Position Sizing for Trend Trading | Technically Speaking: Trading the Trend

Position Sizing for Trend Trading | Technically Speaking: Trading the Trend

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hello and welcome to technically speaking trading the trend weeks to months my name is james boyd great to be with you uh we also have my good friend michael keeley in the chat as well labeled as mk a fellow instructor also a fellow twitter person as well you can follow michael or myself on twitter we do post educational content there daily we'd like to welcome bill frank radio wayne texas bill jill edward annette remy tony todd robert and the list goes on and on we welcome you here today if you talk about trading the trend weeks to months this topic is so important it doesn't matter how high the trend went if the investor got none of it that's not fun so we want to really make sure that we really become specialists and seeing trends shorter term and longer term trends but also being effective in really how to ride those trends and maybe try to capture some of that trend move why does it matter well because the investor might be trying to grow a retirement account or let's say use that retirement account to maybe generate income from dividends etc so this matters a lot okay when we talk about uh future expenses or we're planning on living on some of that money and using some of that capital in the future now also remember that as we get started remember if we talk about options and we're going to talk about half stocks half options here today remember that options are not suitable for all investors especially risk inherited trading options also remember that we're going to demonstrate the function of the platform we will use actual symbols remember that td ameritrade they do not make recommendations or determine suitability of any security or strategy you as the investor get decide what could be right for you now we also have the paper money platform here uh called the thinkorswim platform by td ameritrade make sure that you're using that getting ample practice and getting familiar with how to use it and also if there could actually be some strategies that would interest your situation now remember as we get started here today we're going to talk about option greeks if we do there's the there's the the terms and the definitions for those today we're going to take a look at the quick market in the sector update and kind of talk about how the market conditions might be impacting some of the stocks that are in the current portfolio might there need to be some adjustments being made two we're going to talk about trends from a longer term and a shorter term perspective the goal of course is to find something that is maybe shorter term moving up but also has a pre-existing or prior upward trend and then third is what happens if you have stocks in the portfolio that are maybe going sideways and maybe pulling back now what and let's kind of also bring up with that uh discussion what about exits when would the investor just say look i'm seeing an exit here and what could be those potential signals and as we go through just know that we're going to have questions as well so no further ado let's hop right in now i want you to look at the spx with where it is and this has not been something that's been new right we've been seeing the s p has been in more of an upward channel today what you're going to notice is kind of selling off a little bit could that be because the maybe the index is up near resistance sure could it be for example when we talk about both flags typical flags might be where you go up five to seven days on average on average and maybe they start to exhale we've gone up for about five days this being the sixth day since that low point and we're seeing a little bit of exhale trend is still up but maybe just exhaling a little bit now this is so important if we saw the s p like this what do you think individual sectors are doing do you think you'd see more sectors that are going up do you think you would actually see more sectors that are actually going down what do you think you would see let me ask the next question if you saw the s p doing this what do you think individual stocks are doing well you probably bet on the majority basis that probably more stocks are kind of in that same type of standpoint meaning there probably have been an upward trend they're probably up near resistance in other words they look very similar to this and they might be kind of showing maybe some signals but maybe pulling back a little bit or maybe even just flattening okay now what type of strategy does this potential potentially open up the investors long the stock but in the shorter term the stock could be up near resistance there might be some opportunities maybe to sell covered calls on stocks that the investor owns there might be some times where the investor might say james could i buy a protected clip or could i call her the position based on what we're seeing in the market that might be something that we see we're going to take a look at a number of stocks and see if the stocks relate back to the s p now no further ado you take a look at some of the sectors there's zero sectors here zero that are off every one of them's down okay you look at financials not massively down it's not downtrend but if you look at that slightly down three tenths of a percent utilities getting down below its shorter term moving average now again understand this you get down below that shorter term moving average