This page is archived and no longer relevant as my trading plan has been updated. Links on this page may be broken so no need to report them. The new trading plan is found linked in the menu.
I am an options trader. I am not a financial advisor and this site is not investment advice.
The Short Version: My trading plan is built into each one of my STRATEGIES.
The long version is below.
In order to trade successfully, I have learned I need to have the right tools to trade with, the right temperament, and good money management skills. At a minimum, I need a brokerage account with a live data feed and most importantly – Assume I Know Nothing.
The steps below are a window into how I trade and I come back to this page almost weekly in order to stick to my plan. If you are reading this, you need to find your own style of trading and what works for you. This is what works for me and I will tweak this as I go and as the market dictates.
I consider myself an opportunist trader and not tied to any one particular way of trading. I will trade in up, down, and sideways markets. I am primarily an options trader but will swing trade stocks as well. I have yet to dabble in the futures market.
I look for setups and trade accordingly, be it swing trading, scalping, value investing, or dividend reinvestments and compounding as I have in my retirement account. As long as the trade has a high probability of winning as well as good price action.
I always ignore the news and what most people are doing when I am trading except for global issues that fuel fear and greed. I am too focused on taking other trader’s money and managing my own to be tied down to “fake news” that much of the market news outlets regurgitate and perpetuate. Most news is typically after the fact when the market has already moved.
I’ve tried using chat rooms to trade but found it can become too emotional and overbearing. Go to Stocktwits and you will see what I mean. It’s a good sight for entertainment, but that’s about it. I’ve also used private chatrooms. I found that I became reliant on others to spoon-feed me with ideas instead of coming up with my own ideas in order to draw my own line in the sand when it comes to trading. I’d rather spend most of my time just trading and I also figured out that most of those folks were like me and also knew nothing.
I do not listen to self-proclaimed gurus. Most of them suck at trading and are not transparent with their trades. Many cherry-pick their trades. ANYONE can look at historical data on charts and fit it to a trade. This is smoke and mirrors and they are not in it for your best interest.
There is a reason stock billionaires do not sell trading systems. There is no system. Rich traders are smart, learned on their own, are good money managers, and spend their time trading and enjoying their money.
With that in mind, education is crucial to what instruments and the markets I am trading. There are many smart people trading against me willing to take my money. I found that you have to come up with your own way of trading that fits your personality. There is no one size fits all when it comes to trading and once you put your money down you either win or lose.
The best education platform that I have found is Tastyrade. They offer, for free, what many people charge you for. The reason they do this is that they want you to use their trading platform. Their education videos and modules are second to none. I do use their trading platform and it makes it easy to trade complex options. The only thing I do not like about their platform is that the fills are slow because they use Apex as their clearinghouse.
Early on, I paid for trading systems and they just did not work for me. I lost money. I blame no one but myself and my lack of knowledge. Now I trade slow and steady and learn the craft by reading the psychology and mechanics behind trading and then testing those hypotheses. My win rate is currently 75% and I keep a running log of my trades as seen on this site.
Nowadays, I only trade for income. I am happy to spend just a couple of hours on the weekend looking for trade setups that typically make me $500 to $3000 a week, even in down markets. I do not want to spend all day, every day, chasing some dream of being rich. Why would I? I do sometimes trade all day, just because I enjoy it and find it challenging.
I live comfortably and live simply. It is less hassle that way. I have paid off my house and make enough to eat. My child is taken care of and has an education and a leg up on life. I have enough saved to retire and live comfortably on.
In the end, I figure, we all die and can’t take it with us, so I am not going to kill myself or make myself miserable in this life chasing the idea of being insanely rich. When I started thinking that way, I became comfortable with trading and started making money. I also learned you get out of it the amount of time and energy you put into it.
1) The Markets
– What I trade –
I am most comfortable Trend Trading stocks and stock options. I want to follow the crowd instead of going against it. My personality is contrarian, so I have to curb my urge to go against the crowd by thinking I know market bottoms or tops. This always bites me and it is critical that I must document my trades so I don’t keep making the same mistakes.
I do not like trading Indexes and their options as short term trades because they move too fast for my trading style and I usually lose money. I may trade them though for daily scalps. I just don’t know enough at this time to successfully trade them. I like steady swings, up or down, over a period of 2-5 days for the most part depending on the type of trade I am doing. Option spreads or complex options I like to trade 30-60 days out.
