the August 2017 edition of this newsletter!
This is a monthly newsletter packed full of tidbits not found on the
website. This is my attempt to stay connected with those who find value
on the the website and want more.
Since this newsletter is published (nearly) every month, you are always
date and empowered to be a better trader. That's because I'll be
sharing lessons I've learned over the prior month, answering questions
from other viewers and providing a spotlight on useful websites
and trading tips. If you find this newsletter valuable, pay it forward
it to your options trading friends.
To access previous issues of the newsletter, click here.
Anatomy of a Trade Entry Part
6 - August Newsletter
|Some of you may be wondering what happened to the newsletter this
month. No newsletter in July and no newsletter in August? First of all,
I apologize for no announcements whatsoever. It was a busy summer and,
while I had intended to send out a short July notice, it just didn't
Meanwhile, the market continues to power up to new highs. What's going
on with the market in the
past week? Is this a turn in trend or a pause?
We'll have answers to those questions, a continuation of Trade Entry
discussion, answers to your questions and more. For more
details, read on...
I'm always interested in receiving feedback on the newsletter. If you
haven't done so recently, please consider taking a few minutes to visit
feedback page and let your voice be heard. This can be done
anonymously so please consider how you can help make the newsletter
Options Strategy Focus: Anatomy of a Trade Entry - Position Sizing
| This section of the newsletter will
focus more deeply on the
details of some of the options strategies I use in the tutorials and
other topics related to options trading.
A subscriber recently submitted
newsletter feedback requesting coverage of trade entries and exits. As a
result, I've devoted the 2017 newsletters to covering a series of topics on just that.
This month, we're focusing on position sizing. For the overview, check out
Feb, 2017 article.
I've been waiting for this section so I can make the case for position
sizing. I can't underscore how critical it is to have a few basic rules
The two keys to position sizing
In my mind, there are really only two keys to to correct position
sizing. They boil down to:
There is so much that can go into these two points that I want to take
some time to expand on each.
- Size for sustainable
- Be consistent
- Size for sustainable loss - It's easy to be convinced of the
viability of any given trade and be so focused on the max gain value
that you forget the flip side. The whole reason I started the website
and began promoting the trading approach I do is related to this one
thing. It's all well and good to have lots of contracts sold when things
go right. However, when things go wrong on a large scale, you end up
with an empty account.
What is a sustainable loss? Truthfully, that's a decision you have to
make. What can your stomach tolerate? My recommendation is to make this
a percentage of your account. If you've followed the trade tutorials and
any of the
I've made, you'll find that I recommend 2% of your portfolio
as a trade risk. Does that seem like too much? Fine. Make it 1%. This
leads me to the second key.
- Be consistent - Imagine you are trading following your 2%
rule and then you decide you are so confident in one given trade that
you will change your risk strategy and 'double down'. What if that is
the one trade that goes against you? Since we can't really know which
trades will be successful and which won't, it's critical that you apply
the same risk rules to every trade. Trust me, I've had months where
several trades go against me. It's usually a month that is a loss month.
I sleep at night because I can live with those losses. I also find that
due to this strategy I really don't end up having favorite trades.
I can't underscore the importance of this aspect of your trade. How many
contracts will you sell (or buy)? It comes down to risk. Determine what
you are willing to risk per trade. Divide the risk per contract into
that amount and you'll know how many contracts to buy or sell. It's as
simple as that. For me, this has become fairly mechanical.
For additional detail trade setup and analysis, check out the
Option Trading Strategies page on the
website. Also have a look at the individual strategy details because
much of the details of how you calculate risk and reward and how you
select strikes is covered there.
As always, please
send me feedback with any requests for topics or thoughts on what has
already been published.
Happy trading this month!
Back to the table of contents.
Answers to Your Questions
|I frequently receive email from visitors to the site with
that aren't answered directly from content on the site. Many of these
are great questions and I
think the answers would be valuable to all readers. Each month I'll be
posting one or two questions, so stay tuned!
This month I had a question submitted about recording trades.
What has been your suggestion about starting the record keeping as of June 1.
What do I do about recording previous trades?
A: This is actually a great question. There was a time when I had
stopped tracking my trades and was just putting them on and closing
without any way of knowing how I was doing overall. When I realized I
needed to start again, I had much the same question.
My recommendation is to just pick a time and start. Month boundaries are
a fine starting point I guess. They work for me. I think about trades in
terms of option cycle month. If you put an August vertical spread on in
July, I'd consider that an August trade.
