Profile: Stephen

Here is a copy of his trading rules. Please offer any feedback that you can or any suggestions that come into your mind. Participation in this activity will help more people here than just Stephen.

Hello Everyone,I just want to say thanks in advance to anyone who takes the time to read through this. I know your time is valuable so I honestly appreciate it.

For those interested, I will go ahead and spell out my situation exactly. I turned 27 in March and I have been studying the program for nearly one and a half years. Since I started, I have lost a total of $19,000. At the close of 4/11/07 the remaining balance that I have to trade with is $4215. For a lot of people studying this program, $19,000 might be how much they spend in commissions every year, but to me, it is everything I have ever saved. As much as I want to blame someone else, I know there is nobody else but myself to blame for losing this money. A lot of the loss came early and I was far too inexperienced to have been playing around with it in the first place - and thus made some pretty awful mistakes.

Originally, I had dreams of making a nice living with the program and being able to help my father retire a couple of years early with my trading skills, but that seems to be the furthest thing from my mind at this point. My family is not aware of how much money I have lost as I have just chosen to not talk about it at all with them. In fact, they still think I am doing really well with itand are even trying to get me to help them open an account for them so I can invest some of their savings.

Anyways, that is the background of this case study - I hope you do not have visions of me crying into my keyboard as I type this:) Usually when I get angry I close my computer and go running. I had to make a new notch in my belt last night and my neighbor thinks I am training for the Boston Marathon:)

On to my rules...

These following 2 sets of rules are for Support Bounces and Flag Breakouts. The flag breakout rules can easily be applied to any sort of breakout, but I specifically mention flags to be more detailed.

If you have any questions, please do not hesitate to post them or email them to me. I will answer all questions honestly and as quickly as possible. I have to drive my girlfriend to work in the morning, so I might be away for the open.

step_investments@yahoo.com

Thank you again,

Stephen

Trading System for directional options (calls andputs) Support or Resistance Bounces:

-Timeframe: Short term Bullish / Bearish Continuation

-Document Earnings date (min. 10 days away & plan to exit trade prior)

1. Identify stock is approaching a clearly identified support or resistance

2. Use 30, 50, 200 MA to identify trend and S or R areas

3. Use candle patterns to confirm support/resistance areas and exit points

4. Use Fibonacci lines to confirm S & R areas

5. Use Bollinger bands, MACD(8,17,9) & STO(14,5) for market sentiment but do not use them for entries. (i.e. bullish if 2-line MACD above zero)

6. Buy on confirmed S or R bounce -OR- place a limit order to purchase option when stock is at least .10 above yesterdays candle on bullish or .10 below yesterdays candle on bearish trade

7. Place stop at .25 below the identified S or R (low of yesterday on bullish trade and the high of yesterday on bearish trade)

-On a daily basis (last 15 minutes of day)

1. I will move my stop to break even once the stock has shown a profit of $1

2. I will lock in profits of 50% as my stock moves beyond $2 in profit

3. I will lock in profits of 90% once my stock has reached 75% of my target price. At this point, a trailing stop of 10% below the current option price will be used.

4. I will set a stop at .25 below the low of the day on any bearish candle formation.

5. I will exit the trade early if I see a confirmation on any bearish candle.

6. I will exit the trade early if I see price weakness and a turn down in the MACD or Stochastics (I will not use MACD/STO alone for exits)

7. I will exit any trade that is moving sideways for 7 consecutive trading days.

Trading System for directional options (calls andputs) Bull/Bear Flags

-Timeframe: Short term Bullish / Bearish Continuation

-Document Earnings date (min. 10 days away & plan to exit trade prior)

1. Identify Bull/Bear Flag and support or resistance

2. Draw flag pole & and flag channel to identify S & R

3. Use 30, 50, 200 MA to identify trend and S or R areas

4. Use candle patterns to confirm support resistance areas and exit points

5. Use Fibonacci lines to confirm S & R areas

6. Use Bollinger bands, MACD(8,17,9) & STO(14,5) for market sentiment but do not use them for entries. (i.e. bullish if 2-line MACD above zero)

7. Buy on confirmed flag trend line break -OR- in anticipation of breakout, place a buy stop order to purchase option when stock is at least .25 above the upper (bull) or lower (bear) trend line of the flag

8. Place 1st stop at 1% below the upper trend line of the flag. (If not in front of PC, set a 1st triggers to set this stop)

-On a daily basis (last 15 minutes of day)

1. I will move my stop to break even once the stock has shown a profit of $1

2. I will lock in profits of 50% as my stock moves beyond $2 in profit

3. I will lock in profits of 90% once my stock has reached 75% of my target price. At this point, a trailing stop of 10% below the current option price will be used.

