How many of you are or will be trading a small account?

Transcription

1 Dean Storholt

2 I am not a registered broker-dealer or investment adviser. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any particular individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. I am not subject to trading restrictions. Myself and other instructors could have a position in a security or initiate a position in a security at any time.

3 How many of you are or will be trading a small account? What is a small account? A great starting place Less to lose Excellent place to learn emotional control $500 - $5000 Commissions are very important in a small account

4 How many of you are or will be trading a small account? Choosing a Broker Direct Access Tradestation: requires $2000 to open a margin account requires $500 to open a cash account 2 payment plans $1 contract plus monthly platform fee, data $5 per trade +.50 per contract Rep info

5 How many of you are or will be trading a small account? Cash or Margin Account? Margin: Sell spreads More $$$ available Day trade restrictions < $25,000 Only one stop out a day! Cash: Trade till your money s gone!! Many hedges NOT available Broker WILL close ITM positions before close

6 Small account candidates: Which stocks can be traded? ANY lower priced stocks that move as long as they meet normal requirements. AAPL NFLX CLF MAT CHK P SLV DG UNG PLUG TWTR PEP

7 Can we make $ with a $2.00 stock? CLF was trading around 1.85 July $2c was.35 Went to over $3.35 Is a $70 trade with a 10 bagger ok?

8 Mattel earnings gap Outside Band Breaks down Still outside band Inside band is our entry One week later 7.20 ask

9 Is trading STRESSFUL? Why is it stressful? Is it chart reading? Is it execution? Is it emotions? If we can control EMOTIONS, we can reduce our stress!!

10 Trading between the ears

11 How can we reduce STRESS? Risk management Develop your own style SLOW THINGS DOWN!!!

12 Risk management! In a small account we: MUST PROTECT OUR CAPITAL! Keep our losses SMALL is easy to take Bigger losses trigger emotions It ll come back Lost so much see what happens It s cheaper now, ill buy some more Is Risk Management different in small accounts?

13 Risk management! SMALL ACCOUNT MISTAKES Entering with less than stellar entry Using a SATURDAY STOP Capping profits and not losses Disobeying your rules when you get ahead If you make a mistake, GET OUT! MINDSET!!! MINDSET!!! MINDSET!!!

14 Developing your own style: To be successful, investors must learn to think for themselves Investors must fashion an investment program that is not only profitable, but is one they will be able to execute. No system however profitable will work for them if they are unable to follow it. John Bollinger

15 Developing your own style: Find stocks that you like Learn their personalities NEVER stop learning Use MULTIPLE instructors! Take the parts that work for YOU! Follow your rules!

16 Slowing things down!

17 Slowing things down! The delta options moved too fast for me How can you slow things down? Fewer contracts? Lower delta? Lower Deltas = SLOWER MOVEMENT (both ways) Wider stops Smaller losses Death by 1000 paper cuts?

18 What about a delta?!? Time value or intrinsic value? What are the risks/benefits with low deltas? Benefits: Cheaper Smaller Stops Move slower Risks: Time decay can be SERIOUS! Giving up some profit? Are we Really? Stop out vs staying

19 What about a delta?!? Is this REALLY risky? Theta What is our target?

20 What about a delta?!? What day of the week is it? Monday/Tuesday Can hold overnight Wednesday are we ITM or OTM Thursday/Friday Can t hold unless ITM Decide what to hold before close every day Have we legged out at all? Close all but one? Re-enter next morning? WHAT DOES THE CHART TELL YOU?

21 What about a delta?!? Thurs/Fri = More delta for less money? Again the higher delta may move faster If it goes against you, it can happen quickly Consider next week s options?

22 What about a delta?!? Can we make money with these low deltas? Better entry? BTO 97.5c for.65 $1.30 Is a double in 2 hours ok? We MUST MUST MUST use technical indicators for our entries, exits, and stops!

23 Where do you set stops? THE REASON FOR YOUR ENTRY IS THE REASON FOR YOUR EXIT! Can you use areas of support/resistance? What if stock never hits mark? What if stock doesn t go in your favor? Can your option expire worthless? How can you prevent this?

