Bracket Trading

What is my style of trading termed? Neutral momentum options swing trend trader. I'll break it down, as that's a mouth-full.

Neutral - I use bracket trading to let the stock tell me which direction to take

Momentum - Directional that is in strong trends, and stocks that have good volume

Options - Only trade options of a stock or ETF

Swing - Positions are short-term lasting from less than an hr to a few weeks

Trend - Since I'm not a spreads, but short-term directional trader, I love stocks that trend

Trader - Not an investor, rather a person who trades options on a short-term basis

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What is bracket trading? Rather than go into details with this, I'll just redirect people to Ryan Litchfield, my trading coach whom I've learned my trading from: http://www.ryanlitchfield.com/RLC/classrooms/default.asp

I am not getting a commissions or anything to those of you who might think I am. He's just a really down-to-earth man who's greatly changed my trading, as well as my life. I am truly indebted to him. And, of all the Better Trades instructors, he does give you A LOT in his free classes. I've travelled all over the country to take his classes, have watched all his DVDs multiple times, paid for coaching from him for 6 quarters (well, actually 5, I got one quarter for free as a gift....shhhhh, don't tell anyone).

Right now, because of huge personal life crises, I'm taking at least a quarter or more of break to get my life together to effectively use the coaching. Ryan is a wealth of knowledge and he's truly helped me on the psychological part to better understand the market, be really patient and confident in my trading.

A part of developing confidence, not false confidence, is getting in there and swinging the bat. This does not mean you take big funded positions (though I've done that and paid dearly), but he has this route that you take to get to the position of properly funding your positions. I won't share all of Ryan's secrets, though, as I've paid tens of thousands of dollars for this info, and invested tons and tons of time.

But, I do have a love for teaching and sharing with others about trading, perhaps helping teach, motivate, and/or inspire them to live their dreams and a part of that may be making their money work hard for them. Have I arrived? No, but every day I'm getting there and I am a good trader. The things I'm reading about good traders, I already do those things. Yes, there is so much more to learn and I will continue to learn until I die.

Ryan has this 5-step process to trading.

1. Non-Documented Speed Drills (No Funding) - This is what others would deem backtesting. I will define what this means for me. I will go back on a stock for a period of time, let's say 15-18 months. On my Extreme Charts charting program, I can do an "Instant Replay" that will put me back to whatever date I want and start from there. eSignal does similarly, but I prefer Extreme Charts (EC). Will draw my trend lines as well as support/resistances (major and minor), as if I was trading. Will set my brackets (contingent entries).

Once I'm into a trade, I set my stops accordingly on a daily basis. I will make annotations on the chart, like entries & exits, stops. "Non-documented" for me means NOT on paper, but I'm still annotating the charts. If I need to use technical indicators (RSI, MACD, Stochs, Momentum, etc...), I will.

2. Fully Documented Speed Drills (No Funding) - This is the same as #1, but I will not go back as far, rather typically around 3 months. However, I'm ALWAYS looking at the big picture. Am I in a trend that's been lasting for years? Are there significant points (highs/lows) from the past? Is a new trend being formed? Is this a subtrend?

"Full documentation" means documenting on my Bracket Trading Sheets. It's basically a sheet where I put all my contingent entries (brackets), stops (hard and/or trailing), what option, stock price entries/exits, dates, profits, costs, bullish/bearish, targets, # contracts on one page. I typically get about 5 weeks worth of trading on 1 side of one sheet or 10 wks on a double-sided sheet. On each side, I put my net profit/cost. Plus, I use a highlighter to for profits/costs and bullish/bearish trades, so at a quick glance, on many pages, I can see visually whether I'm more profitable and costing.

Note: I do not have losses, typically in my trading. It's a business and a part of the cost of doing business are costs. I factor into my trades profits as well as the risk of my position going against me. No one likes "losing". However, people are more willing to accept "costs" rather than "losses". So, my choice to replace the word "loss" with "cost" is a psychological thing.

3. Real-Time Trading, Full Documentation (No Funding) - This is placing trades either just on paper real time. If you're using a DAILY timeframe, you only get ONE data point a day, and you work off that, setting your stops, your entries. You now no longer have the momentum of either #1 or #2. I like to use my Think or Swim (TOS) trading platform for this.

4. Real-Time Trading, Full Documentation, Small Funding - This is the same as #3, but your taking small funded positions.

