Module 6 – In trade management

Module 6

Module Structure

Lesson 1 – Managing The Losses AND The Profits

    • Finally we can look what to do now that a position has been place and is open.
    • Stop loss management is quite simple and often dealt with along side the entry order.
    • A stop loss typically goes past the event that got me in the position.
    • It is dictated by the entry pattern described previously.
  • Entry Trade management on loss (reminder)
    • Stock entry past the trigger bars
    • Options entry 1 strike ITM or OTM (personal preference)
  • Exit trade management on loss
    • Stock entry past the other side of the trigger bar
    • Options exit same
      • Options have the luxury of waiting.
      • Try to scratch same day or following day.
      • Often a scratch can be had
      • Or the dead sideways move can be turned into a winner as price puts in the expected movement the following day.

Lesson 2 – Stop to Profit

  • Stop to profit.
  • There are two types or trade management I like to use.
    • Trailing stops
    • Timed exits
    • Both have their places and uses and as always there is no single strategy that is perfect to milk the markets to perfection.
    • As I like to capture the main move of the morning. A timed exit is what I prefer 99% of the time
    • You can often find me in a coffee shop reading or dining out with family. I’m in the UK so the time difference helps for lunch being my dinner.
    • I would use a trailing stop loss if I were to pop the trade on and then walk away knowing that I could not likely check in after that. I’d like to say meetings. But I have few of those these days.
  • Trailing stop loss management.
  • Why Trailer Trash is full of Gold.
    • This method allows you to lock on profits on moves.
    • Best of all, you can automate this on entry.
    • Great for if you cant check in on your trades due to other commitments.
    • In simple terms I use ATR on the time frame of preference.
      • 10 min - 30 min - 60 min
    • 2x the average true range (ATR) your entr time frame.
      • 1x if you want tight trade management.
      • 3x if you want to losen it up.
      •  There is no single best setting. It always comes to preferences.
      • I prefer 2x when I use this.
    • Set the trailing stop loss to this amount
    • The order will auto adjust
    • Alternatively, trailing manually behind the 30 or 60 min bar highs/lows will achieve a similar result
      • similar to 1x auto trailing ATR
  • Timed Exits - higher time frames especially
  • The Traders “Naughty Step” Time Out.
    • Know when to exit your trades to maximise day trading profits.
    • Exit After 90-minutes - upto 3-hours
      • As I am only looking for the main move of the morning
      • The move is often done for the day at this time.
      • Helps around those pesky turn arounds which often come with big gaps.
      • Obviously missing out on further movements is a possibility but 95% of the time you will be out at the optimal time.
        • Combining the Trailing stop at the 90 minute exit is one way to attempt to get the best of both.
  • Portion Control - lower time frame especially
  • Aiming for smaller targets gives you higher rewards
    • Setting a target to aim for is often wise because it is easy to get greedy
    • 1:2 or 1:3 targets makes the most sense.
    • risking $1 to return $2 (or $3)
    • Adjusting stop loss to BE or better after a 1:1 move keeps the risk management aggressive but tight.
    • Most commonly I often end up with a $1 target or a $2 target

Lesson 3 – Swing When you’re Winning

  • Turn your daily winnings in to weekly profits.
  • WARNING - requires patience
  • Using stock options for stress free swings.
    • Another way to legally sidestep the PDT rule and potentially bag more profits.
    • This is a simple way to bag a runner which could last days or weeks.
    • Converting the day trade to jump start a swing trade.
    • How do you tell when...?
      • Looking for similar patterns on the daily chart.
      • Seeing price has broken a consolidation pattern and “broken out”.
      • Trading the gap in the direction of a well established trend.
      • Price closes on or near the high/low of the day can suggest further follow through movement
        • Especially when associated with exceptionally high daily volume.
    • Turn a loser into winner.
      • This can also turn a dead duck into a break even trade because you manage your non starters more effectively.
      • It does require patience but you will find out tomorrow if your dead duck can be turned into a goose that lays a golden egg.
      • Less stress than holding overnight with stock as things can go wrong quickly.
        • An option has a defined risk built in so no matter how wrong things get your risk is always limited to the price you paid for the option.
        • As such this helps “manage positions more effectively” holding over night.
        • Not for the freight hearted.

Lesson 4 – Trade Management Summary

  • Exit Trade Management on profit
    • Close after 90 mins - 3hrs
    • Close at end of day.
    • Close the following morning (avoids PDT rule)
    • Trail stops behind 30 min or 60 min highs
  • Close on target
  • Step Trail after 1:1