What’s Next? The Juice!

Hi there Tackle Traders!!!  Our first live trade is in the books and we are now asking what’s next?  Now, when I say in the books, I mean that we followed our process and that put us in a position to make a great trade.  If you have been following the trade you probably know that our pick, CREE, is still going in the direction we expected,  that doesn’t mean that everyone would be still in the trade, that would depend largely on where you moved your stop up to as we discussed in last weeks video.  We know that CREE has yet to fall through our original support/resistance zone and that there is a possibility that some could still be in the trade.  This brings us to a key point about trading.  That key point is something that is contradictory to human nature.  Let me explain,  for anyone that is somewhat new to trading, and I am assuming that since this is the Rookie blog that most of you are new and that the rest of you are like me and have a fascination with all things trading and are reading this blog out of curiosity, that your natural tendencies are to grab things and pull them close.  This could be grabbing a loved one and holding them close or clinging to an old idea or concept because it feels good, normal and you fear losing it.   This is ok sometimes in life, we should hold our loved ones and we should hold onto certain ideas but isn’t it also true that if you hold on too tight that it can have the opposite effect?  Holding on too tight to a loved one can sometimes drive them away and holding onto old ideas that no longer serve you can be detrimental to our growth as human beings, yes?  This is certainly true in trading when new traders see a quick profit they instinctually grab onto for fear that it will go away.  This is what we call “cutting our winners short!” and this is not good but it is a normal tendency.  Sometimes we tend to tighten up too much on our trades and we don’t allow the market to give us all that it can.  We have to fight this urge and the way do that is we use rules to manage out trades.  In the case of CREE if we had moved our stop to just below the support level then we could still be in the trade but if we had moved our stop up to catch some the move we could be out and not around to catch any additional movement that may be forthcoming.  That is a little about trade management which we will focus more on as we move through the blog but for now, just know that we have to let our winners run and cut our losers short if we want to be successful.

Let’s move on to this weeks focus.  Now that we have done a stock trade we are going to naturally want to move up the trading ladder and by that I mean start to bring in some leverage to see if we can increase our ROI or better yet reduce our risk.  This is where options can be brought into the mix to see if we can achieve the two things mentioned above, that is higher ROI’s and reduced risk.  This is the JUICE!!! In the wonderful world of options, there are so many choices and opportunities that it can be a bit overwhelming.  In this blog, we will simplify and focus on certain aspects of options trading so that things remain more easily understandable. Before we get to that point we need to understand that our process is going to remain the same and that the tool that we will use will have certain nuances and we will go through those as we move forward.  At this point, we need to remember that the following list is the same process we use for stock and we will use the same system to find an options trade.

1. Market Bias
2. Scan for trade
3. SET Method
4. Max Risk
5. Position Sizing
6. Monitor
7. Journal

These are the steps for stock trades and over the coming weeks, we are going to look at what additional steps we need to do an option instead of a stock.  The first option we will look at will be the long call.  These options play require certain criteria in addition to the regular steps and we will go through those in the next blog and see if we can’t find a live trade to go through and track in our mock trading account!  Until next time keep those stops working!!