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Monday, December 04, 2006

Old Soldier's Comment

I received a comment from Old Soldier which I thought was very good sharing and in case it gets buried in the comments section, I am posting part of the comment here.

"I follow a pretty strict Risk Management and Trading Process:

1. Never risking more than 1-2 percent of my Portfolio on any one trade - EVER!. I do this through my technical analysis and risk planning prior to the entry. No entry until the exits are planned. I use only mechanical stops, limits, etc. No emotions this way. Once set - they are set! I have learned through costly experience that when I have adjusted the stops or limits I have had either smaller profits or greater losses. No matter what! I use and trust the mechanical "servants" over my human "emotional" mind. Some use what they call "mental stops", I disagree with this method - life happens. Network connections go down, distractions appear out of no where, markets crash unexpectedly, etc...

2. Keep entry points at viable areas to maximize gains, always selling half my shares/contracts (always play even number of contracts: 2,4,6...)upon reaching my initial target point. If I "leg" into a trade then I will treat these additional contracts as new plays and treat the them the same way.

3. Always placing a pertinent trailing stop on remainder of shares/contracts based on the ATR and prior support/resistance levels.

4. Never complaining about taking profits even if the stock continues to move after my exit (why complain if I achieved my goal and met the conditions of my plan?). It is not profits until you sell - on "paper" doesn't count.

5. Maintain viable watchlists and playlists.

6. Follow a strict daily routine for all areas of my trading. This is a business NOT a hobby.

7. Keep my focus!!! I try to balance my trading with all the other areas of my life. To do this, I try to make every move count. Worry is not an option - no pun intended. To worry is to be distracted. ALways remember this is a business it is not a game.

8. Always help someone along the way! I got here because of some other really good people who gave of their time and experience to me. Always be willing to learn - when we stop learning we stop living!"

Thanks Old Soldier! I've always feel that blogging is about sharing and learning. So don't be shy to drop me a comment anytime, I welcome them.


Blogger Old Soldier said...

Simply Options Trading,

I am flattered that I made the "Front Page"! My hope is that readers that do not have a plan will develop one now!!! Do not proceed one more day or one more trade without having one.

I will certainly be here watching, reading and posting when appropriate. I will post a recent trade to show my style and my thoughts. It may help someone to see another perspective? I will also expect to learn from those that feel to comment or ask questions about the trade.

Thank you again for putting me on the front page of an awesome site!!!


11:32 AM  
Blogger Simply Options Trader said...

Old Soldier,
You are welcome!

You are right. Trading without a plan is like driving not knowing your destination - simply heading for disaster. And this is speaking from my own experience.

Would be most happy to hear abt your recent trade, regardless of it winning or losing. Thanks!

11:43 AM  
Blogger Old Soldier said...

As promised in my last comment here is a recent trade. I played ATM Long Call Options x 10 contracts on this trade. Ended in a substantial gain. Hope the chart helps.


11:45 AM  
Blogger Simply Options Trader said...

Old Soldier,
Thanks for providing the chart. Let me start the ball rolling with some questions on this trade for the benefit of the readers:
-Did you buy current month option or further out?

-How did you determine entry for this trade? What technical analysis do you use?

-How did you determine your initial stop loss and profit target? I remember you mention using ATR. How do you apply?

I'm currently using IB as my broker. Which broker are you using?


6:10 PM  
Blogger Old Soldier said...


Glad to answer your questions on COH!

1) I bought ATM Jan 07 Calls on this Trade - I prefer to have 4-6 weeks of Time on most of my trades even though I am only planning on being in them for much less. I will sometimes buy ITM (1-2 strikes in from ATM) if I want more of a 1 to 1 price move based on the projected move of the stock (2-3 points) in order to have an acceptable gain on my Entry Amount.

2) I simply look for Price and Price Action. I look at the overall trend for the recent past (2-3 months) and then overall past year's trend. I use the 10MA and 30MA as a general guide to the movement or trending pattern of the stock to determine as close as possible the "turning" point or "swing" point. The candles in relation to the MAs are mainly what I look at for this move. I prefer to have increasing volume on the day of entry to show strength. I also try to enter at the end of trading day or even by placing an after hours/pre-market order. I also only enter with a Bracket Order to keep it mechanical and not emotional. I will adjust the Stops to a Trailing Stop once my initial target or move is accomplished. My Sell Limit will already be set for half my contracts/shares just in case the stock "spikes" on entry day.

