STOCKTRADE
Money Management Rules With MarketclubNow, once we hit our profit target, we don’t want to take our profits and run. There will probably be additional up-side. So, how can we take advantage of the additional up-side with marketclub while not losing all of our gains when the stock reverses and the price begins to drop. This is where a variation on the stop-loss order tool works beautifully. We’ll use a tool called the “trailing stop-loss order tool.” Let me explain. A typical trailing stop order works like this. The stop-loss order is set to be at 80% of the present price of the options university. As the stock's options appreciate in value, as the price goes up, the stop-loss order moves up with it, while maintaining that 80% price point. Here is the best part — if the price of the options decreases, the stop loss stays where it is and does not decrease. A trailing stop loss order moves only upwards. It locks in profits with the market while securing any further potential upside. Let’s work through an example using tradingtrainer. Our $5 options hit $10. In other words, it doubles. We put in place a trailing stop-loss order. So, presently the stop loss is set at $8. The options then appreciate to $12, so the stop-loss order moves up to $9.60. If the options further appreciate to $13, the stop-loss order moves to $10.40. See how that 20% differential stays in place. Using Marketclub trading, find out how to take advantage of additional up-side. Now, if the options decrease in price to $12.50, the stop loss remains at $10.40. It only moves up. It locks in profits. It never moves down. Say, the options now go up to $14, then the stop loss moves up to $11.20. The options now drop all the way down in price to $11.20. Our stop-loss order is triggered, and we lock in profits at $11.20. Instead of doubling our money, we’ve made over 124% on our options position. The power of marketclub and the trailing stop-loss is incredible. The marketclub tool and trailing stop takes advantage of the up-side, and at the same time, it locks in profits all while keeping our emotions out of it. Let’s do the math again. We invest $10,000 equally into 10 trades. That’s $1,000 per trade. At a minimum, seven of those 10 trades double, thanks to the tradingtrainer.com money management rules, bringing us a profit of $7,000. Two of those 10 trades lose 20%, debiting our account by $400. One trade does nothing for us. Let’s add it all up. We start with $10,000. We end with the initial $10,000 plus the $7,000 profit minus the $400 debit. That comes out to $16,600 or a return on our initial investment of 66%. Remember, we’re talking about a two-month period, and this is conservative estimate from tradingtrainer. Just a reminder, if we look at each individual trade using marketclub in our portfolio and fixate on the two losers when they are happening, human nature will have us become very emotional. Here is a case where we need to trust our money management rules and ino.com marketclub tools to keep us clear headed. These strategies and marketclub tools will keep us focused on the holistic picture — the overall portfolio picture versus the individual trades. This is exciting stuff! The tradingtrainer money management rules, as well as controlling our worry emotion, will also control our greed emotion. We need to set limits on how much of our available options university account we will invest on any one given trade. The TradingTrainer.com rule of thumb is to never invest any more than 20% of your options trading portfolio. Trust your money management rules to keep your head clear account on any one trade. This allows us some sanity should any one trade lose. We never bet the bank, no matter how sure the deal is. There is a maximum trade size limit we want to set for ourselves, as well. Remember in the last strategy from tradingtrainer, we talked about open interest, the amount of free floating options university contracts out there. We need to be careful of never holding all the open interest in particular options because when it comes time to sell, there will be no one interested in buying from us. We’ll limit our maximum trade size to 10% of the open interest on given options. For instance, if an option has an open interest of 150 contracts, our maximum trade size should not be greater than 15 contracts. This insures buyers when it’s time to sell. This concludes tradingtrainer.com's Strategy Seven on money management rules for locking in profits while limiting losses. I want to take a moment and acknowledge you for first reading this book and second for studying these seven strategies. Great marketclub tool to work with! Your task now is to rewind and read these strategies over and over so that you pick up every little nuance of options trading. These options trading strategies need to become second nature to you. When you have mastered these strategies, I promise you, both from myself and the TradingTrainer.com community, you, too, will have the success that we see everyday. Good luck to you and best regards always. Stock Trading References: |
©2007