4. I will set a stop at .25 below the low of the day on any bearish candle formation.

5. I will exit the trade early if I see a confirmation on any bearish candle.

6. I will exit the trade early if I see price weakness and a turn down in the MACD or Stochastics (I will not use MACD/STO alone for exits)

7. I will exit any trade that is moving sideways for 7 consecutive trading days.

Stephan:
I feel for you but you are young. This is like any other business, it takes time to learn and as long as you use the losses a learning experience you will do fine.
Think of it as marathon training, i am sure you did not run 26 miles on the first try.

I think you have to many rules. Trading is more like an art and there are no systems that will be foolproof. You have to be lenient on your rules, and I bet that with all that stuff on your charts you may be not be able to see the true trend or chart of the stock.

Copy Jeff's charts and you will see how the stock tells you a different story.

You have to give yourself and the option time for it to reach the target or you will be whip lashed.

I would just use support, resistance, trend and do not forget you are either buying or selling a company, not just a number. Professional traders know where most people put stops and where people will panic they will use that against you and make people trade irrational, if you lose someone else wins. Therefore you have to use stops with crayons.

I hope this helps.

David S

S,

I agree with David that you may have too rules. Someone suggested to me when looking at chart stand up walk across the room and then look at the chart. What do you see? Make it simple, only take the trades that truly call to you that way you have so much more committmetn to the trade and will give it the room it needs to move. Maybe consider trading very small and more time,so the swings don't kill you. I too struggle with the shorter term trades.

Good luck. Don't give up. Education is a process and focus on how far you have come,not the money.

Sarah

P.S. anyone looking at DECK, looks like a bounce.

Stephan,
There are a lot of people out there who are more successful at this than me, but here are some thoughts I have.

It is possible to lose a lot of money by taking small gains. As Jeff has said time and time again, you're going to have more losers than winners (in all likelyhood) and the trick is to keep your losses small, and your winners big. By moving a stop to within 10% when you're at 75% of your target seems to me to almost guarantee that you'll only ever make 75% of your target and never get the big profits you need to keep those small losses financed. Stocks are always going up and down, and a $0.50 stop on a $5.00 option (which could be on a $200 stock) is almost a sure bet that you'll get stopped out before you reach your target.

Also, I have had horrible luck with putting hard stops in place. I did for a while, but I found options move pretty wildly some days and I was getting stopped out on a day when things ended positively. I now trade only in the last couple of hours of the day, and will enter stops only if I can't get to the computer for a couple of days in a row. Although with the luck I've had with stops... I now tend to just sell everything if I'm going to be away for a while and get back in when I'm able to be at the computer again. I use Interactive Brokers ($0.75 per contract) and it's so cheap to get in and out that sometimes that's what I have to do. Not desireable, but it beats stops.

I'm sure you'll get lots of suggestions but I hope this helps a bit. Last week I was up 15% and I knew I'd take a bit of a hit this week as everything retraces a bit before it heads back up (or down) Today's not such a good day for me, despite the market doing well. Yesterday I celebrated a $15 profit when the market was down 90 points. Go figure. Persistance is a lot easier if the dumptruck keeps leaving money on your driveway, but there are a lot of people out there making a darned good living at this and the information you get off this blog should help tremendously.

Good luck. We're all with you in spirit.

Chris and Catherine

Leap, micc, vip, pbr, good moves on these.
I like vip's growth potential, but I do not like the chart right now, although it is bouncing of the 30 day move average and trend line.

Jeff or anyone can you comment on these?

David S

Stephan,

What do you consider a bounce and what do you consider a breakout? Do you wait for confirmation or do you always try and anticipate the move? There a several different definitions that people use for these and you might want to make sure yours is consistent every time...

Do you consider volume at all?

Your stop loss system is pretty complex and I can imagine you might get stopped out too early in a lot of cases...

Everyone has there own take on whether to be a system trader or a discretionary trader.... As Jeff and Eric have said, it is recommended that you start off being systematic with everything... then as you get better, add in some discretion. Taking this into consideration, I started with a purely systematic approach, one that I could backtest like crazy. Although this was pretty boring and it took a long time, once I developed a system, I manually back tested every entry and exit going back two years (it took me a solid weekend of uninterrupted work). Then, I was able to go back again and develop some discretionary rules that fit with the system I was using (again, another solid weekend of work). All this was done without looking at option prices or making any trades. It was strictly studying movements of the charts. After doing this, it gave me the confidence to start trading.... Now, when things go against me I am able to UNEMOTIONALLY analyze the situation and make decisions based on my rules because I know I have 2 years worth of data to lean on...
I am a pretty young, too... and after taking some losses in the beginning I think it is all about making things a simple as possible and only focus on what you are comfortable with... Everyone on here trades differently and has differing account sizes... Once you find a proven system that you are cool with, things go a lot better (at least for me, anyway)

Good Luck

Stephan..