I will not trade penny stocks. It is an extremely corrupt industry with no transparency. Very few people do well and the ones that do are outliers or anomalies. I jumped on the bandwagon one time because people are worked with were trading them. They all lost money as did I. Many penny stock companies (people) pump and dump these bogus companies just to take your money and simply disappear. For every winner, there is a loser and usually, the losers are those who think they are investing in these junk companies.
Swing Trading is a style of trading that attempts to capture gains in a stock (or any financial instrument) over a period of a few days to several weeks. Swing traders primarily use technical analysis to look for trading opportunities.
– Identifying Stocks to Trade –
For the most part, I use my broker’s built in lists and screeners.
One of the best free sites available to screen for stocks is FINVIZ. Yahoo used to be my go-to, but they became nothing but ads and locked up my browser.
For my standard go-to swing trades, I run screens in Finviz for Mega Cap Companies and Large Cap Companies. If you hover over the stock link it will show a preview of the stock’s chart. This makes it quick and easy to choose price patterns that look promising, to me. I choose stocks that show wide swing patterns over a few days or weeks.
For options trading, I filter for stocks that are liquid and typically around $50.
2) Charting to Make Trading Decisions
I personally like to use charts to help me with assumptions on which way I think a stock will continue to move. People argue that this is like looking at tea leaves in the bottom of a cup to guess which way a stock is headed. There have been lots written about this. I realize that nobody knows which way the market will go day to day, but what I do works for me and if it is a crutch to feed my delusions then so be it.
– Primary Chart Intervals –
The primary chart intervals I typically use are 4 hours, 1 day, and 1 week. The time frames must all be in agreement with the trend of the stock’s price action. I use a charting program and technical analysis to help me with my trading decisions.
Price action is the movement of a security’s price plotted over time. Price action forms the basis for all technical analysis of a stock, commodity or other asset charts. Many short-term traders rely exclusively on price action and the formations and trends extrapolated from it to make trading decisions.
Technical analysis is a methodology that makes buy and sell decisions using market statistics. It primarily involves studying charts showing the trading history and statistics for whatever security is being analyzed.
– Charting program I use –
My Charting Program
Most brokers provide some form of charting software with their platforms. I like touse tradingview.com. This is free to use but has limitations to how many stock lists, indicators, and templates you can save within the free version. I purchased a pro subscription that has a few more bells and whistles.
Tradingview will run specials throughout the year. I think I got 50% off when I signed up for the free trial then canceled within the 30 days.
One pitfall of tradingview is that they will want to charge you, on top of your subscription with them, for live data. I do not need this since my brokers provide live data on charts for day trades. I also typically look at my charts after hours for long trades. The data on tradingview is 15 minutes behind. This is good enough for my needs.
I start by looking at a 4hr chart for pricing patterns. StockCharts.com is a good reference for the explanation of various chart patterns. Once Something spikes my interest, I then move out to the one day chart and then the weekly chart to see if my indicators and perceived patterns are congruent.
I love the drawing tools and indicators that tradingview provides in order to draw patterns on my charts. It makes me feel like I’m the John Madden of stock plays (Football reference). After I draw patterns and trends I narrow down the potential trade on a stock by looking at the price action/movement to give me confirmation of getting into or out of a trade or if I missed the chance.
By analyzing historical data, technical analysts use indicators to attempt to predict future price movements. Examples of common technical indicators include the Relative Strength Index (RSI), Money Flow Index (MFI), Stochastics, MACD and Bollinger Bands
I am getting to the point that I am not using indicators to trade as it just creates too much noise on the chart for me and really all I need to look at is the price action. The price action for every stock is different and one indicator does not work for all stocks. You have to figure out the best indicators for the stock you are trading and what fits your trading style. Only do what works for you. This is more an art than it is a science.
I advise coming up with what works for you. I am not a professional and would never recommend you trade as I do. I am only showing how I trade for educational purposes and for me to hold myself accountable and to adjust what I am doing wrong and/or how I can become a better trader.
Keep in mind what you see here, I will tweak and adjust since the price action of stocks changes as I find I may be using something that no longer works. I have to stay dynamic in this game while adhering to my rules which can also change as I learn and adapt to the market.
4) Mechanics of The Trade and Money Management
– Rules for Position Sizing –
Position sizing refers to the dollar value of your trade and can also be used to define the number of shares or contracts that you’ll trade.
I am only willing to risk 1-5% of my total account on an option trade. Five percent being aggressive and one percent being conservative. So basically, If I have $100,000 in my account then I am only going to buy options contracts for one trade that equals not more than $5,000.