this means you have negative momentum if you have a negative momentum you tend to fall down those longer-term support levels understand that okay nobody wants to see this the in the sector pull back ten percent then finally someone says i get that okay you go below the temporary moving average they're downside risk understand it tell me if you understand it okay i gotta comment before i i didn't know if the stock went below the 10 that you could actually see and unwind that quickly yes okay if you take a look at the industrials flat take a look at the staples staples are even pulling back the positive we actually said on staples and utilities and healthcare on monday is that if you get these sectors to maybe cool off a little bit it's a better sign for growth names but when we actually look at let's say growth names such as even like technology you're kind of seeing them flatten off okay when i say flatten off they can still be in this bull flag where we went up albeit that the pole was only three days the pullbacks so far really being three days as well so the length of that movement wasn't as high but it's trying to but it's just kind of in that little exhale phase so no sector is actually going up at all so this is kind of actually bringing kind of some interesting pausing to the market now sebastian is actually saying jade powell's speech tomorrow now it's also ray that and many others that have said don't fight the fed baby okay some people call the the fed the ultimate institutional investor they make goldman sachs look small and that's kind of true because if you look at their balance sheet they've gone from 1 trillion to 8 trillion and they've been buying off assets across the boards across the years so could there be maybe some a little anticipation or some pausing have had an all-important speech of maybe when they might consider tapering i kind of doubt the tapering because that's like the government's saying they're going to start cutting their debt and paying back which we've never seen that before so we're we're going to kind of be a little pessimistic perhaps that they might really taper i think they've had lots of opportunities in the last 13 years ish 12-ish years to taper they haven't papered anything okay they just continue to stack it on so a lot of investors might be a little doubtful of that that they might taper and if they do it might not be as aggressive we'll watch that now let's talk about some individual examples now a couple stocks that for example now remember the bullet point two we wrote bullet point two we really want to kind of touch upon is really shorter term moves that really have longer term trends so for example when we pull up a chart we look at a one year daily but also so we can kind of get a little longer term idea of what's really going on with the stock we often kind of see what we want to kind of really see what's happening with this three year weekly chart okay now if you take a look at the three year weekly chart there's kind of been this longer term and again we might say this is maybe the pattern of the week so far that we've seen where it went up okay and remember we've been labeling this prior point is one and then we kind of look at this where it pulled back and then you actually saw a little support two count with me dead gummy and then now what you see is over time uh the price had a downward sloping line of resistance and right where that moving average crossed right here yeah it's actually kind of been grinding and on a weekly chart we've actually been seeing the price predominantly staying above the 10 week moving average and post this uh earnings which we already had the price actually moved up quite a bit now james what about the salesforce short put vertical it expired worthless last friday so that trade's gone sadly so but if the investor is saying you know james could this be something that perhaps might try to let's say go up to the prior high and maybe my higher low back and then maybe might have tried to continue now i can almost kind of hear maybe michael keeley saying look at the fundamentals look at the fundamentals 148 121 104 now you're going to see that it kind of topped out at about 174 but it's actually an improvement and it might have some seasonality in here and it boy it sure looks like it does seasonality might be in the fall in the winter time seasonality is when those actually sales would be higher than maybe other times of the years and that also could be a corporate refresh uh cycle as well as far as capex spending but it really looks like probably in the fall to the winter time is when salesforce maybe gets those software updates and sales so if we actually take a look at this if this trend were to continue maybe an investor says you know what how does an investor participate in the trend now i want to kind of go to something that's had a pop like this okay a lot of times investors say oh it's too high well don't you think institutional investors knew that don't you think when actually that volume was stacked on like the way it was don't you think they already knew it was how high don't you think they knew with where the price already went to it was already at the prior resistance why do you think those institutional investments bought it at resistance and popped it to that level uh maybe they don't think the resistance is going to be the resistance now the other thing is also picking a strategy that's not as sensitive to directional movement we know stock is very directional okay every dollar moves it's