First Time Visitor? Start here…

26 Responses to “First Time Visitor? Start here…”

1. Handy Says:
   December 20th, 2007 at 10:57 pm

   Dear Mojo,

   I’m very interesting to your blog, and already subscribed it via netvibes (rss feed).
   I’ve been trading for almost a year and still struggling with huge loss due not to set stop loss during trading.

   I would like to have your idea, about how to find the trade, set up the entry and prevent the huge loss due to improper setting of stop loss.

   For the stop loss in option trading, I’ve found very difficult to set the stop loss, because the swing is bigger than the underlying. If I set the stop loss to near, then I’ve easily stopped out while the underlying is still moving to my direction.

   What is your parameter to set the stop loss ? ATR ? Or mental stop ? 50 % of option price ?

   If I put the stop loss too wide, then the loss will be huge if the underlying move to opposite direction.

   Appreciate to have your insight and trading idea.

   Best regards,

2. Mojo Says:
   December 21st, 2007 at 6:22 am

   Dear Handy,

   Thanks for taking the time to write and I’m glad to see that you are in deliberate pursuit of improving your trading.

   As for your question regarding your stop loss, I agree its often tough to set a stop loss. Here’s what I would do:
   1) Set your maximum risk to be no more than 2% of your entire portfolio.
   2) Never be long a call or put without downside / upside protection (ie. sell another call or put to reduce your cost basis and give your adverse protection).
   3) Always be a net seller of time so that time decay works in your favor.
   4) Be sure to pick the proper strategy for your outlook and stock.

   My stop loss is set based on type of trade and trade plan. For instance, I will use a 50% loss on calendar spreads, 20% stop loss on deep in the money diagonals, and no stop loss on at the money verticals (because the long position create a stop loss by its nature).

   Tell me what kind of strategies your prefer and I will help you to work out a plan.

   Also you might want to join via email so that you can get real time updates to time critical trades and adjustments.

   All the best,

   Mojo

3. Handy Says:
   December 21st, 2007 at 9:42 pm

   Dear Mojo,

   Thanks for your valuable answer.

   I’m still trading the vertical, with reward to risk ratio = 2 : 3, for trending stock based on fundamental.

   I’m learning to set stop loss based on ATR (15) and still to work out with another stop loss idea from Dr.Elder’s Safe Zone, Van K. Tharp’s MAE (Maximum Adverse Excursion) also Cynthia Kase’s DEVSTOP, because I was failed to preserve my capital due to improper stop loss.

   Another difficulties is to find the tradeable underlying based on technical entry set up. For this time I’m learning various technical set up which make me confuse !!!
   Do you have filter to find good tradeable stock based on technical entry ?

   I’ve collected some watch list of volatile stocks (GOOG, CROX, BIIB, RIMM etc.).Do you think those volatile stock are worth to trade calendar/diagonal/vertical ?

   Here is my idea to start with good system :
   1. Set a watch list (optionable volatile stocks) - how many stock ?
   2. Set technical set up (trend following, oscillator)
   3. Set stop loss using 1 X ATR(15) - equivalent with approx. 30 % stop loss of option value.
   4. Start a trend (ITM bull call) vertical spread, risk - reward = 1 : 1 or 2 : 3.
   5. Risking the 3 % loss of capital based on position sizing.

   Appreciate if you could help how to start a profitable system after a big drawdown.

   PS : My capital is down from 11.5 K to 2.8 K, do you think is necessary to raise the capital to speed up or paid back the original capital ?

4. Mojo Says:
   December 24th, 2007 at 12:18 pm

   Handy,

   A couple of thoughts on your reply.
   1) Be careful not to get tripped up by only looking at a trade’s “risk vs. reward”. Trading is not just that. It must also include probability. If you only look at risk vs. reward and don’t include probability then you will likely only ever play the lottery (with its 1 to 150 million risk / reward but extremely low probability).
   2) I think setting a couple of stop losses is good. Have a least one automated stop loss and a few mental stop losses (time and technical).
   3) Looking at the books and people you mention be careful to not be spending a lot of time finding the perfect indicator. There is no such thing. Instead spend your time mastering your own emotions, discipline, and processes. (Its like a future NBA player trying to find the perfect ball instead of practicing his fundamentals and playing the game).
   4) Are you mixing styles and techniques? You mentioned trending stocks based on fundamentals but then also mention GOOG, CROX, BIIB, and RIMM. These seems at conflict.
   5) I like having a pretty stable watch list of optionable stocks (30 to 40). Then I look at those stocks for good entries.
   6) I like your stop loss on your option value should be a function of how deep in the money the strike is and time left. The deeper and more time the less loss I’m willing to take before exiting.

   Are you currently paper trading? Do you have a trade journal? I feel like its more difficult to trade smaller accounts (under 10K) than larger accounts. If you are limiting your position size to no more than 3% it will be difficult (although not impossible) to find good trades. 3% of 2,800 = $84 max risk.

   Mojo

5. Handy Says:
   December 25th, 2007 at 9:26 pm

   Dear Mojo,

   First of all, Merry X’mas and wish you a prosperous New Year in 2008.