Hang in there bud...I'm with you as are a lot of folks here.

Look at all your trades without the osccilators adn just look at price and volume. It is amazing what you can see.

Pull up TEX. I had a sym triangle breakout I got in on 3/16..it broke above my trendline with volume. Then for the last 16 trading days it has done nothing until today. Patience buddy..and I sometimes dont have it. Only givein a stcok a week or so to move is not going to work in your favor. Trust what you see, simplify your system.

I agree comletely with C&C and Dave S........Stops are areas of support and resistance, not a fixed number so to say. I have been burned more times than I care on hard tops. Draw your line in the sand, but use Daves Crayon, and watch volume.

Also everyone on this Blog has been polite, informative, educational and even comical. Don't be afraid to ask and share.

It is the best way to learn, I and am learning from everyone here...

Good luck...take the noose off from around your neck (I took mine off)..and lets make some money..

Hello Everyone,

Thank for the comments. I just wanted to make a quick post about the types of trades I take. Also, yes, I absolutely look at volume. I place more weight on that than anything. It kept me out of ESRX on 4/03 as it broke a flag/bounced. I am pissed I missed out on it, but the volume just was not attractive to me.

I just want to post this so I can see if I am on the same page as everyone else: on a typical day, I would enter trade such as these:

KSS, BTU, GILD, RS

These are all, in my opinion, breakouts on great volume. These are the kind of trades I take. I would wait until the end of the trading day to confirm the move and I would note the earnings as well. I just want to give examples of the kind of charts I like and look for.

Please let me know what you think. I hope one day I can give some advice as a successful trader to someone that is in a position like myself. I am not sure if that sentence makes sense, but I am trying to thank you:)

Stephen

Anyone else jump the LEAP breakout this morning? Volume not very strong but man what a move today.

Bob R.

I'm with you on TEX. I entered earlier this week, realizing it may have been a bit early, but I went in knowing it was a low risk entry(sitting right on support), and looking at the chart from across the room it's was just waiting to bust out. Patience is such a big part of this business. Possible 12 pt. move. I like that kind of reward risk ratio.

Sarah

This PLCE sym triangle breakdown yesterday really has some new implications. I see a long-term head and shoulders with the neckline sliced HARD today. Too bad earnings are in a month, but this one is tanking HARD.

Anyone else with some interesting plays I may not be watching?

Brett..

BWLD.....got in 3/19, got out 4/8..nice profit. thanks for that one....

Looks today like a nice retest..

I have EQIX on the radar....

....as well as CTSH (yes, I know, it is making lower highs all day, i am an idiot for bailing....don't rub it in..)

LFC......Been watching this ..earnings ....

Stephen,

I am loving KSS & GILD...RS I think is too close to earnings (with that little amount of time hard to get enought reward to justify the risk) & BTU tough trend conditions & entry point on that one(in my opinion).

Not that anyone really cares, but i think CMG is a solid entry on the trendline bounce with an expected breakout. Volume has really surged on the up moves within this pattern. You could, of course, wait for the breakout, but by then, you could be too late.

Bob, remember this: nothing is stopping you from re-entering CTSH if the retest holds here at the end of the day.

I exited PLCE yesterday and reentered that one the same day. In fact, i've done it multiple times. Yes, it's dumb to exit prematurely, but twice as dumb to pass up another opportunity on your initial setup.

Please don't let this post influence you too much. If you want to stay out, then stay out. I'm just trying to give you my own personal opinion.

Brett,

I too have CMG lined up on my shopping list...

JOhn

Brett...

I re-entered CTSH as it bounced off the todays 3rd lower intraday high...and feel like an idiot for getting stopped out in the first place......but hey, i agree, don't pass it up if you realize your first action was wrong.

What is your opinion on PCP?? I am still in and holding on...my line (drawn with a crayon) has been a close below $105..yeseterday and today have me like a donkey on the edge...

I'm expecting it to test the trendline again (only a couple of $'s lower) and bounce higher, but hey it could go higher before then. Stick to your plan. If $105 is your exit, then exit below $105.

Stephan,

I took the PCAR and TTWO trades. I missed FAF because I was already in the market as much as I could be. I took small losses on both of those trades. The key word is small! I normally take giant losses. Looking back at how I used to trade was risky and careless. Position sizing has helped me regain some of the capital that I lost.
I agree with Justin about a systematic trading system while you are learning. It keeps you following your rules and emotion out. I am still developing that, but the closer I get the more comfortable I am. Once I am disciplined enough to follow my rules, than maybe I can be more discretionary. Backtesting has also helped me keep my rules short and simple. I have lots of room to grow. Don't we all?!?