a dollar for dollar but wonder for example the investor says well could the investor sell something and maybe capture a premium and by capturing taking on that premium there's an obligation associated with it so example given let's say the investor said james i want to go a little bit farther out in time let's say that an investor says i want to kind of maybe sell an option where maybe it doesn't just have 20 days to expiration but maybe something that's in october now guys and gals that's not that far away okay and if the investor said james i want to sell something i maybe want to be a little bit more aggressive how would you know you're going to be more aggressive well the strike and the current stock price are closer together the delta's higher so there's greater risk the stock could be below the strike but if someone thinks that that stock might have a greater likelihood and they don't mind in owning those shares they might say they're going to sell the 270s which would be a credit and if they wanted to buy a put below that for downside protection in the ira account in this case if we go to confirm and send let's kind of show what the kind of the profit loss is going to look like there it is now i'm going to speak to position sizing just a minute when we talk about let's say stock trading okay and then how do these options fit into the position sizing in terms of the context of the whole portfolio example given if the paid money account said that it could really risk 15 1500 ish dollars which i think would be right around about a half of a percent or so we could double check that's the risk that this paid money portfolio has really been risking i just want to double check this 1500 on 563 000 that's not even that so it's really about three tenths of a percent rounded up uh if the paid money account were to lose fifteen hundred dollars it would be risking about three tenths of a percent that's even lower than the example i'm going to give you okay uh when we look at a stock example so if we go three contracts selling the 275 the 260s now in this case going to go a credit here okay that credit now for three contracts will now be adjusted and we see a max profit there 10.70 max loss 1929 and notice it's actually going a little bit higher on the strike price greater chance of the stock being below the strike so gotta really have an understanding here is the investor okay with that now why is this people in account going to the octobers well coming up on monday that september expiration would be inside 20 days so not going to go that close that's not giving a lot of room for things to happen if the market were to pull back so this is kind of going a little bit longer term a little bit trying to have a little bit more kind of exposure to the trend longer term now if we actually take a look at this if we actually send the order now remember you got a credit you got a 390 okay for the three contracts if that's okay the buying power effect 1929 send the order now i want to kind of now talk about a stock position and the stock position we talked about earlier this week about casinos and we talked about those cruise line ships and some of you have even brought up the love boat okay that was a little bit before my time but i know we're going with that because i've seen the re-rocks but let's kind of for example imagine the investor said james i want to kind of take a look at maybe some of these stocks and imagine that the investor says they want to buy a stock and the focus here is going to be on position sizing and also how it relates to how many positions are in the portfolio now let's imagine someone said james i saw a royal caribbean this week and i saw it had a little push to the upside and oh no there's a red candle now is the red candle bad or could that be a sound is the red candle bad or could that be viewed as a potential set now if we go back and look at this we kind of saw that on the price we had that double top right there and now the price is falling back down to the old double top area okay now if a stock breaks out of resistance is that normal that on day one breakout day two doink is that unusual on the second or third day to maybe get a red candle and maybe go back to retest yeah do you see a hundred breakouts i'm gonna tell you on the second or third day you're gonna see a lot of times that stock in the second or third day go look you think i haven't seen a couple examples thousands and on that second or day it's normal that you get a retest sometimes not all the time that it can pull back now who cares well let's talk about why maybe investor kids they might for example be using today's high as a trigger price of what now have you ever seen a breakout to a higher high it falls back and then you missed it well let's not play that game i hate that game well let's for example use today's high let's kind of talk about strategy with position sizing today's high 83 30. so i'm going to write this down so everyone can follow along and then we're going to have a nice little discussion about a question that was asked ah and i'm going to take a look at this 8330 this was a high of today okay so who cares well we're gonna actually for example use uh just a set example one of the investors said look if it gets above that high by a quarter if it gets above that high by 50 cents we're going to show an example buy stop by the way when we're talking about a buy stop this we're talking about a stock order okay now example given if we put a little filter on here and said look if we get 25 cents above that that would be 83.55 is been with me so far so it's saying hey look don't buy the stock until it goes at or above or above 83.55

