Clear out the noise while increasing profitability. No wasted motion. No bad habits. Stay focused on what works. Have the profitability odds on my side. Keep It Simple = Success.
The purpose of this article is to review WHAT I trade and what systems I use, in hopes that it helps a newbie establish a basic trading system. This is not all-inclusive. It’s a simple system I use for success. For detailed instruction on developing your system, check out Tackle’s Christian Sisson’s excellent “Systems Development 101.”
I use TD Ameritrade (TDA) because of its Think Or Swim (TOS) options trading platform. I’m considering switching to Interactive Brokers because of their cheaper commissions and better offshore trading. I’d do this now but I haven’t learned IB’s options trading tool—not to mention Tackle uses TOS, so I’ll stick with it. I negotiated my TDA commissions to 50 cents per option trade and $5 per stock trade. The bigger your portfolio, the more willing TDA is to lower commissions. I also upped my trading authorization level over time, based on experience.
What Risk Management?
Position sizing is #1 key to managing risk. Risk tolerance is the loss we’re willing to take on each account. Though the percent of loss is the same for each of my accounts, the dollar value per trade varies depending on the size of the account. My risk tolerance is 4% of my account. For example, for my $130K margin account, no trade ever exceeds $5,200. My willing loss per options trade is $500; willing loss per option trade for my IRA is $1000.
I learned long ago that to achieve success one must set goals. My pre-financial education Return of Investment (ROI) goal was to generate a 4% return. Once I was successful in generating consistent income, I upped my goal to 10%. After my mentorship, I changed my goals to a 20% ROI. Imagine my amazement when I indeed achieved a 20% ROI!
What Portfolio Design?
During Basic Trading in 2016, I was taught the Portfolio Design of 1/3 Growth, 1/3 Cash Flow (options trading), 1/3 Speculation. When I saw Matt during his Basic Trading class last month, I saw him teaching the very same design plan.
My KISS philosophy is to be a nimble active trader, rotating stocks and strategies depending on market conditions. I never enter more than two trades a day. I sell options when implied volatility is high, and buy options when IV is low. I use a high probability of profit (POP) of 85% or better. And I always have a predetermined exit strategy.
What Asset Classes?
I trade stocks, options, futures, commodities, and soon Forex. I also keep Dry Powder (cash and cash-like assets) for “Just in Case.”
What I trade comes from Finviz scans, and Watchlists. Given my time is limited, I mostly use other peoples’ work—like from my instructors and Tackle Trading. My KISS Watchlists are indeed quite simple: Master Trader Liquid Stocks, Liquid ETFs, Tackle 25, Tackle Dirty Sexy Money, Tackle Dividends Fireworks, Tackle Poor Boys Covered Calls, Tyler Craig’s various Options Lists, and Coach Keith’s Elite Legacy Labs Focus List. I also have Bearish, Neutral and Bullish lists. Finally, I have a Short List.
What Options Strategy Mix?
What Options Strategy Mix? Compliments of Micah Brooks, I have core trades and non-core trades. My core trades include long stock for Growth; Bull Puts, Bear Calls, Iron Condors, Inverted Fly and Double Horizontal for Cash Flow; and Naked Puts, Long Puts, and Long Calls and Long Puts for Speculation. I’ve learned not to “Go Naked” unless I want to own the stock… Non-Core trades include Horizontal Calls, Horizontal Puts, Bull Calls, and Bear Puts. I don’t do many of these. Check out Coach D’s Trade Playbook, annotated for my KISS method.
Of course, Tackle is a fantastic source of stock intelligence covering what the market is doing and will likely do. Given my time constraints, I’ve needed to pare down my viewing time to the bare essentials: 12:30 PM Half Time Report, 11 AM Traders Lounge, and Saturday evening Scouting Reports— options, stocks, commodities, and Forex. These are a Godsend! I’m totally spoiled!! I use the Investing.com app for my 5 AM Futures looksee and daily “Top 5 Things to Know in the Market” brief. I also use Zacks and Stansberry Research.
I have rules for each strategy I trade. My mentor had me write these. They were developed in my classes and improved with experience. I also have a Golden Rule: “Those with the Gold Rule”—meaning be mindful of whose interest is really being served by political tweets, financial news, and FED announcements…
I rely on a combination of indicators: Average True Range (ATR), Advance/Decline; Moving Exponential Averages 8 and 13; Simple Moving Averages 20, 50 and 200; Implied Volatility, IV Rank and IV Percentile (all in one script!); Full Stochastics; MACD, RSI, Bollinger Bands or TTM Squeeze, and PPS (pivot indicator to make sure I don’t jump the gun before having reversal confirmation). My “Big Picture” Leading Indicators are Dynamic Yield Curve and Baltic Dry Index.
What Time Frames?
I use multiple timeframes: 1Y:1D for options; 5D:15M, 10D:30M, 90D:1H for futures; and longer timeframes (1Y:1D, 3Y:W, 5Y:M, 10Y:M, etc.) for long stocks. I use a combination of timeframes for most every trade.
What About Placing Trades, Trade Management Profit Taking?
I identify S.E.T.—Stop Loss, Entry, Target—for every trade (except for naked puts where I want to own the stock at a discount). That way, my trades are automated and my emotions don’t get involved. I review my trades as part of my Daily Routine. I use a Trade Journal to track manage my trades. Daily Routine, Journaling, Trade Management are key parts of “My How.”
Stay Tuned for the next blog where I’ll be discussing MY HOW—How I identify, place, manage, take profit and journal my trades.
Trader. Investor. Life Long Learner.
Beth Salamanca is a retired Senior Foreign Service Officer and US Marine. She’s traveled to 77 countries and uses this experience to support her investing. She trades stocks, options, futures, and commodities. Under Tim Justice’s mentorship, Beth was inducted to Elite Legacy Education’s prestigious Hall of Fame in 2018.
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