This is all I am willing to lose on any one trade.
With that in mind, I will trade at up to 30% of my total account. So If I had 6 trades of $5,000 at the same time happening, this is a total of $30,000 in the market on trades and therefore 30% of my account is trading.
This is the key to money management. The odds are more in your favor if you follow this and you will be less likely to blow up your account if you are on a losing streak. Slow and steady.
My current win percentage is 75%. This means I am only losing 1 in every 4 trades.
I may not make a killing, but over time this scales up and you will exponentially make more money unless you are on a losing streak.
If I start losing more than I am winning then I take a break from trading for the rest of the month. I stopped trading for years when I had a personal tragedy in my life.
Trading in the markets is a Zero-Sum Game. It takes focus and clarity. You either win or lose. You are betting against other very intelligent traders and high-speed computers who are either going to give you their money or take yours. If you are not thinking clearly and are not focused you will lose your money.
– Tools For trading size, profits, and loses –
I typically trade option spreads on stocks that are between $30 and $100 because the premiums are what I am willing to pay. Yes, this limits what I can make, but it also limits what I can lose. These trades must be liquid. in other words, they must have a high volume so I can get in and out of a trade when I need to. Also, liquid stocks do not have wide option spreads.
Once I narrow down the stocks that meet my trading criteria, I run them through an option strategy builder or analyzer to determine what my probabilities are in terms of profits versus losses.
Most brokers have these tools built-in. I can set the size of my trade in terms of dollars. Both my Etrade and Tastyworks accounts have these tools. It really is a time saver and a must. You can also find free option analysis tools online.
UPDATE: As of February 2020 I have moved from my Interactive Broker’s account and opened a Tastyworks account. Tastyworks has a great platform that makes me a better trader as well as low commissions. See my goodby here. I like the Tastyworks tools better than my Etrade brokerage.
Etrade bought Optionshouse that I originally used for trading options. Etrade has been slack on updating the platform and I am finding broken links on their website to use these tools. Tastyworks is very active in constantly looking for ways to make their platform better. I will still keep Etrade since my retirement account is there.
It is not necessary you use these tools, but they will also give you a fair idea of your profit/loss potential. You can just skip this step and go to the next step or skip them altogether. The main reason I use my broker’s tool is that it automatically and quickly calculates the best strategies that have the highest probability to win.
Here are some of the E-trade screens calculating probabilities.
Here is Tastytrades probability screen.
I am a visual person and also find that optionsprofitcalculator.com is a good tool if you want to visualize your potential profit or loss. This is not perfect since it uses the Black-Scholes model which pertains to European Options, but it gives a reasonable representation of what my outcome may look like. The model also does not take into account volatility. It does, however, give an idea of the time decay of options. At the moment this is a free service.
5) Entry Rules
Entering a trade is usually on my assumption of the direction of the underlying stock price. I usually look for chart patterns. For example, if I have a chart that has formed a Bull Flag or Bear Flag I will wait for the price action to break out of the formation and go either long or short based on the breakout direction. It also depends on the type of trade I initiate.Some trades take advantage of sideway stock movement.
6) Exit Rules
This can be hard because emotions get in the way. If I am in a winning trade, I will sometimes end up jumping the gun and get out early instead of letting it run. If I am in a losing trade, it is easy to tell myself that the price action will turn around and go in my favor. I have learned the hard way, numerous times, this is not the case. I usually take profits at 25% and if I am confident the stock is moving in the direction I anticipated will go all the way up to 50% profit. This really is dependent upon price action and volume.
There is more on this on my strategies page.
I try to stay in a trade longer than 5 -10 trading days fir stocks. Regarding options I want to close out a trade a week before expiration. If I do stay in longer, then I watch the stock’s price action on the chart closely to make sure there is not a trend reversal or the options strategy is not moving against me.
7) Keeping a Journal
My Journal is this blog.
All my trades are posted on Profitly
It is essential for me to keep a journal and a running tally of my trades. This is so I can look at my own trading psychology to determine if I have been sticking to my plan and if I followed good money management.
This does not mean to beat myself up or to second guess myself when I lost a trade. I used to do that and became scared to trade and lose money. I learned it is normal to lose trades and if you use good money management you will typically come out ahead.
Looking back at the history of my trades, I focus on how I could have timed my entries and exits better, whether I followed my plan or not, and to reassess if I need to tweak the way I think or take a break for a bit.