a buy stop is just saying get in if it goes above that price there's no ceiling okay and the investor if they said i'm not comparable i mean what if royal caribbean comes out and says cruise lines are full 1000 people a day actually are overbooked on these boats now i'm not saying they are but if they came out with such possibilities like that the stock could gap a buy stop order does not place a ceiling on actually what that stock could be purchased for if that investor is worried about that they could just simply change it to a buy stop limit for our time we're going to just use buy stop now if we said for example in this case hey what about a potential support well if we actually take a look at this we're probably seeing that maybe a potential support diagonally speaking is really probably right about here and when you say here where's here okay now if we kind of said here let's kind of put a line right there it's right about 77 10. don't mind me i'm just kind of writing this down so we're saying the buy stop is at 83.55 why there well because we're just saying if it gets above today's high by a quarter okay so here we go now what we're going to show in this example and i'm just using this as an example of position sizing the question was asked to me on that the person said hey i feel like i have too many positions do you know anyone that lives very close to you that feels like you have too many positions anybody bueller bueller okay all right now let's kind of use this as an example let's say the investor says james i have 125 thousand dollars okay just kind of changing it i don't want you to think i'm gonna if this has been fictitiously set up i'm gonna kind of impromptu on the spot and let's say the investor said james they're willing to risk a half of one percent okay now nothing unusual didn't say anything unusual what's the entry price what we're saying at 83.55 this was that buy stop order we said this support level was right about 77 that was the diagonal support level now guys and gals there's not anything unusual in this so far okay did i lose anybody yet anybody nothing this is anything unusual this is like stock 101 okay now the portfolio risk and again this is coming from up top what is the portfolio willing to risk 670 625 trade risk per share 732 number of shares 85 shares now this has been for years we've actually talked about this okay in this example if we had 145 000 portfolio if the investor did the capital that it's really saying here to use in this example based upon the trade rates per share is about 7 100 and that's about 5.7

of the portfolio now what i need you to understand here is is the investor gonna use some of the money for options now let me kind of just tell you where i'm going with this okay let's someone said james i would like to actually use 80 stocks and 20 of those funds for options did i lose anyone tell me if i did now i'm just kind of imagining this might be eight and uh or a scenario let's say 20 options and i want to kind of imagine in this case that if someone said hey james what is eighty percent of that hundred twenty five thousand well that's going to be about a hundred thousand dollars okay now how many of these if we said that each one of these positions okay if we kind of look at this if we did 10 if we did let's say 10 uh how many trades of 7100 dollars could we really do to be at a hundred thousand dollars how many trades of seventy one hundred ish dollars could we really do in terms of stocks to be at a hundred thousand dollars you know if we said probably at the most we'd probably really be saying probably about maybe 12 positions and i'm going to kind of write that right there okay now about 10 or 12 stock positions total okay 10 or 12. now could it be less could it be more that's up to you about 10 or 12 stock positions so what that would really mean is when you kind of look at maybe different sectors you might have maybe two stocks ish three stocks per sector of the ones that interest you now if you were to look at this and say well what percent of the capital is in this trade well of the total amount of the portfolio 5.7 the one thing is if the investors said well i'm just gonna only use in this case a hundred thousand dollars for let's say stocks that really means of the stock portion of the portfolio it's seven percent if the investor does not maybe invest five to eight percent capital in a potential position what's going to happen what that really means is they're going to run into a lot of trades in other words the capital per stock trade is not that big okay now let's kind of hold this for a second i want to do one more example so let's hold it okay so i kind of set it up let's go back to this and let's look at this trade so how does someone set up now i'm not done talking about that but let's practice it one more time and we'll see how the numbers work out with a different price dollar stock so we're going to go to buy custom with stop now if we did that based upon position sizing we said that number is going to be right around 85 shares 85 shares is 100 7.1 of what 7.1 of the 100 000 portfolio but i

thought the portfolio was 125 000. now this portfolio is going to use 80 for stocks okay now that's where we're getting the numbers so we're going to type in 85. now what you're going to notice is when we do this remember this is not an option this is a stock 85 selling 85.

