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Re: [fairfaxtraders] $Bill's swing trading stop setting - low of the day - examples

From: Madhu J.
Sent on: Wednesday, October 14, 2009 5:19 PM
Bill,
Thanks for the clarification. I would appreciate if you can present the option selection criteria and go thru couple of trades. I would also like to hear your experience day trading options.

Thanks,
MJ

On Wed, Oct 14, 2009 at 8:28 AM, $Bill <[address removed]> wrote:
MJ,
?
Let me clarify a bit.
?
I did not mention my option selection strategy, which is a significant part of my trading.
The option strategy I use is too complex and too much to type into email
?
However, if the meetup is interested, I will be glad to prepare a presentation on how AND WHY?I select?the options I do select?and make that presentation at a future meetup.
?
BTW, my option selection criteria for my swing trading strategy is different from?the option election criteria I used when?I was day trading.
?
To answer your other questions:
I do not buy the stock at all.? I do not use a covered call strategy.? I actually own no stocks and I do not intend to own stocks.
?
I trade stock options on stocks that meet all of my criteria, including my option selection criteria, AND that have at least a two point potential move before encountering?the next
major resistance/support in the direction of my trade.? I recently started using Fibonacci?retracement/expansion tools.??Everything else being equal, with some exceptions - like SPY - I?trade stocks that have an ADR/ATR (5 days) of at least 2.0.
?
I can go into this in as much detail as people want to hear, just not in email -- I prefer a stand-up presentation/Q&A format.
?
Regards,
?
$Bill
?
?
?
?
?
-----Original Message-----
From: [address removed] [mailto:[address removed]]On Behalf Of Madhu Joshi
Sent: Tuesday, October 13,[masked]:03 PM
To: [address removed]
Subject: Re: [fairfaxtraders] $Bill's swing trading stop setting - low of the day - examples

Bill,
Thanks for the information. It is very helpful. If I understand you correctly, you buy a front-month ATM call option of a trending stock and set a stop on the call based on stock price (low of the day).? You don't buy any stock itself i.e. this is not a covered call strategy. Am I correct?? Do you also have a target in mind when you place the initial order?

By the way, thanks for discussing the types of emotions - I've never heard anyone put it that way.? While I agree that most of the emotions are manifestations of fear, there are some that don't fall in this category. Revenge is a good example - I no longer have the fear of losing, I've already lost the game :-), but I want to get back in to exact revenge. And sometimes,? I was whipsawed out of the market because of a tight stop but my initial assessment of the stock is still valid. So I want a second chance, damnit!

Thanks again,
MJ

On Tue, Oct 13, 2009 at 8:24 AM, $Bill <[address removed]> wrote:
Hi Fairfax traders:
?
Great meetup tonight (Monday nite).? While I am working on Tuesday's homework to find some?nice
setups for my new swing trading strategy, I thought I would give you a couple of examples
of my stop setting using "the low of day on the entry day" and "the low of the previous day" for
subsequent days.? When the stock breaks the low of the previous day, I get out stopped-out.? Usually, in a trend,
the stocks that I trade will run in the trend direction 2 to 5 days, or more.?
?
I do not make my stop loss orders?effective until 10 AM (the earliest I can make them automatically trigger after 9:30 with the trading platform I now use), allowing the stock to?move around a bit during the first half hour of the day.? I also watch the stock during this time if I need to take control of the trade immediately. More on this below.
?
My entry and exits are determined on the daily chart each evening during my homework.
?
Look at IBM for a trade entry on 10/5.??On 10/2, IBM?pivoted bullish bouncing off the 50 ema. That evening I set an alert at the 10 ema,[masked], above and as close to?which I would enter a bullish trade on IBM, buying IBM calls on 10/5.
?
The next trading day,?10/5, IBM initially dropped and put in a low of[masked] (which would ultimately be the low of the day) and then a trade entry?setup pattern occurred on the 5-minute chart @11:01 am as IBM broke out above?119.57.?
?
I entered IBM bullish (buying call options) at IBM =[masked] on 10/5.? I set my initial contingency stop order?at the (current)?low of the day, which was 118.13.? IBM never?went lower than[masked] on 10/5 after I entered the trade. ?But look at where it is now = 127.04.? Throughout the current run, IBM never broke?its low of the previous day.? As of 10/12, this?IBM trade is up over 7 points.
?
On 10/5, I also entered trades on AAPL and FCX. Take a look - similar entry and stop strategy.
?
Note on my FCX trade, at the close of 10/5 (entry day), I was underwater, but not stopped out, so I remained in the trade.
?
Those trades are typical of what my swing trading strategy looks like.
?
There are several additional trading rules for managing these trades.? For example,?if it gaps up significantly at the open?when I have accumulated several previous days' profits to protect -?I would set the new stop at the opening price, rather than the previous day's low.? And I would be stopped out (with profits)?and my profit protected if it tried to fill the opening?gap.
?
OR, if the stock gaps down at the open, below my stop, I would allow the stock to retrace up (if possible), as it (presumably)?tried to fill?that gap, and?sell the position there, into strength.? If not into strength, then watching the technical patterns for a convenient (albeit painful) alternate?exit.
?
There are a few more rules, but I think you have the idea.
?
I am not after 100% of the move in a stock.? I am after a significant portion of the middle of the?move.? I enter a trade after the move starts and exit after the move ends, not trying to capture the entire move.? This systematic approach minimizes emotional stress, while capturing a significant portion of the momentum run of the stock.
?
Comments/Questions??

Regards,
?
$Bill
?
?




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This message was sent by $ Bill ([address removed]) from Fairfax County Active Traders Meetup Group.
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