   Would you share, what’s your entry signal also what’s the factor of option (delta, gamma, volatility, theta) when you start to trade it.

   Appreciate to have your valuable comment.

   Best regards,

6. Mojo Says:
   December 26th, 2007 at 4:14 pm

   I’m not really sure how to answer your question. Most of my entries are based on technicals signals from support, resistance, moving averages (30,50,200), and volume. More important than my technical signals are my methods of trade. I’m always long a deep in the money (DITM) put or call selling a short front month near the month option for time value and protection.

   If you get a second, please answer my questions from the previous post.

   Merry Christmas,

   Ho-Ho-Mojo

7. Handy Says:
   December 31st, 2007 at 1:10 pm

   Dear Mojo,

   Apologize to confuse you.

   I’m live trading for almost 9 month now, I didn’t have any trading diary and I didn’t have any specific trading technique, just follow the fundamental news and bought naked long call for volatile options (GOOG, RIMM, AAPL, DRYS, WYNN) that beat me a lot last Nov. because I bought the Dec options and not setting the stop loss. Just like the classical mistakes, I just hope the stock is bounce back and my option value is worth again, but actually not, they’re expired worthless.

   So, refer to my mistakes during the recent trades, I would like to set up the trading system which I’d like to follow up daily.
   Maybe you could assist, how is your daily trading activity ? At least I can learn a pattern what a trader should do on his daily activities, such as, found the trading candidates, criteria for watch list, preparing a technical set up for watch lists, setting an option strategy (calendar/vertical/etc), setting a stop loss, position sizing, calculating probability and greeks, etc.

   Thanks for sharing your valuable insight.

   Happy New Year 2008 !

   Best regards,

8. Mojo Says:
   January 2nd, 2008 at 7:57 pm

   Handy,

   OK, like the rest of us you made some mistakes early in your trading career. Not unusual at all. I would immediately ask that you start a trading journal, print out your charts and option chains on each entry and exit, and write down what your plan is for the trade.

   Do you have a single trading technique that you like more than others? Or are you more successful with one technique then another? I would look at picking one trading technique and mastering it.

   My trading style is one that doesn’t require you to be available to the market during the day. I expect that we can still do our day job and make money in the market.

   As for my normal day I’m usually up at 6am to check over emails, respond to posts, and plan my day. I usually read for an hour or so and make notes. I check my trades and futures to look for any exposure.

   I spend very little time searching for new trades. I have a list of 30 to 40 optionable stocks broken down into bullish and bearish lists. I will probably go through that list once a month at most. If I read an article or see a stock moving I will check it out and see if I should put it on my lists. When I get a good signal I will pick the best strategy (diagonal, iron condor, calendar, vertical) and put on the trade.

   There is very little magic in putting on the trade. The magic is in what strategy to pick and most importantly how I manage the trade throughout its life.

   So, 20% of my time preparing / reading / improving my skills; 10% placing new trades; and 70% defending and managing the trades I have on.

   I hope that helps! What are your goals for 2008?

   Thanks,

   Mojo

9. Handy Says:
   January 3rd, 2008 at 3:09 am

   Dear Mojo,

   I will prepare a trading diary as recommended by you.
   But, unfortunately I still cannot find the trading technique that works for me.
   I’m learning the basic method from Dr. Elder’s book (Come Into My Trading Room), to start a trading technique based on trend following, MACD, oscillator, Elder’s ray, etc. (5 technical trading set up). Would you share , what is your trading entry technique ? Based on technical or fundamental ?
   I will also try to set watch list and find the trading opportunity. Would you share, what’s the sector or stock is in your watchlist ?
   For option trading, I will concentrating on vertical spread (directional), before learning more advance technique like yours (calendar, iron condor, etc.)

   Please comment on the above idea.

   Thank you for your sharing valuable insight.

   Best regards,

   PS : I will copy your goal for 2008 :)

10. Mojo Says:
    January 3rd, 2008 at 8:25 am

    Handy,

    My entries are 95% technically based on support and resistance, candles (only at S&R), trend, moving averages, price, and volume. You can see the charts from all of my entries in this blog.

    As for a good beginning stock list I would recommend the sector ETFs for you. Some of these are good for trading with good volume, tight strikes, good bid/ask spread, and limited news risk. Other’s only indicate the general sector and you will have to drill down further. Here’s the list I use:

    HHH, IBB, IYR, IYT, PPH, RTH, SMH, SWH, TTH, XHB, XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLV, XLY

    I would add to this the ETFs for indices such as the QQQQ, IWM, SPY, DIA.

    Check that list each day after 3pm and look for entries.

    Verticals are fine to start with provided they are sized correctly and placed beyond support / resistance. I would limit your max loss to no more than 2% of your total portfolio per trade.

    Where would you put a vert on the IWM? Why there?

    Mojo

11. Handy Says:
    January 11th, 2008 at 8:50 am

    Dear Mojo,

    Apologize for late reply.

    I will try to start again based on your valuable information.