stop where is the stop go back yeah stop 76 is that right seems a little tight yeah it is so we actually go back if we're using let's say a two percent that's gonna be a little bit less okay that stop was a little tight okay that's actually taking the support level less two percent you might even take three that's going to give us 77 shares okay but notice if we even bought the paper money account bought less shares it's still in between five to eight percent of the portfolio value do you see that now we'll talk about why that's important just a sec where's the stop the stop is at 75 46. and guys and gals this is so important okay if someone doesn't have proper position sizing they might be under you know if they said look i'm bullish to market while they might be invested in the market they might not have sufficient exposure to really maybe track or perform with maybe the s p or maybe even try to outperform the s p they might be underperforming okay now we said before that 83 55 that's the buy stop now the paper money account is going to go down to the stop and the stop was 75.46 now if we take a look at this data gtc there it is properly position size 77 shares it's a buy stop it's saying if it goes to that price or higher buy the stock if the stock is purchased then the stop becomes valid remember there's there's a buy stop and there's a sell stop buy stop is saying it buy at that price or higher it's a market order sell at this price or lower and that sell stop is a market order which means it could be filled on a sell stop at a lower price level now bj actually says do you consider do you take into consideration the probability of hitting the stop price when setting the stop what do you think the answer is yes i do let me tell you what i mean by this i i did not necessarily plan to go here but i like where you're going so if for example if we look at let's say what is the trade risk per share what does that matter well i'll tell you why it matters okay that's how much the investor is willing to risk of that entry price what's the entry price 83.55

so the people in the account and all traders should really kind of be thinking is well how much of the entry price are they really risking it's about 9.7 percent now bj with that answer is that a tight stop or is that kind of giving some movement here is that a tight stop oh yeah it's it's it's not really that tight i'll kind of give you an example we've talked about before so for example when we actually talk about let's say uh this is kind of what you're asking when you take a look at let's say when you're where the investor is risking about eight or ten percent of the entry price this is really saying that the investor is probably risking or placing a stop that is less probable not absolute it's never gonna get stopped out but it's less likely to get stomped out so this isn't that eight or ten percent camp so now can it go down sure it can but it's not something super tight we talked about this before this is a conversation from before if the investors really risking one or three percent that's super tight three to five percent that's really tight stops this is not showing that example okay there's risk when the investor is actually setting a stop that type okay now rick also says how long do you allow this to trade uh that's like how long do you actually have it sit there for before maybe cancelling now the one of the nice things about this is you can actually go to the gear and if you go to the gear you could say let's cancel this at next week in other words if this trade were not to fill by next thursday why next thursday because that's the answer to rick's question well maybe give it a week to see if that stock is going to break up through that area and if it does it gets it okay if it doesn't if by next time this stuff this next time by next thursday if it doesn't get to that price right it cancels the order which means it cancels the stop as well and that's the answer we would actually give maybe about a week and see if it feels just in case the paper on account doesn't forget about it we could just put an order to cancel that just in case confirm and send we talked about this send the order there it is now let's kind of talk about one more example now i want to go back to for example one of those stocks and we talked about those casino stocks okay and when we actually look at one of these casino names i wonder if we kind of wanted to change this okay now let me kind of show you what i mean by this okay now i how many of you have seen diagonal breakouts before how many of you have seen diagonal breakouts when i say diagonal breakouts i'm talking about something that was going down and then starts to break up through resistance now one of the things we've seen in literally thousands of examples i know you're thinking you're right not that i'm telling you we've seen thousands okay i've been doing this here at this company since 2003 i've seen thousands of examples the biggest actually thing what's interesting is on 812 it broke above the diagonal line it didn't hold and then low and behold we actually see the price get above that resistance again close above it the next day it opens and closes above it now the interesting thing when you go back to about two days ago it really started to show really that where the body of the candle opened and closed about for the second time now sometimes what happens if