Smart Traders. FAQs & Best Practices

Transcription

1 Smart Traders FAQs & Best Practices Copyright 2012 Wealth Mentors Pte Ltd All Rights Reserved

2 About the US Market Even though the US stock market opens for trading at 9:30AM EST we place our trades after the first hour of trading Brokerage fees can and will vary from one broker to another and can impact your bottom line The difference between the Bid and the Ask is called the spread and represents how much we will be negative immediately after placing our trade. A Limit Order is an order to buy or sell a stock/option at a specific price or better

3 Short Term Trading Methods With this style of trading we look to capture 30%- 50% and a SL of 30% or less, otherwise we pass on the trade Don t hold trade through Earnings.

4 Options When we trade for 3 to 4 days, buy at least 21 days of time. We buy less than 10% of the open interest for the option strike and month/week. The IV on the stock can rise ahead of earnings and then drop after earnings; potentially impacting the option negatively for the Buyer of that option A 5% move on the stock may or may not yield 50% return on the option because of either time or the IV on the option

5 Money Management Our strike price is based on the SL on the stock If the stock s IV is 45% or less then the IV on the stock is considered low. We will always virtually trade first so we can gain experience in the both the methods and mechanics of placing trades. Allow your first year of trading to focus on mastering your trading psychology and practice trading skills When we decide to begin trading we will begin with 50% or less of our real capital We will always trade with protection (either being hedged or with a SL)

6 Money Management - Stop Loss Even if you set up a stop loss on your options, your order may be stopped out at a lower price. This normally happens if the market opens at a lower option price. Hence you may end up with a bigger loss than what you planned. For eg. you have put in a 25% SL but you may end up with a 35% loss if the market gaps at open against you. So you may want to hedge your position with a counter option

7 Money Management 1. When 10.30am EST price is too far away from a dma or pma, the stop loss will be too far from the entry price. The risk-reward ratio is therefore not attractive because of higher risk and lower reward. It is best to avoid those trades. 2. With practice, you can learn to quickly filter them by looking at the charts.

8 Money Management 1. We are looking for an edge in the Market that gives our orders higher probability going our way, but that doesn t mean it will work 100% of the time. No method works 100% of the time 2. So a perfect set up can still go against us 3. If you are trading with live capital, and you incurred 2 consecutive losses (there may be some market uncertainty and professionals have stepped aside), go back to paper trading. 4. Only after you have 2 consecutive wins on paper then you go back to live trading.

9 Money Management 1. It is ok to have more breakevens during a trading period because it means fewer losses. To us, it does not mean fewer gains! 2. Only take a trade when set up is triggered with proper risk management. 3. Do not trade with more than 50% of your account and do not risk a maximum of 10% of your account size 4. Risk means the amount you would lose if your trade is stopped out. This determines your maximum Options Contract size.

10 Money Management 1. Keep no more than 3 active positions at any one time. It avoids over trading and reduce risk. 2. Focus on getting consistent wins instead of one huge giant win.

11 What is Daylight Savings? The main purpose of Daylight Saving Time (called "Summer Time" in many places in the world) is to make better use of daylight. USA trading hours: 9.30 am ET to 4.00 pm ET Non DLS eg. Feb : 10.30pm am (SG/MY/HK) DLS eg. Apr: 9.30pm am (SG/MY/HK) Year DST Begins 2 a.m. (2 nd Sunday in Mar) DST Ends 2 a.m. (1st Sunday in Nov) March November March November March November March November 2015

12 What is a minimum amount to invest in any of the 3 strategies? Can I trade with just $2000? 1. Firstly focus on building skill sets using Practice Account, say with $2000. Once you are able to double the account, then trade live, otherwise, continue to trade virtually. Do at least a sample of 20 trades. This may take a month or a year. Remember patience is a critical skill set in trading! 2. Secondly, start with a live small account with US$2K or more depending on your comfort level. 3. Thirdly, at any point in time, do not trade with more than 50% of your account. 4. Fourthly, focus one trading method at a time. So the $1K investment above is based on 1 trading method. 5. Finally, remember the more successful traders are in the business with a long term view so the longer you are doing this the higher your chances of success! Give yourself at least a year.

13 When To Go Live? 1. Do not pressurize yourself that you must start trading with live capital by a certain time frame. 2. Paper trading is important as you can practice and hone your skills in a safe environment. 3. When trying out a new trading method, create a sample size of at least 20 trades to make sure you are statistically getting a good probability of success. 4. Mirriam paper traded for 1 year 5. The market is always there for you!