Loving BNI..
Amy

Stephan,
Anything to trigger some change in your trading pattern I guess is input. This is going to sound a little whacky but here I go.

I have traded for a long time with wildly varying results. Then I went to Investools hoping to get to the next level. My results were terrible. I finally reached out to an old coach in absolute frustration and he wasn't available. I was really down. Losses mounting , and the hot line wasn't really working for me.

So I tried something...
I use to enter my trades in Quicken for tax purposes. Quicken paired the transactions. I would download the transactions into a spreadsheet and caculate win/losses. I could see that I held on to positions too long. I guess I was making trading a control issue and not a probabality game. So I dug in.

I went back the last two years and rebuilt every trade from my brokerage account into Excel. Kind of re-lived every trade. Then I went back to my brokerage statements and used the monthly account balances and calculated a max loss per trade stop. For example 1/2 % or 1 %.

On my spreadsheet I then caculated what limiting those losses to 1/2% or 1% did to my profitability. IT was an amazing turn-around in profiatability for those years. That made me more comfortable with my rules. (one foot out of the hole). I could pick winners.

Then I simplified my rules. Next step I wrote my simplier rules everyday in my journal for 30 days. Somewhere I read, by writing them everyday for 30 days it commits them to the sub-conscious mind. You don't want to think too much, let your rules work in the heat of battle.

Next, I forced myself to take a series of small losses in my account. It is OK to take small losses was now embedded into my sub-conscious. (2nd foot out of the hole).

After about 45 days I was able to do battle again. This time I had simpler rules, the knowledge that I could pick winners (from my spreadsheet) and, the knowledge burned into my sub-sconscious that small losses will never take you out of the game(money-management skills).

It's really been an terrific turn around for me. We are all trying to get to the same place, but it is a different road for everybody. This is is what I did. Don't give up. Thanks for all the ideas today everyone.

Jamie

Hi Stephan (and everyone),

I'm really, really, really new to this and probably not qualified to offer any advice. My comments are as much for me as for you.

I am currently working on trading bounces. Haven't had much success with breakouts yet so for now I'm just focusing on the bounces.

Three comments:

1) Didn't see anything in your rules about position sizing. I am trading super, super small positions. When I started out (not long ago) I traded a little bigger. I was still under 1% at risk but as a beginner seeing the dollar amount made me too emotional, and emotions caused mistakes. I finally wised up and cut it way, way back. I wanted to learn to deal with the emotions of real money but I needed a position size that wouldn't freak me out when I lost. Kind of like Jamie said about learning that it's ok to take small losses. This was a big one for me and has helped tremendously. Now I'm willing to stay in the trade long enough to see the desired result (when it comes)

2) What about reward/risk? I was shooting for 1.5:1 and taking way too many trades. I bumped it to 3:1 and it has made me slow down. Sure, I've missed some winners, but also passed on some losers. Bottom line, I was overtrading and this rule has cut that off.

3) I stopped entering trades at the beginning of the day. Forced myself to wait to the close. It also makes me miss some opportunities when the thing moves too much and reward/risk doesn't work anymore at the end of the day. But, again, I'm trading less, learning, building confidence. I figure I don't need a ton of trades, just a few and when I am ready to increase position sizes, I'll be fine.

I also agree with everything everyone has said about auto-stops. They are crazy hard to make work. The smaller positions have given me confidence to leave wider stops and get out more when it looks like it's going to "close-below" a level instead of hitting something intraday.

Stephen -

This won't be a popular reply here. So, bloggers go ahead and roast me for it.

I lost money trading until I stopped focusing on trading options and started focusing on trading stock. (Sorry Jeff and option addicts). Since I have changed my focus from options to stock I have been profitable. I use many of the same price patters and entry and exit signals for the stock as I did with options.

After losing quite a bit of money I took a hard look at past trades. When I went back and looked I found that I would usually be right about the move of the stock. But, that my timing is not great and it was difficult for me to show a profit with options. With stock many of the option trades where I would have taken a loss on the option turn out to be profitable. They just take longer.

The main reason for my shift from options to stock was my personality. I discovered that I don't like losing. If you ask my wife she'll tell you that I don't like to be wrong either. I had a hard time keeping my losses small. So, I would tend to let losses run and close out winning option trades too early. One big loser would eat my small profits. As has been stated by Jeff and others here that will kill you. Since I now know this about myself I am better suited to trading stock than options.

I will still trade options sometimes if I see high volume and/or am expecting a big move. I'll also enter option trades if the volatility is low and I am expecting to see a change. If it's a flag breakout I'll usually trade the option since I expect the move to happen faster. So, sometimes I still trade options but am just a lot more selective.