people will say yeah but last time it didn't work what is the last time i have to do it now not a lot okay the stock market doesn't necessarily maybe perhaps have a memory they didn't the stock market might not take offense now i want you to think about all the things that people say when they actually see a trend like this can you think of some things people say that maybe kind of drag their feet to consider a potential entry what do they say is is it common it's funny we might ask that question before we actually look at this trade and kind of talk about this let me bring up just a quick example of uh something i hopefully i have that maybe a boy i hope i do let me kind of slide this over but there's kind of some repeatable things that sometimes investors say and i've said them too so for number one is yeah i i see it breaking resistance but the trend's been going down one one thing united and they understand is how do you know that pullback is not an intermediate bull flag how do you know that maybe that being going down is the flag in an intermediate trend okay these are common things that people say and i stopped at six yeah but the volume is lower how many times we actually talked about that the volume is probably going to be lower because you're comparing selling volume to buying volume okay if i yelled fire in my house i probably wouldn't walk out i would run it but when i come through my front door i don't typically tend to run in i just walk in okay buyers a lot of times tend to be the same way yeah but i see overhead resistance but yeah but how do you know it's actually going to go up how do you know or number five i want to see you make a higher level and now it makes a higher level and then it potentially bounces and now i feel like i'm too late these are common themes that people say and i stopped at six all the time you should write these down because the investor might become entrapped in these same type of things where they cause sometimes investors to miss potential moves and they're not technical things these are these are really what uh behavioral finance people talk about as far as being biases okay now if we look at this chart if the stock just went from maybe in this case let's say from down here all the way up here in just about five days ago five days that stock price went up 21 points or 20 um about 26 percent am i right on that yeah yep okay 21 points 26 now what do you think might happen after something like that where you just get a sh rocket type move to the upside so you had to break a resistance it made a higher high what do you think might happen now what type of tool do you think of technician and this is what i want to kind of be thinking ahead a little bit if we have a move like that some technicians might use a tool like fibonacci and the fibonacci when we draw this we're going to go down from where did the move start the paper money account likes to use the body of the candle where there's more touches the paper money account is also going to really in this case draw to the body of the candle so far now if you take a look at this we now get what some technicians might look at as potential levels of support so who cares paid money can't cares and let's say for example that the ambassador said james could the stock maybe exhale a little bit might try to come down to about 95 19. could maybe the stock actually try to come back down to 9270 that the investor was going to use that type of order what type of order is that what type of order is that if this stock actually runs up and then pulls back what type of order is that if it runs up and then pulls back and the investment says i want to get in here or what type of orders if it actually pulls back to the secondary level of support right here those are just buy limit orders now how do you know if it's going to pull back you don't know if it's going to pull back now if the investment said in order to get in about 95 19 they they'd probably have a greater chance of getting in than the person that's at 92 7 92 70 because it has to fall down deeper now in this case the paper money account is going to try to set up a buy limit order right at the 23 line again i'm not asking you what you know i know a lot of stuff i don't do it okay i'm asking you about how does the investor apply technical analysis and think ahead what do you mean think ahead in other words it's gonna set up an order to get in that stock where to pull back that's having a plan in place okay now let's say the stock let's go kind of go back to that position sizing let's look at this example again 95 19. that's the buy limit we're going

