Moving Stops

Okay, I've had a number of different days where I've taken profits and incurred costs. Where I've taken costs, what could've been done better. Not sure if I wrote about this before or not, but out of every costing trade I've had in the past 2-3 weeks (funded), they were all positive at least at one time. Hey, positive is positive.

As one of my super trader friends said, begin adjusting your stops. Instead of holding them all the way back, move them to close to where your profits are. If it continues in your favor, keep moving your stops in your favor, so you can at least capture that. This may mean a hard stop or it may mean a trailing stop.

This is for daytrading. Most of my trades which are just 1 contract OTM for BIDU usually moves at least $100 in my favor. Often it's quite a bit more. And, what I've found with the costs which have been in the $20 to $800 range, this was totally unnecessary to incur these costs.

Where is the problem? As a pattern trader, a chartist, I trade patterns. The stock moves in my favor, then a pullback, which can sometimes be a reversal. I don't now until it breaks the pattern. This is where I err. By the time it breaks the pattern, I'm now in the negative. As the stock moves in my favor, I'm in the positive.

Because I trade BIDU, usually 1-3 strikes OTM (delta of 0.25 to 0.5), a $1 move in my option is usually $2-4. That is not unheard of for BIDU. The past 5 days' True Average Range is over $23. So, even if you only get half of the move for the day, that's still $3 on your option pricing if you had the 3 strikes OTM (delta = 0.25). Even if you only got $2 on your option pricing, you spent most likely around $8 for your option to get $2 profit. That's a 25% ROI in what probably occured in either minutes or usually within an 1-2 hrs.

If you do this a couple times a day, that's around $350-400 in a day. If you did that for 200 days a year average, that's $70K a year, which is a nice salary for most people in the U.S. This isn't even trading every single day. That's with 12 weeks of vacation. Sort of almost like a school teacher that gets paid probably close to 1.5 to 2x the salary.

What if you had more money and could do grab $100-300 every time you traded. Let's say you did 5 trades in a day with 2 trades going against you. You get out quick when it goes against you. I use a 4:1 ratio. Let's say you make $200 each time profitable and $50 for your costs.

3 x $200 = $600
2 x -$50 = -$100
Profit = $500

My commissions portion for these 5 trades would be $10.95 x 10 = $109.50

Net Profit = $390.50

$390.50 x 200 = $78,100/annual plus 12 weeks vacation (1 week vacation a month)

Could you do this with a lower priced stock. Yes, but you would typically have to buy more contracts and above 10 contracts, you would have to add more to your commission costs. Plus, you would most likely need bigger moves. As you buy options, remember, time usually works against you.

That's why often times GOOG, CME, RIMM, FSLR, to name a few are stocks that move fast enough for you to make some decent money from them with even just one contract.

I like the moves well past $200 and often while waiting for those moves, it reverses and I'm in a cost. So, the key here for me is to grab those $200 when they come and start over. Cash is still cash. And, while it's on the table, might as well take it.

It's still a learning process for me to hone my entries and exits in the different trading scenarios I'm in.

Remember, I'm just sharing what I'm learning. In no way am I giving advice and you can take what you want from what I'm learning. I am not licensed to give advice or recommendations.
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