Jeff is awesome. I love Jeff's price patterns class and can use the same breakout or bounce trigger for entry for my stock trade as others would for the option trade. I love the blog and the support it gives to others. I share trades when I can and get a lot of ideas here. Often I buy or short stock while others here are in the option side of the same trade. I have a high percentage of winners. I am not making huge percentage gains on trades. I don't have big losses either. My timing doesn't have to be as accurate on the entry and exit points and I don't worry about time decay, spread, open interest, etc.

I trade on margin and have a decent size account so I can trade the stock and still make a decent return. I'm not getting the 300% returns on trades that others might. But, I am also not taking a lot of losses which evoked too many emotions for me personally ro be effective. I can sleep better at night not worrying about what the market will do the next day to my option price.

I know it's not for everyone. It's just what I have discovered fits my personality. Perhaps your system isn't a fit for your personality and that's why you've struggled. All I can say is adjust but don't quit.

I also agree that you should simplify your rules and hard stops never worked for me either.

Best of luck to you,


Brent in San Antonio

Stephen,

I too will chime in and ask you to consider simplifying you system. At one of my Investools classes, the instructor told me that he often will trade using only candlesticks and volume. Simplify!

I will use hard stops from time to time, however as others have attested, you can get whipsawed out of your position very easily.

I day and swing trade, so I will trade at various times during the day. However, I love to sell in the morning as its like feeding monkeys at the zoo; always a hungry crowd.

Position sizing is key, I was one of those lucky/unlucky beginners: I made lots of money off GOOG, BNI,JLG and a few others, and thought this is so easy, until my position sizing, or lack thereof, hit me like I was a redheaded stepchild. So, I have felt the pain of losing a lot of my account.

Stay with trading, stay with this blog. While I am still somewhat new to this blog, I will say that it is an excellent forum.

The best of luck to you,

Glenn

Glenn,
OK, I give up. What atrocities are redheaded stepchildren subjected to that the rest of us aren't? I have never heard that saying.

Everyone that listened to today's Marketcast probably checked out ESS. It's a textbook H&S that looks ready to plumet when it breaks below $125. I've got the gloves off and my finger on the Panic button, on this one.

I have written "I will not obsess about missed trades (read IIG)" 1000 times. But I'm still kicking myself over that one. Don't trust it enough to enter now. Good luck to all who took it.

Chris and Catherine

Forgot to mention... RATE did it's thing today. I've been holding on to it in the hopes it'd bounce off support on the way down, and it did today. Hopefully it'll continue.

Chris and Catherine

HEY LOOKY ME... I have my own blog. Have a look at VIP. It survived earnings realatively intact and looks ready to bounce off support.

Hmmmmm

Chris and Catherine

Stephen,

I noticed that you don't have any rules for which option to buy (ITM, OTM, how many months until expiration, greeks, spreads, time value).
I think the spread is very important. If you have a $4.60 bid and a $5.00 ask, then if you set your stop $0.50 below the ask, you're really only giving that option $0.10 to move before you're whip sawed out.
I used to always buy out of the money options because I could afford more and the returns were potentially much greater, but I realized that most of the time my target wouldn't be reached and the value of my option would fade away.
I still need to work on my rules for picking the option contract too, but generally I try to buy in the money, one month out, with spreads preferably no more than $0.20.
Maybe someone else has more specific rules for this that they could share?

Geoff

Hi Stephan and all,

Since the post is about trading rules here is my two cents worth....Investools does an excellent job of teaching technicals, price patterns, fundamental analysis and so forth but they fall WAY SHORT of teaching you to form your trading rules. They teach you well on everything until you get to trading rules and then they say...You have to make your own rules. Well excuse me but I have talked with numerous people including Investools instructors that tell you that they violate their rules all the time. I know eveyone may have a slightly different trading style but it is extremely difficult for someone who has zero experience with trading to develop their own rules. They don't have a clue where to start. Investools says to come with with your own rules....you must change your rules as your experience and knowledge grows. They never tell you that however. It would be great if you could get a BASIC set of rules to start with and just paper trade them. I don't know if it's a liability issue or what but to me that is one area that Investools has dropped the ball.

Joe K.

great post brent, i totally agree that everyone must find their comfort level and style of trading. there is a reason most options expire wothless,they are difficult to time.

sue

Stephan,

I too am trading a small acct. that did not start out nearly so small. With that said and almost 2 yrs into the stock game and 1 yr into the options game I feel like I am finally getting it.
I trade small amts. The biggest key for me has been to trade very close to support (or res.) and to get out when my mental stop is hit. I, too do not trade hard stops for I have been burned way too many times. Instead, I set alerts just a little below and at my stop point. Then I have control of the close. I have had to get better at pulling the trigger but its definately getting easier. Another thing I like to do is draw on my charts my entry point, target(s), and stop point. That way when I pull up the chart it is all there. On the Prophet Charts you can change the colors and so forth pretty easily now.
I hope this helps.
Rene

Stephan,

I want to be honest with you. I'm 3 months new to the program and I couldn't bear to even read through all your rules. Your rules need to be simplified and broken down into actionable items. You have so many rules, I was looking for the cliff notes. The KISS principle is often the best way to start. The coaching team has a sample investing plan to get you started. Hope this helps.