to try to put a buy limit price right near there which by the way is showing that price right there now in terms of actually setting a stock let's say the investors say look i want to try to maybe go from a longer term type of trading give it some more fluctuation understandable 69 okay that's that support level now remember let's kind of go back to the math the numbers of this and kind of see what the risk is let's do it so let's kind of go back and take a quick peek and let's kind of bring up that position size now it's so fun when you start to see a repeatable process okay it's not that fun when every day you're like it's not that's not fun okay we want to kind of go back to what's in the online course and then practice it over and over again well let me actually take a look at this let's say the investors still have 125 000 they're willing to risk 625 entry price 95 19 remember that's a buy limit order we don't know if it's going to go to that price or less but we're going to see support level 90 69 okay whoop 9069 when we actually look at let's say the risk per share it's actually 6.6 so that actually means in this case that the paper money account is for example you know it's about 6.6 it's not as giving as much uh but you got to understand it's also buying in a pullback as well when you take a look at this 625 risk for share 631 it's really now 99 chairs now wait wait wait stop right here okay so now the previous example we are the paid money account was really buying about seven-ish percent of the portfolio okay if we look at this one if the investor buys 99 shares of stock it's about 9 400 that 99 shares or 9 000 that's about 10 of the portfolio now remember on some trades the investor might be kind of closer to 5 that will depend upon how close they're actually uh how close they are to support how much risk they're actually taking but now if they're buying it maybe a little bit closer to support and risking less per share okay they might be actually a little over but when you kind of look at the math overall if you if someone were to do this they're probably looking at a stock portfolio of about 10 or 20 excuse me 10 or 12 positions stock wise because now by the way if we said that each position on average came out to be eight percent how many eight percent are there in a hundred percent it's gonna be right about twelve okay and that's why i kind of think your pro the investment's probably looking at about 10 or 12 stock positions now let's kind of go back and look at this how does the investor set this up it's going to right click right on that fib line go down to buy custom go to wish stock now what you're gonna notice is the buy order is actually right on the fib line okay day to gtc now i'll go with the question it was asked before how long would the paper money account consider having this position open how about years a week how do we actually set that up well let's show that just quickly go to the gear going go to where it says cancel at and we're going to actually say look next thursday if that order word not to pull back to that price or less just cancel the order save now to stop just using that as a sheet of paper stop was about 88.88 okay look at that right there now what you're going to notice is there's 88 there's there's really in this case 99 shares guys and gals it's not going to break the back of the portfolio to buy one more shares okay now uh sam says can you explain why it's a buy limit the purpose of the buy limit is to say look the payment account thinks that maybe that the stock might go down a little bit it's actually thinking that this might be a classic bull flat so it's actually where the stock runs up and then it actually pulls back so the buy limit is saying don't buy the stocking until it gets to this price or lower okay it has to be that price or lower okay now james wonderful buys the stock at that price or lower and then the stock keeps going down that could happen and that's why it's properly position sized and that's why you'll notice that if we said well how much of the capital could we risk well 6.6 this is the the risk of the entry price okay and when i say that i'm really saying this when we talk about the trade risk it's the trade risk per share okay and think about in a percentage terms okay if the investor probably starts let's say risking more than double digit percent that means they're setting their stock pretty far down now that could be their strategy okay but then paper money account it tries to typically risk between maybe five to ten percent but if it's greater than probably ten percent the investor might say maybe i'm going to look for the stock to exhale and try to pull back a little bit sam says are you assuming the stock will come down yeah so in this example it wasn't necessarily assuming the stock it's assuming the stock might try to come down to the 23 but it's saying wonder if the stock even comes down to the 38. i wonder if the

stock comes down to 50 it's still giving some breathing room the stop is below the 50. okay now so yes okay good now going back to this notice the paid money count to 90 do 99 shares it just pushed it up to about one more share and that's what it did now let's kind of for example go back to well james this is wonderful okay so we kind of talked about it in most cases given the investor might have or i'm going to talk about this paid money portfolio they might have a position size where each position of the stock portfolio might represent 58 of the stock portfolio but what about the options well what's 20 in this case of 125 000. okay now again not trying to trick it look not trying to trick anyone here 20 of that portfolio might be 25 000 okay so that's the seed capital available for doing a trade now i'm going to go back to confirm and send notice there's the capital there's the stop we talked about how the stop works and if that's okay gonna send the order but james wonder if the investor said you know what let's say the investor went back to a stock and i'm going to bring up a stock let me double check two we're gonna talk about an option position how it fits overall in terms of the portfolio now one of the stocks today that actually had a pretty