STOCKTRADE
Money Management RulesBefore we move on to the details of AJ's Strategy, it is good to do a quick review. We know what options are. We have down the three basic philosophies of successful options traders, we’ve pulled together the tools we need. Based on fundamentals, we’ve searched marketclub for all the stocks out there for the best of the best to trade options on. Based on technicals, we’ve scanned each marketclub's stock chart for pattern signals to enter and exit trades. We’ve examined and practiced a way to pick the best options university for the highest tradingtrainer returns on our investment. The final strategy from tradingtrainer is to learn is money management. Money management is the holy grail of every successful options trader under the tradingtrainer.com system. Simple, but powerful money management rules allow us to lock in profits and limit losses. Over time, the massive profits and the minimized losses balance out into immense gains in wealth using AJ's options trading methodology. Let’s take some real numbers and look at this. Say you open and close 10 positions over a two-month period. That means you’ve bought and sold options 10 times in two months using marketclub and tradingtrainer. For seven of those 10 trades, you actually bought low and sold high, meaning seven of then 10 trades actually made you a profit. For two of those 10 trades in the market, you actually lost. You entered a position, and when you exited, you actually lost money. Finally, on the last trade out of 10, you let it ride, and you wound up getting out of the trade at the same price you got into it. These, by the way, are typical — if not on the conservative side — of the results the TradingTrainer.com community sees in their trading. This is where we employ AJ Brown's money management rules. We can lose with the tradingtrainer system. That’s okay. It’s by how much that is the challenge. On the flip side, we love to win, but we need to capitalize on our profits. If we only win by small amounts here and there using the marketclub trading service, we are doing ourselves a disservice. Money management is the holy grail of every successful options trader. An easy way to protect ourselves from losses is to employ a tool called the stop-loss order. A stop-loss order is an automatic sell tool that will sell your options in the case they drop in price to some preset value. Here at tradingtrainer.com, we use the stop-loss order as a form of insurance. Options will move very drastically — that’s in their nature. Where we would set a typical stop-loss order for our stock trades at three to five percent below the price we paid for the stock, we set our initial stop-loss order for our options trades at 20% to 30% below the price we paid for the options university. Say we bought an options at a $5 premium. Then, we would immediately place a stop-loss order to sell the options at $4 using the teachings of tradingtrainer.com. That means, in the worst case scenario, we will lose 20% of our initial investment. The beauty of the stop-loss order tool is that it happens automatically. What happens when we are in a losing trade is that our emotions take over. We start to believe, wish, hope, and even will the options to go back up in value. We believe that this market's bearish movement in the value of our options is a temporary set back. We want to wait it out. More times than not, the truth is that the options are only going to go lower in value. The real strategy is to get out, cut our losses, and move on. The stop-loss order tool will do that automatically for us. Here’s a trick. Once our options appreciate to a certain level, we can move our stoploss order up a tick. A good practice is that once the options university value has increased by 25% to 40%, we revise our stop-loss order up to the price we paid for the options. Coming back to our example, as soon as the options we paid $5 for increases in value to $6.50, we will reset our stop-loss order from where we initially placed it at $4 to the price we paid for the options university — $5. Don’t let your emotions take over Let’s move away from what to do to guard against options that drop in price, and now let’s focus on options that gains in price — the more exciting profit side of the story. Now, depending on the movement of the underlying stock, whether it is aggressively trending or it is moving in a more lackadaisical fashion, we will set a profit target. Let’s keep it simple. With a stock that is moving along a trend at a fairly good pace, we’ll set our profit target at 100%. That means our target will be to double our money on every trade. For a stock that is more subdued, we’ll set our target at 50%. You may change these target percentages to match your trading style. These are the targets we use within the TradingTrainer.com community with great success. Stock Trading References: |
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