Andy

Hey Stephan,

I'm sure your head is spinning from all the advice you've received but I wanted to add one more thing. With the amount of times Jeff and Eric have mentioned this on the marketcast, I'm surprised that no one has mentioned this sooner... Diversification. I haven't been doing this for a very long time but I agree with a lot of the other comments that were made about your rules. They made my head spin there were so many. I have a tendency to get caught up with wanting to learn everything and applying everything to trading but it doesn't work to do that. That I know from personal experience. It's been difficult for me to keep it simple but it's been a lot better since I've done it. The thing is, there are a million and one different ways to trade and that can make it hard. That seems to be one of the difficulties of trading. We have absolute freedom in however we want to trade. And sometimes depending on the kind of trade you might want to use different trading systems. I think first and foremost you need to re-think how you're going to simplify your trading rules. Maybe take smaller position sizes. And diversify. Maybe try something other than just directional trades. Look at some stocks/and or options that you think might be good to stay in for longer than 3 months. Then you're spreading yourself out a bit more. You're diversifying. Of course, these are just my opinions but I hope these along with everybody else's comments help you. A lot of the people that I've talked to that have been doing this for a lot longer have all mentioned that it was around 2 years when it all seemed to finally come together for them. Don't give up yet. You have a lot of moral support here.

liz
pasadena, ca

BGC...

I like the way this stock is set up....

Up trending, Good volume on up days, sym triangle, a nice bullish engulfing yeseterday at $53.00 support on above average volume..4-5 pt move??

Joe K. - What about the "3 green arrows"???!!! That is the investools method and those are rules that are proven and they work... If you backtest them, EXACTLY how they are meant to work, they work.... However, most people dont use that system because they want something "better"... that's were I think a lot of people get frustrated...

What type of trader are you? (rhetorical question) Are you a value trader? Start with Phil Towns system... Are you a trend trader? Start with the 3 green arrow system. Are you a short term swing/breakout trader? Start with Jeff's rules (BTW if you look through the archives of this blog Jeff has posted his rules AND his routine... thanks Jeff)

I was frustrated with investools and the rule situation at first, too. But, once I made the decision to take ownership of my own trading and my own future I put the necessary work into building MY system, that works for ME. Investools and this blog helped with that process, but ultimately it is up to each individual to make it work for themselves. I have asked several investools people if they would be interested in trading my account but I havent gotten anyone to do it for me yet... :)

I have a suggestion to anyone who has been a part of investools for awhile and still struggling: GO TO THE 3 DAY LIVE EVENT. This event is designed for folks who have been involved with the system, tried it, and are struggling... It realigns people and gets them back on track. I went a couple months ago... although I had my rules and system already developed, I was able to tweak it... Also, I know others in the class who were struggling left with a new wave of confidence and several had "ah-ha" moments... Just a thought.......

You guys are throwing around some good ideas. However, I'm going to share with you the secret to successful trading. Find yourself a Caribou Coffee and grab a White Chocolate Mocha and a box of the Reindeer Nibblers (for when you can't get a Mocha). Trust me, it works. I lost money monday, tuesday and wednesday because I didn't get one. Then, i grabbed one yesterday and poof! Made up all my losses and MUCH more. I've been drinking them for 2 months and have made money for 2 months.

I suggest this method for anyone in a slump.

Hi Stephen,
I could tell you my own stories but I wont bore you. That new notch in your belt tells me that you need rules for coming to terms with your losses and make amends to yourself before you do anything else. Paper trades only.
Focus your mind by listening to the Marketcast religiously every night and take copious notes. Study the way they do it. Paper trade every single trade they give you and learn from their successes and "mistakes." You wont be any good as a trader until you get the emotion out of your system, and keep it as simple as they do. For a while, forget what you know. I am not saying your rules are wrong, but you need to step back from this loss, and your system, not keep trading. I know Investools says you can do this in an hour per night, but I think that is for investors who dont have lofty emotion filled goals. Dont let go of your goals though, because they will help you drive yourself through your confusion and regret. You also need to have your system backtested. If you have Advanced Technicals, ask Eric Chamberlain in the Application Trading Room to do it. If you dont have that service, I will be happy to ask him for you. Let me know. Tell your family to paper trade for themselves and tell them you are too new. When you are 30, you will either be still kicking yourself or you will have learned from your mistakes. I am telling you because I know. But I also have made back what I lost. Can you say six figures?