big pop here today was net app okay that was a stock that actually made a brand new resist well actually broke above horizontal resistance and when you go back to let's say it's longer term type of trend it's actually scooped all the way back up to the prior high okay i'm gonna keep an eye on that but let me check for example this other trade that i thought the payment account might consider is uh netapp and actually the one that actually think maybe the third one yeah gonna take a look at for example microchip technology okay now does anybody see anything on the chart okay what do you actually see on the on the chart that's kind of maybe standing out that you don't typically see well there's actually kind of like a little purple icon there's a little two for one now we saw in video when they had a fourth one sometimes that actually might cause investors to entice them to maybe try to buy the stock pre the split of the stock not always but sometimes it actually might cause some investors to say i'm interested i like to maybe get two shares for every one now when we go back and really look at this we kind of see this classic upward trend now again if i went back and and kind of said what was one of the most frustrating things that you'd say you just didn't understand one thing i don't think i understood and i had no understanding of is that the importance of weekly charts no everyone when i got started they were just like day traders i'm getting in getting out getting in getting out and the problem is they would just make sense on the dollar instead of actually just making bigger and bigger percentages they would just make crumbs of that trend and they would say that okay so the biggest thing is if the investor says look i don't want to get in and get out get in i want to kind of focus on something that might have maybe some tailwinds of something that might go up now if we take actually look at this let's kind of show this example we got about three minutes here let's say the investor says they want to sell a put but they also want to buy a put for protection how much of the 25 000 is this really going to take now if the investor says they're going to sell the october and sell the vertical now this is not the typical vertical it's buying the put below but it's also saying james the paper account only really has 25 000 earmarked four options okay well maybe they come down and say they're gonna do the 125. why the 125 because that's the one that has a delta 10 or less now if they did that how much of the 25 000 is this gonna hog up well an example given the buying power effect is really going to be about 2073. now uh orlando this is where the investor probably could have quite a few positions because if each one of our examples was very similar to this if the stock portfolio had 10 or 12 positions the option portfolio might have as many positions okay as maybe the stock portfolio if it was fully utilized because if the investor did what this is showing it's not really hogging up that much capital because it's using that long put to reduce the buying power clearly if that was not the case it would be chewing up a lot more capital okay if this did not by the foot this position would probably take 15 000 of the 25 000 and that means don't have them the option for positions but if they use that long put as a way to reduce the buying power of the plateau yeah they might have five eight ten option positions perhaps now that's not saying they always have them on but that's where the investor might from a shorter term perspective be focusing on short-term trades or time things like that when i say time i really mean time decay okay so i want to kind of answer those questions as we went we're out of time here today but what we wanted to really talk about is kind of these stock trades in relationship to position size and stocks then what we want to kind of talk about is well wonder if someone wanted to do options and how many trades might an investor have if they were doing options based upon a sample account size of maybe 125 thousand dollars understand that that number might be increased uh really based upon you know if the investor was buying puts below it also might depend upon what a price dollar stock they're also looking as well but realistically we probably think about five or eight option trades even on that portfolio that was just 125 000 so yeah it can go a long way there now i'm out of my time here today i want to thank you so much for your comments and your participation uh if you enjoyed today's session reach out and just smash that like button just do it again smash and also remember is that there is a survey in the uh chat go ahead and actually click on that quick five questions about how you enjoyed today's session we kind of talked about some of these things have investors say that maybe how they miss some of these reversals do you say those things i know i have so i want you to kind of think about that how you could actually become better i'm out of my time here today thank you so much for your comments and your participation stay tuned for our next webcast coming up right at the top of the hour thank you michael keeley and everyone for your comments and your questions with that said stay tuned for our webcast coming up right at the top of the hour thank you so much take care bye

2021-08-29 02:19

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