3) My initial Stop is based on my Risk Management plan of NOT putting at risk more than 1%-2% of my portfolio on any single trade. I will also try to keep the Initial Stop just below a prior Resistance/support level to stay outside the Market Makers and Specialists hunting moves for the stops before the move up. My profit targets are set at pre-determined points such as prior resistance or support levels that the stock will probably move to and through. I do not put much reliabilty in Pattern movements (exp: Head & Shoulders, Symmetrical Triangles, etc.), This is why I set an Initial Profit Target (prior Resistance/Support) to sell half my contracts/shares and then set a viable Trailing Stop based on ATR. This way I do not give up significant ground in case the stock viloates the ATR and spikes down.

4) I too am a IB user. Simply the best!!! Used a couple of the Retail Brokerages early on and really racked up some major Transaction Fees. I am extremely happy with IB.

I hope this helps? If you now look at the COH Chart you should see the method to my madness. I have had people argue with me that I am giving up profits by not letting it run. My counter is that I do not believe so because my "realized" profits are consistent. My wins run in the 60-70 percentile range of my picks. I am patient to enter a stock in order to catch the majority of what I believe will be it's major movement for this period. It may continue after the pullback where I am waiting to re-enter if the price movements are correct for my method. I will always watch a good candidate for additional plays.


6:59 PM  
Blogger Simply Options Trader said...

Thanks Old Soldier. I think that as long as you've trade according to plan, the trade itself is already a success, even if this means leaving some money on the table. I mean there is no way we can always catch the bottom and the top exactly.

2:53 PM  
Anonymous Anonymous said...

Although I know what ATR is, but I've not used it as part of my trading before. If say ATR is about $1 (as in the case of COH), is your stop loss set at say entry price less ATR or as some function of ATR (e.g. 1.5X ATR etc)?

The WHY-Trader

2:57 PM  
Blogger Old Soldier said...

Why Trader,

To answer your question on ATR: Basically the answer is yes. I use ATR as a "general" guideline when I am mainly setting Trailing Stops if I am concerned that the underlying stock is subject to whipsaws or spikes. I really try to use the prior support and resistance levels as areas to be on guard for. The market makers and specialists know that traders will use these areas as stop loss points. Becasue of this I will set my Stops a bit lower than these areas to avoid them when they are hunting for the stops. I hope that helps?

6:24 PM  
Anonymous Anonymous said...

Old Solider,
Thx. One more question. How do you come out with your watchlist? You use any scanner?

The WHY-Trader

11:42 AM  
Blogger Old Soldier said...

Why Trader,

Yes I ONLY use a scanner to get my picks. I adhere very strict to this. I never - ever play a stock from anywhere else. If my parameters are not met then I do not trade.

If the stock is a good potential then it will show up in my scans. From my scans I will build a couple of lists - a watchlist to further confirm the potential move or a definite play list that I will enter very soon.

Once these list are used for their immediate value I then move them in a historical folder by date and type for future review. I will not trade from them again only to review for additional learning from my actions and the market actions for a particular stock at that specific time. I will not need the list for future picks because my scans will pick up any potential stocks that meet my specific parameters.

As for my scanner or parameter specifics? I use Stockcharts Extra as the platform with my unique and specific parameters. Please do not ask for my info because I do not share it with anyone. Not to be selffish but I am a firm believer that a trade MUST become your own based on your own education and experience level. You and others will benefit greatly from this - I learned to heard way.

Hint: Too much information is just that - TOO MUCH INFORMATION!!! K.I.S.S. is my rule. I do not use a bunch of Indicators. I believe that most of what I need to know is contained within the Price itself. I also do not look at Fundamentals. What use are they to a Short Term Trader? Even my mid-long term investments are not based on Fundementals but on trend and Price.

I do not give up ground once gained. I guess that is the "Old Soldier" in me. I also have very specific objectives to reach in each trade. Once reached I may re-evaluate for continued play or just get out and move to the next one on my list. A gain is NOT a gain until you sell!

Hope that helps. Good trading!!!

7:59 PM  

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