Brett...


You dissapoint me.....Not having a mocha that obviously is part of your trading plan?? How can you do this to us??

Hmmm...this nees to be corrected...

Send me your address and I will send you a gift certificate to your Caribou Coffee!!!

This needs to be corrected NOW. I can't afford the losses!

Stephen,

I recently started trading real money after 3 months of great success paper trading. I was so concerned about losing money,(with only $4,000 to start with), that I got out of trades at the first sign of weakness, or if the stock traded sideways a few days. Then last week I took a look at my paper trading which I had not even looked at for three weeks. I had made a 70% profit on 4 positions. In my real money account that I was trying to micro-manage I was down 7%. That was a wake up call for me. Now I'm giving my trades some room to work. Good luck to you Stephen, and all of us.

Michael

Brett,
Your POT is kicking butt again today!

Ohio Rick

Bob,

You didn't bail early on CTSH again did you??

Brett....LOL

No buddy...taking the emotion out, letting the CHART tell me what to do...

That, and today some Hazelnut coffee...I may just start sucking on the beans..too many trips to empty the bladder!!

Stephen,

I’m writing this as much for me as you because I need to reinforce what follows with my own system.

I’m hearing a theme and I agree. Too many rules! You need to simplify and then back test the system. Use backtesting to fine tune it. I believe your current rules will kick you out of a trade way too quickly limiting your upside.

Position sizing is absolutely critical. I started with a 28K which grew to 38K and is now 19K and have been trading 2 years. Bad position sizing brought me down to 19K rapidly. I only do options in this account. Limiting losses to a small percentage on an option trade gone bad is really tough, especially for inexperienced traders. A 2% dip below support on the underlying stock can easily translate to a 20% or worse loss on an ITM option trade. Using a flat percentage like a 50% loss as your risk tolerance on an option will force you to better plan which options you buy and which stocks you should be trading. Just because you see a good pattern doesn’t mean you should take the trade. The reward/risk ratio has to be in your favor.

Calculate reward/risk on every trade. Go for trades that are 4:1 in your favor or better and that will produce in less than 3 months or less. It’s okay to pass on trades with good patterns that don’t meet the reward/risk. It’s amazing how many breakouts won’t show even 2:1 reward/risk.

If your risk tolerance is a 1% loss in the whole account per trade with a 50% loss on an ITM option, you will find that in most cases you can’t trade more than 2 contracts at a time in a 20K account. With the account size you have now, 1 contract is probably the limit per trade. It’s sooooo tempting to trade more contracts on a trade you think is going to be a winner. Don’t do it.

Brent, made a comment about switching to just trading stocks. I think that’s great advice. I admit I’ve started doing more of this myself and my profits have improved. It’s easier to manage your risk especially on a stock trade, they don’t move as fast and you can more effectively use your stops. You can trade the exact same patterns. You can’t make the big killing with a small account but you also don’t get killed as easy. You will also have to focus on lower priced stocks. I’ve found that going back to more stock trades keeps me sharp and engaged while allowing me to focus my option trades on only the best of the best setups and breakouts. Your account is pretty small at this point so staying in the game is critical.

One other comment before I ramble further. DO NOT trade your friends or relatives money until you can consistently grow your own account year over year. Don’t even talk about trading with friends or relatives unless they are learning along side you. This just adds pressure on you and increases the emotional and psychological complexity of your trading.

MikeH

Bob-

I'm out of CTSH. The gap open above support is holding and it's holding that long-term trendline too. It might be premature, but it's a better exit than $89, where it was this morning.

Addicts,

today's trade of the day is BLUD.

Enjoy.

CTSH.

I am going to hold on and watch todays price movements. If it drops to $86.50 and bounces back up, I'll take my loss there. If it breaks through $86.50, I'll let it ride and see where it goes. Thats assuming that the current lower high holds of course..If it passes thru $87.50. I'll get out there.

I'd like to add one Brett,

ICE, breaking out of the consolidation.

Jamie

C&C..

I am hoping BEAVer shows me some love today, LOL..

MikeH,

I totally agree on your reward/risk emphasis. I pass on a lot of trades that look sweet on the chart because when you run the numbers, they don't add up. I'm sure that some of those trades go on to be winners but I'd rather wait on the ones with the better potential. After all, if you're going to trade low probability directional trades, there ought to be a payoff.

I also concur with everyone mentioning trading stock. With options, the least you can buy is 100 lot and a lot of times there's just no way to keep that risk within my comfort zone without putting insanely tight stops in and thereby lowering the probabilities even further.

With stock, I can buy 10 shares if I want, put in a nice wide stop loss and stay in until I am absolutely sure the trade is going wrong.

