Todays Trader’s Blog guest is Trader Travis, owner of Learn-Stock-Options-Trading.com. Like many of you, Travis spent a good bit of time looking for a trading system that fit his style and mindset that could supplement his income. During his search, Travis stumbled onto MarketClub, and has developed an interesting way to incorporate it into his trading style. We think you will really enjoy this article regarding his trading experiences. Be sure to comment with any questions for Travis, or add your own MarketClub tips and tricks in our comments section.
I hope you've enjoyed the Learning Options series that MarketClub has provided for you.
Today I wanted to share my personal experiences with using MarketClub as an options trader. In my humble opinion, options trading success with MarketClub comes down to 3 primary things:
• Trade in the same direction of the general market (Dow, Nasdaq, and S&P)
• Only trade when the stock and the general market both have strong trends either up or down
• Then sit back and allow the trade triangles to guide your entry and exit points
Seems rather simple and common sense, but you'd be surprised how many of us don't use common sense in trading. Now the Silver ETF seems to be its own market and seems to play by its own set of rules so here is an example of how a real trade played out… Continue reading "Options Trading Success With MarketClub"→
My last visit to New York proved to be a very fruitful one as I had the opportunity to attend the Trader's Expo, and more importantly, I got a chance to sit down with Bo Yoder from BoYoder.com. I've known of Bo when I first started here at INO, but he took time out and refocused on some top projects that meant a lot to him. He's back now and I'm excited to introduce you to him, his site, and the article below. Please enjoy the article and comment below so you can make Bo feel welcome!
As the markets fight for a bottom, there is a new wave of interest in the world of active trading and self-directed investing. These new traders have so many wonderful tools available to help guide them and accelerate their learning curve. Archives such as those offered by INO.com have all the information needed to build a solid background as a technically focused trader.
However, many beginning traders fail to understand that technical analysis at its root is the science of interpreting order flow. Let's look at one of the most fundamental technical analysis price patterns... the double bottom.
Crucial but often overlooked, money management practices can mean the difference between winning and losing in the market.
-Placing Stop Order- It's helpful to think of these by their more formal name, stop-loss orders, because that is what they are designed to do – stop the loss of money. Stop orders are offsetting orders placed away from the market to liquidate losing positions before they become unsustainable.
Placing stop orders is more of an art than a science, but adhering to money management rules can optimize their effectiveness. Stops can be placed using a number of different approaches; by determining the exact dollar amount a trader wishes to risk on a single trade; as a percentage of total equity; or by applying technical indicators.
Realistically, methods may overlap, and you'll have a certain amount of leeway in deciding where to put a stop, but always be wary of straying too far from the basic asset allocation parameters established earlier. For example, if a trader is long one S&P 500 future at 450.00, a based on his total equity he has a $2,500 to risk on the position, he might place a sell stop at 445.00, which would take him out of the market with a $2,500 loss ($500 per full index point, per contract). Buss after consulting his charts, he discovers strong support at the 444.55, a level he believes if broken will trigger a major break. If this level is not broken, the trader believes, that rally will continue. So he might consider putting a stop at 444.55 to avoid being stopped out prematurely. Although he's risking an extra $225, he's staying close to his money allocation percentages and modifying his system to take advantage of additional market information.
Of course, the size of a position will affect the placement of stops. The larger the position, the loser the stop has to be to keep the loss within the established risk level. Also consider market volatility. You run a greater risk of getting stopped out in choppy, “noisy” markets, depending on how far away stops are placed. This can cause unwanted liquidation when the market is actually moving your direction.
Now suppose our hypothetical trader, who started with $50,000, is now looking at a $10,000 gain (which happened to be his goal for this trade) on a long position. What should he do? That depends entirely on his trading goals. He can take the $10,000 profit and, assuming he leaves the money in his trading account, turn to other trading opportunities. If he desires, he can increase the size of his trades proportionally to his increase in trading equity. This would give him the potential to earn greater profits, with the accompanying risk of greater losses.
He also could choose to keep the size of his trades identical to what they were before he made his initial profit, thus minimizing his risk (as he would be committing a smaller percentage of his total equity to his trades) but at the same time bypassing the chance for larger profits. If his winning positions had consisted of more than one contract and he believed the market was still in an uptrend, he could opt to take his profits immediately on some of the trades, while leaving the other positions open to gain even more. He then could limit his risk on these remaining trades by entering a stop order at a level that would keep him within his determined level of risk, as well as protect his profits. He does run the risk of giving back some of his money if he is stopped out, but counters that with the potential for even larger gains if the market continues in his direction.
Good money management practices dictate stop orders be placed at levels that minimize loss; they should never be moved farther away form the original position. You should accept small losses, understanding that preservation of capital will in the long run keep you in the market long enough to profit from the wining trades that make up for the losers.
Trading in the real world almost never seems to go as smoothly as it does on paper, mainly because paper trading typically never figures in such real world factors as commission, fees and slippage. “Slippage” refers to unanticipated loss of equity does to poor fills (especially on stops) that can result from extreme market conditions or human error. Factoring these elements into your overall money management program can help create a more realistic trading scenario, and reduce stress and disappointment when gains do not seem to be as large as they should be.
-One Final Note- Do your money management homework before you start trading. This helps you decide what to trade and how to trade it. On paper, money management sounds so obvious and based on common sense that its significantly overlooked. The challenge is to apply its principles in practice. Without money management, even the most astute market prognosticator may find himself caught in a downward trading spiral, right on the trend, but wrong on the money.