5. Real-Time Trading, Full Documentation, Regular Funding - Same as #4, but your positions are now fully funded.

Five easy steps, right? Ideally, yes. But, people have this tendency to want things quickly. What if Step #1 took you to evaluate 100 stocks on a daily basis over the past 1-2 yrs and that took 6 months to do every single day for many hrs a day? Would you do it and not jump the gun and go to #5? I'm guessing the majority of people, especially new wannabe traders go straight to #5 FIRST.

Anyone who has been around for awhile trading knows that's disaster. Even if you have initial success, it's typically short-lived and the market will take back more than it gave you. It's like it lured you into it's sweet flavor to take your money. Sort of like a pool shark.

For me, I originally went straight to #5. Then, I did #4, then #5. Then, I realized, maybe I'd better listen to Ryan. Afterall, I was paying him thousands of dollars to give me coaching and I wasn't even following it. Then I did #1, then #5. After some intermittent but inconsistent success, I then I did it Ryan's way. Taking the shortcut routes cost me quite a bit of money, and let's just say, I wasn't rolling in the dough.

#1 - I went back about 12-15 months for about 15 stocks. Each month took probably a couple hrs to do. That took me about 2 months to do many hrs a day. I had a lot of chart annotations. (avg 5 hrs/day)

#2 - I went back about 3 months on about 30 stocks. This took about 6 weeks to do with devoting many hrs a day to doing this (avg 6 hrs/day)

#3 - I did this on about 30-50 stocks over the period of a 4 months, but this is a lot of stocks to maintain on a continual basis.

#4 - I've been doing this for the past 10-11 months and remain here. I've also been reducing the size of my trades, as I've been getting a better overall return, as my skills in trading have improved. I see no point in risking more capital than is needed.

#5 - Not here yet.

I am constantly doing steps #1 - #4.

Documentation is a HUGE part of good trading. If you do not do this, I highly suggest you do. You cannot learn unless you do. I learn from my profitable as well as costing trades. Some times were "luck" trades in that I made errors, but the market rewarded me. I recognized them and corrected the errors immediately, knowing the next time it can cost me big time.

As a side note, the kids and I didn't go to church today. My error. Couldn't fall asleep until 4 am and by the time I awoke, we were late. Will have to get the sermon online. Too bad, because I could've sure used the interaction with others.

2 Responses
  1. Hey Doris....question for ya'. What is considered "best practices" by you and your coaches regarding keeping CNBC on throughout the trading day?

    I think I'm clear enough on the benefits....but do the drawbacks and / or benefits of not having it on and instead having a quiet trading environment (or even some music) to keep you in "the flow" outweigh the benefits of keeping it (CNBC) on in the background?

    (ahhhh....and my question assumes that the trader would have a real time news feed in place as part of their trading software so as not to trade in a total news vacuum)


    CHEERS!

    D


  2. Doris Says:

    I can only speak for myself and not other traders.

    I do not listen to CNBC or any of the "news" shows regarding finances/stocks, etc. Periodically I will have whatever is on PBS on, but rarely do I ever turn on the TV except to watch trading DVDs.

    I am not in a total vacuum, however. I do get real time news stream on my Think or Swim account and I do go to the Wall Street Journal online a few times a week, if I remember.

    The things I do do are to keep track of when earnings are for the stocks I trade and I do collaborate with other traders who are in the know also.

    The price chart rules, however. I've found often what they "say" in the news is not accurate and if the people reporting it or writing the stories knew how to at least some basics of chart reading, they wouldn't be reporting what they are.

    IMHO, they find news to fit what is happening in the market. Does that make sense? I also do get some commentaries from my coaches that come out several times a week.

    I also know when certain economic indicators come out that may impact the market or my stocks.

    For me, I like to be able to think when I trade without lots of "stuff" in the background. This summer has been a bit of a challenge as my kids have been home and trading with them running around is a big distraction.

    You have to find what works for you. There is information galore out there.

    Here's where I get my info in a nutshell:

    1. News from WSJ (online)
    2. News from TOS (Think or Swim)
    3. Commentaries from Ryan Litchfield, Darlene Nelson, Dr. John White, Markay Latimer
    4. Monday Morning Report f/Better Trades (this has a lot of information that is useful for me like the economic indicators)
    5. Earnings Whisper to find out when earnings are being reported for my companies.

    I believe Ryan looks at a bunch of different sources on top of this, but he conveys a lot of information to those whom he coaches. Such things would be like acquisitions/mergers/takeovers. So, I do rely on him a great deal here.

    Just be leery of whomever you get information on, though. Take it with a grain of salt. Often the news will drum of things to make it fit what is happening to the market, at least from what I can tell.


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