Let's say you plan to start up again and use August as your starting
month. I'd simply go back and locate all my trades planned to close this
month and enter them. Usually this is pretty easy to find in your trade
history of your trading platform. If you are using trade journals as
well as a trade log, I'd even try to re-create the
trade in your mind.
It's a good exercise to remind yourself why you entered the trade and
why you made the exit plan, sizing plan and so forth.
The bottom line is "Do it Now". Don't wait. Just pick a point in time
and start. Let past trades be past trades and just move forward. Once
you get started, your record keeping will become current and your
information will be better. Realize that first month may not be perfect
but it will get better.
I hope that answered your question. Don't wait. That's my message.
It's critical that you know how you're doing and a trade log is perfect
If you have any thoughts or suggestions on topics that should be added
to the web site or topics that should be covered in video, please use
feedback link or
contact me link to let me know.
Help me ensure we have an interesting question or two to respond to
next month. Submit your questions at this
Back to the
table of contents
|In concluding this newsletter, I want to
provide a brief outlook
for what I'm
the next 20-40 days. Before I do, I need to insert the
is not a recommendation to buy or sell stock, ETFs
or options. It
is simply my opinion of what I expect and how I plan to trade.
expectations may change if the charts indicate something different
during the month.
All summer, we've seen new highs being set. Are we in a pause?
In the June newsletter, I summarized my outlook as follows:
"We're already a couple of trading days into June and it does appear there is more buying ahead. I'd be somewhat cautious that the market is fairly news-driven but
remain more bullish heading into this month. I suspect we'll see some additional bullishness initially and then more pausing to digest the movement....."
Here's how June and July played out.
This assessment is coming mid month. However, we can see a pattern has
been established where there has been a pullback followed by a rebound
and pushing to new highs. The most recent highs resulted in sideways
movement, followed by some selling.
In the face of recent selling, it's important to realize we are still in
an extended up trend. The latest one has lasted nearly 9 months. The
real question is whether this most recent pullback represents the bottom
or if there is more selling in store. At this point, we are pretty much
at the 20/30 day moving average
support. Further selling is likely to
take us down to the 200 day moving average for the next level of
support. I'm inclined to be cautiously bullish - expecting a bounce.
However, I'd also be very careful about the recent lows. A close below
that level is a strong indication there is more selling to come.
As busy as I've been, I haven't really put a lot of trades on. I'm now
ready to enter some bullish trades with tight exit rules in place. I'm
kind of waiting to see if the market is ready for another run to even
As always, do your own analysis and whatever trades you enter, use good
money management and have exit strategies in place in case you are
wrong in your analysis. It's a good practice to be prepared with trades
in either direction but not to act without confirmation.
Remember to stay nimble and alert. Make a point of doing market
analysis every day, especially if you have
open trades. If you choose
to enter any trades, be sure to do your own analysis and follow your
rules for entry and exit.
on technical analysis.
Options strategies I use
Be sure to take time to
feedback on the newsletter.
Back to the
table of contents
|I'm adding a new section to the newsletter. Feel free
to disregard if you aren't interested in product information.
One of the more recent additions to the portfolio of services and
products is the Live Web sessions. These sessions are recorded and and
available for a very reasonable price of $12 per session. I've created
a Newsletter Special. If you add all 4 sessions to your
shopping cart, you can get 4 sessions for the price of 3 by using the
discount code: WebEx4Pack
Some time back, I released the second for sale
video. The title of this video is "Mastering Short Vertical
Spreads". I now have a total of two strategy training videos for sale .
Here is a quick
summary of each.
An Introduction to Options
This video provides a good coverage of the basics of options spreads,
including why they are preferable to other options strategies like
buying options and selling naked positions. What I believe makes this
video valuable is that it combines presentation with interaction. Once
you have the basics down, you will be well-prepared to start digging
deeper into some of the options strategies employed on this website.
For a relatively small cost of $29, you can
own this video, which offers over 40 minutes of material. This package
is very easy to install and use.
more information or to purchase the video.
Short Vertical Spreads
The focus of the video is on one specific strategy, including all
of of the process. This includes:
I'm excited about this project. Many know this is my go-to strategy for
After watching the video, I'm certain you will understand why.
- Understanding the construction and how the trade progresses
- Selecting the long & short strikes
- Planning entry & exits
- Managing the trade once entered
- Back testing
- Creating a trading system with the strategy
more information or to purchase this video
Special Discount offer:
If you'd like to own both videos, you can do so for a bulk discount.
Simply add both videos to your shopping cart and then enter the
'combo10' to receive $10 off your shopping cart
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table of contents