Module 5 – What to use to place the trade?

Module 5

Module Structure

Lesson 1 – Intro & Best practices

    • Never enter a trade half cocked.
      • Just like the origins of the saying it was to protect against a misfire. In trading, you will only ever pull the trigger when everything is primed and ready.
      • This is why there is a production line setup in place. It is only when you have everything in order checked off that the trade then goes on.
    • Kill your market order additiction.
      • Discover why a market order is the worst thing you can do practically and emotionally.
      • Place the trade the right way every time with stop entry orders.
      • Don’t worry about the extra penny you could have gotten with a market order.
      • This way price needs to move favourably BEFORE your position goes live.
      • It means you can set the order and go do something else.
    • Basically NEVER USE market orders to open a position.
      • Exception to the rule is IF and only IF price is at your entry trigger now.
        • This will be a rare occurrence.

Lesson 2 – Stocks – Options – Spreadbetting – CFD’s?

  • Stocks - Spreadbetting - CFD’s
    • The entry process is exactly the same for each of these “vehicles” which is the fancy way of say “way to place the trade”
    • Determine the entry price (explained during the pattern set ups. Phase)
    • Use a stop entry order type
      • Buy stop entry for long positions. This is a trade that will benefit if the stock rises in value.
      • Sell stop entry for short positions. This is a trade that will benefit from a downward movement in the stock price.
    • You can and should also attach a conditional order to the entry for risk management.
      • To confuse things this is commonly referred to as a stop loss order. Which also uses the stop order type.
      • This will allow the position to be closed if the trade idea doesn’t work out and exit the position when the stop loss level is reached.
      • Obviously, this means you don’t need to screen watch and simply “check in” on your positions.
      • I want to be managing profits and certainly not baby sitting underperforming positions. They will take care of themselves.

Lesson 3 – Stock Options

  • Stock Options
    • If they are new to you the best way to think of stock options is like a deposit. 
    • You are not buying or selling short stock. But reserve the right to buy or sell.
      • Just like a deposit in the real world.
    • My default options set up is to buy 1 strike out the money (OTM)
      • Whether you are bullish or bearish on your trade idea the way to place the trade will ALWAYS be to buy an option.
        • Buying call = bullish and benefits if the stock rises in price.
        • Buying puts = bearish and benefits if the stock falls in price.
    • Commonly I use a limit entry order and use the current mid price.
      • The spreads can be a lot wider than stock so this is important to do to ensure the best possible prices.
    • Advanced
      • Conditional if then orders can be used in the way as described with trading stocks although it does require a few more steps and it is not always a choice depending on the broker you use.
      • Using a condition of the stock price needs to trigger the option order.
      • Eg. Stock price to go through the entry price. THEN send option order.
      • If this is way too much for you then a simpler solution would require you to set an alert and then manually go back to the stock to place the option order.
        • As such this would require a little more available time to have the flexibility to use this more manual process.