24 How do you set your stops? STOP MARKET order Based on the OPTION price BTO AAPL 97.5c for.65 STC stop market order at.55 Loss capped at.10 + spread Use delta conversion to determine stop Distance to stop X your delta

25 Buying OTM Options How do you know how far out you can go?

26 Picking an option What is our target? Will we be profitable if the target is hit? How much time will we need to hit target? What day of the week is it? How much delta can we afford? Where is our stop? What is our risk?

27 Buying OTM Options What is your TARGET?

28 Legging Out Risk management to reduce stress SELL SOME, SAVE SOME! Buy at least 2 contracts With 1, you are all in or all out Very, very emotional Difficult to let the winners run emotionally! If you must trade with 1, follow it with a stop WHEN APPROPRIATE!

29 Legging Out BTO Stock breaks through our support level Stop Triggered The reason for the entry is the reason for the exit

30 Legging Out Move Stop Market to.43 Now Risk Free STC 1 STC 1 BTO BTO Stock retraces, can we reload? Harvesting PROFIT Why can t we always wait for a double?

31 Legging Out STC 1 Move Stop Market to.43 Now Risk Free STC 1 BTO Stock continues in our favor! The remaining contract stays until EXPIRY or STOP Follow last contract with a trailing stop? The tighter the stop, the more likely you ll stop out

32 Sell some? Why Exit Buy Puts? Reload?

33 Legging Out

34 Rolling Up and Out In a winning trade does your brain scream at you to lock in profit? $1285 $1180

35 Rolling Up and Out In a winning trade does your brain scream at you to lock in profit? $1285 $1180

36 Rolling Up / Out Daily chart SPY, failing at top band/resistance What happened last time it was here? What is our target?

37 Rolling Up and Out Trade Entry BTO 2 STC MOVE STOP STC WHY? Roll out BTO 2 Better entry? Where is our exit? STC Or Tighten stop?

38 Chart setup Plot moving averages and support/resistance from daily chart Transfer ma from daily chart to 5 min chart Color coordinate all ma 5ema Pink 10ema yellow 20ema blue 50ema green 200ema red 200 simple red/horizontal Horizontal support white/gray

39 Chart setup Plot moving averages and support/resistance from daily chart

40 Chart setup Lime green = Bollinger Band off daily chart

41 Stacking Indicators Getting a GREAT entry! TWEEZERS Tweezer top/bottom at the band The stock is trending up Gap down (against the trend) Any moving average the longer the term, the stronger it is The gap takes it to a major moving avg sma More than one average in same area Gaps to the bottom Bollinger band Rising/Falling 3 at a moving average Bullish or bearish engulfing candle Day count / candle count

42 Stacking Indicators Old levels of horizontal support/resistance Can include round numbers Retirement pattern at a moving average Break above the first 5 minute candle Pivot Points Bollinger Band Squeeze/Breakout Volume lower volume indicates its only retracing Blow off move? Fibonacci s Keltners Double tops/bottoms Head and shoulders/neckline Any other indicator that traders use

43 Stacking Indicators Start by stacking indicators on the daily chart Like to have at least 4 Then move to the five minute chart and continue stacking Can even continue stacking on the one minute chart

44 Stacking Indicators Good CALL entry? The more the merrier

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46 Stacking Indicators Which way is this stock trending?

47 Stacking Indicators How many? BTO 3 STC Move stop Investment : $192 1 st Contract - $20 2 nd Contract - $64 3 rd Contract - $46 Total Profit: $130

48 Trade Entry Entry Rules 1- What direction is the stock going (daily chart) Avoid calls on bearish stocks Avoid puts on bullish stocks Don t swim upstream, its harder Day trade exception 2- Where is the stock on the 5 min 3- Is it near a Bollinger band? Moving average? 4- Wait for a retracement to the 10ema or 20 simple ma You may miss a trade

49 Trade Entry Entry Rules 5- Know where your stop is. Below your entry If the band is your entry, can your stop move? Stay within your risk tolerance 6- Limit the number of positions you have until you set a hard stop or you have neutralized your risk in current trade. 7- Once you have your indicators stacked on the daily chart, go to the 5 minute chart and begin stacking them again. 8- Think ahead of the turn. Be the wick!

50 Trade Entry Examples?

51 Bollinger Band Bonanza December 20 th 7-9 PM EST