Quote from cit13:
I think my entries are pretty good.
This is how I normally enter a trade.
I first see what the overall market is doing by doing a technical analysis of the SPY. If the market is bullish then I look for stocks in bullish sector. If the market is bearish then I look for stocks in bearish sector.
I use Finviz.com to find trades.
In my technically analysis I look at certain things such as candle stick patterns, highs and lows, momentum, support, resistance and moving averages. I need to add volume to the list.
Trade Example:
The only winning trade I have had so far is with
SE: Spectra Energy Corp.
I was taught to enter trades by setting a stop limit order in the forecasted direction but I just buy right in with a regular limit order if my technical analysis looks good.
SE Mar 13 29.00 Put
Quantity: 1
Commissions: $5 + $5 = $10
In: 10/31 @ $1.55
Out: 11/6 @ $1.75
Profit: $10
Stops:
10/31 @ 1.15 Initial Risk $50
11/01 @ 1.60
11/02 @ 1.55 I was up about $70 here
11/05 @ 1.80
11/06 @ 1.85 Executed at $1.75
So looking at this I can see a few of my mistakes:
1. My quantity is way too low hard to beat the commission and manage risk with initial stop. (?)
- - - - - Not sure if I am right about this because if I played my cards right on this one I would have made +$100.
2. Risking too much...
3. Tightened the stop too fast.
4. No exit strategy.
What I need to do Next
1. Go back to Paper Trading for now.
2. Write down my trading strategy in full.
- - - - Entry, Risk Mananagement and Profit Taking
3. Have a plan for each trade.
4. Trade
There are options tools out there that roughly predict the option price based off of stock price correct?
That will be an easy add-on to my work sheet.
Thanks again everyone.
Cit13,
Your getting a lot of good advice, here is my 2 cents:
Your setup on the SE trade was good.
There is only one thing I would have done differently.
Forget the trailing stop and just use reasonable
pre-determined sell limit and stop orders,
like +30% to +40% sell limit and -20% to -25% stop.
You were up +45% on 11/02, a 30% to 40% sell limit would have executed and you would have and should have been happy with that.
Trailing stops for big profits look good on paper buy rarely work.
Settle for quick reasonable profits over and over again instead of
prolonging those theoretical home run trades that rarely ever happen.
Never have your average stop larger than your average profit.
For instance:
Profit 40% / Stop -20%
10 trade month:
5 wins at 40%: +200% option gains
5 losers at -20%: -100% option losses
Net........................+100% monthly option gains
10% of account invested per trade = 10% monthly account gain
5% of account invested per trade = 5% monthly account gain
As you get better with your win/loss record and approach
W/L 66% or greater,
you can actually reduce the profit level a little and increase the stop a little (this gives you quicker turnover and higher accuracy).
Example: W/L: 66%
9 trade month:
6 winners at 30%: +180% option gains
3 losers at -25%: -75% option losses
Net........................ +105% monthly option gains
10% of account invested per trade = 10.5% monthly account gain
5% of account invested per trade = 5.25% monthly account gain
Also your commissions are a little high at $5.00 per option each way.
Think about Interactive brokers at $1.00 per option (.70 if 2 or >).
Jeff
