetafter certainnumberofdaysofitsupwardmovementand showingsignofpullback then I goahead and liquidate my position and lock my profit as there is always a trade waiting for me around the corner. If the stock is not doing its thing after certain days have passed thenItrytoliquidatethepositionatbreakeven too. MoneyMarketMastery 54

  49. TradeGenie Granting ProfitableTradesDaily General GuidelinesonSellingYourContracts Belowisthegeneralguidelineonhowmanycontractstosellatwhat target.Youcanusethemultiplier.Forexample,ifyouhave8contracts thenseenumber 4 belowandmultiplyby 2. Ifyouhave1contract thenideallysellatyellowtarget. Ifyouhave2contracts thensell1atgreenand1atyellowtarget. Ifyouhave3contracts thensell1eachatgreen,yellowandredtarget. Ifyouhave4contracts thensell1atgreen,2atyellow and1atredtarget. MoneyMarketMastery 54

  50. TradeGenie Granting ProfitableTradesDaily Keepingthe TradingJournal ThefollowingexcerptistakenfromDr.AlexanderElder’sbook “TradingforaLiving”. Areyousabotagingyourself?Theonlywaytofindoutistokeepgood records,especiallyaTrader’sJournalandanequitycurve.Theangleof yourequitycurveisanobjectiveindicatorofyourbehavior.Ifitslopes up,withfewdownticks,youaredoingwell.Ifitpointsdown,itshows youarenotingearwiththemarketsandpossiblyinaselfsabotagemode. Whenyouobservethat,reducethesizeofyourtradesandspendmore timewithyourTrader’sJournalfiguringoutwhatyouaredoing. Youneed to become a self-aware trader. Keep good records, learn from past mistakes, and do better in the future. Traders who lose money tend to feelashamed.Abad lossfeelslikeanastycomment - most people just want to cover up, walk away, and never be seen again. Hiding does not solve anything. Use the pain of a loss to turn yourself into a disciplinedwinner. MoneyMarketMastery 54

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