Granted, paying commission on 10 shares kind of stinks, but hey, we're learning here. I heard a Think or Swim instructor say that after one year if you can just break even after all of the commissions and expenses, then you've got it made for the rest of your life.

Jamie,

I just don't see what the trade is on ICE. What do you see?

Also, Tim and Mike, I'm sure if you went to stockaddicts.blogspot.com you'd find someone there to talk to.

just kidding ;)

I dont' see a trade on ICE...

I hope no one was in a bearish trade on SLM. I almost was at the last bounce but found better candidates with bigger rewards.

John

Does anyone know. what caused the dip on WCG? I'm thinking about taking a trade on bounce.

Sarah

Stephen, I am too new to give any real advice and will review it for my own benefit so thanks. Brett what do you recommend for us non-coffee drinkers. I think your WM impacted my trading too so this must be some bigger universal thing! WOW, thanks for POT this is my second hit with this ticker and has made up for my losses earlier in the week. It feels really good to see a winner running finally...so this is what it looks like! As my account is not that large I only have 2 contracts on POT. So far I am letting them both run. Should I take profits on one and let the other run? As this letting your winner run is fairly new to me I would welcome your advice. I bot Jun 155 C @ $17.60 and do not plan to hold over earnings.
Bob H.

Bob,

A couple of thoughts:

1) why would you sell? What was your target? What is your stop?

2) if you're not going to hold over earnings, and earnings are in April, why didn't you buy May calls instead of June?

These are the questions you need to answer before you get into the trade.

Hello everyone,

I was just reading through the comments and I am working on a much more simple set of rules for myself. I have a question though, how do you backtest bounces and breakout? I can come up with a very simple set of rules to play bounces at support and breakouts of well defined areas of support and resistance, but I have no clue how to backtest that. Any help here would be appreciated.

Stephen

Brett,
Thanks for the questions:
1. My first stop was $164.8 which has been moved several times, trying to use ATR. Target was $177 but I wanted to let the winner run, for a change.
2. I should have bot May I guess but as I am new was looking to have plenty of time value left.
As you can see I did answer the questions before the trade just may not have had the best answers. I think I over reacted to my trend of having not enough time in the past with my options.

I'm looking at a couple of set ups. Thought I would share and would like to get opinions. I haven't pulled the trigger on any of these yet.

TGP - Retest of ascending triangle breakout

WOR - Flag breakout

LUFK - Inverse H&S

KLAC - Ascending triangle retest

BLUD has already been mentioned.

Also, any opinions on MUR, OXY - Some interesting price action there.

Thanks bloggers (and Jeff)

Brent in San Antonio

Stephen - One thought would be to use the major indices to backtest. Apply your rules to the historical movements by bringing up a longer term chart and zoom into a 3, 6 or 9 month period and just scroll through and note where you would enter/exit and the risk/reward using your rules. Keep track of winners and lossers and by how much.

You could also take some of the trades/patterns that jeff and other bloggers have mentioned on this site in the past and go back and apply your rules to them to see how they would have worked out...

Anyone else daring enough to take a trade on EBAY's breakout today before earnings next week. I like the July $35's, and hold on.

Jeff, a suggestion, if I may...

I think each trading day, we should have your post as well as a dedicated post for new trade ideas. That would be much more organized.

Bob,

i'm not sure how you arrived at that target, but mine's $185.

I also like BLUD. Also to watch WYNN - broke through magic 100
INFY - earnings -invert. H&S
Tim V.

Going to pound a burrito at CMG. Hopefully that will get the stock moving.

Check out the bearsih clusters forming on the market forecast... SPX, OEX, RUT...

According to my backtesting, be prepared for a bearish overall move soon (maybe monday?).......

Brett,
I can see the $185 target and was just more conversative and looking at a 10+ move based on average monthly moves and my entry at $166.70.
Bob H.

Brett..

Popunf onr for me too...Don't have a CMG round here. Suck down some Mocha while your at it.

Jeff...

I think a a trading chart would be helpful...an organized list of ongoing trades and status???

I'd even dontate my time to help update it since I am home all day watching charts, if that would help...

BYD having a nice day...

CF.....nice strong uptrend...breaking to the upside...

CY and WMS too.

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...I'M AN OPTION ADDICT...I'M AN OPTION ADDICT...I'M AN OPTION ADDICT... ...I'M AN OPTION ADDICT...I'M AN OPTION ADDICT...I'M AN OPTION ADDICT...

About me

  • I'm Option Addict
  • From Saratoga Springs, Utah, United States
  • I am a professional trader and an instructor for Investools. I've had relations with the markets for 9 years. Born in Concord, CA, but reside in Saratoga Springs, Utah. Father of THREE, Husband of one.
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