    Wish your trading result is always success.

    Best regards,

    PS : I will post again if I need your help. :)

12. Lilly Says:
    January 12th, 2008 at 12:34 pm

    Hi Mojo
    Thanks for sharing your trading journal and ideas. Its refreshing.
    I have a question for you about rolling. What do you mean whenyou say roll? Are you talking about not closing a position?
    You comment to Handy about a in the money vertical but i thought your trading rules were to always take your verticals out of the money?
    Do you ever do a bear put spread?
    Why do you pick out of the money only for verticals?
    What is a diagonal spread? How is that different from a calendar spread?
    Thank you for all your insight and help.
    I must tell you that my husband and I are both realestate investors and we met because I heard him give a talk about re investing. I loved Rich Dad Poor dad and Kiyosaki has influenced me greatly.
    Also have been influenced by Harv Eker and Van Tharp.

13. Joe Says:
    February 1st, 2008 at 9:54 pm

    Hi Mojo
    I am looking for schooling on option trades, I did the 2 day course from invest tool on stocks,
    but i dont have the money to learn on options , i have been tradeing options with paper money , did very good for a while, started out with 2K,had it up to 35k in 1 month, last 2 weeks i lost now its down 6.5K ,i know about controling your emotions,but i need to learn a tradeing technique that works for,and i know i akso need to discipline myself to stick to my plans {or rules]
    I have not traded real money yet pro have to wait till i get my tax returns to open my account ,
    this is my first time on here and i like what i see, I think you are real ,you are not after our money like most people are , if you think you can help me i will tell you more about my goals,
    Thank you so much and God Bless,,
    Joe

14. Mojo Says:
    February 4th, 2008 at 12:36 pm

    Lilly,

    I’m sorry I completely missed your comment. Let me reply now:

    When I roll I’m closing one month and opening another at the same time in a single order entry. With some brokers this saves you commission. Its no different than closing one and then opening the other in two different transactions.

    Yep, you’re right I would only be selling OTM verticals so I probably screwed up the message. I like OTM verticals so that I’m not overly directional. If I’m ITM on verticals I’m usually having to pick one of three directions for the stock price.

    I don’t do a lot of bear put spreads. I would if there was a motive such as little time decay and poor vega exposure.

    Diagonals are where you are basically long a deep in the money (ITM) call or put that’s a few months out. Then you sell the front month call or put (usually slightly out of the money) to put time decay on your side and to subsidize the cost of your long position. You make money from time selling and movement of underlying stock.

    Calendars operate similarly to diagonals but the back month and front month calls or put are at the same strike.

    I used to teach a lot of real estate investing around the country. Where did you guys meet?

    Mojo

15. Mojo Says:
    February 4th, 2008 at 12:40 pm

    Joe,

    $2K to 35K in 1 month is incredible!! What were you doing? Was that stocks or options? And being down 6.5K isn’t bad from that base. Its good that you are focused on improving your trading and moving forward.

    I would be very careful taking real money into the market and trading options until you get some good training and papertrade profitably for awhile. Without that you have a much smaller chance of succeeded and its already hard enough! :)

    Tell me about your background and goals and let see what we can do to help.

    Thanks for the kind words,

    Mojo

16. Joe Says:
    February 4th, 2008 at 8:04 pm

    Hi Mojo
    that was on options ,it happened that i had bought some call options on ticker symbol CAM just before they split 2 for 1 in Dec, the rest i did on APPL puts,
    when they were down to 150 per trade i started to buy calls , i thought they would start going up from support, but they broke through and droped overnight,

    I was born and raised Amish ,without cars or electricity, got married amish but we left the amish religion about 6 yrs ago,

    my goals are to make a full time income in tradeing , I am going to start out with 2 to 5 K
    I want to get teaching on options so i can work with less money being put out,

    Just got off the phone with an invest tools trainer ,and they have a discount till this wed. to get online training and 2 day life workshop for a little over 2k
    Do you think it would be wise to put that on a credit card ,get the training, and then when i get my tax return put that in my tradeing account and start doing what i was taught?

    or do you have something that can teach me on options without putting out that money ? I have not gone through much of your website to see what all you have

    Thank You for your time ,,, Joe

17. Mojo Says:
    February 5th, 2008 at 5:24 pm

    Joe,

    I wouldn’t recommend trading any real money until you are paper trading profitably over at least three months and six months would be better.

    Paying for good training is going to shorten your learning time and likely increase your rate of returns. At the same time if you can’t afford paid training then use the free resources that are out there and learn, learn, learn. There’s a lot of basic information out there for free.

    Treat this like a business and it will give you businesslike returns.

    Mojo

18. jaypee Says:
    February 6th, 2008 at 1:30 pm

    I’m in the same boat as Handy above. Lossed a lot because of not knowing how to set stop-losses mainly and many other reasons.

    Until I came upon this great website you had, I was about to momentarily quit doing options (a little complicated and disappointing for me right now because of the losses) and just stick with simple option trades, LEAPS, and ETF’s.

    I found your website very informative and very interesting. You have explained every step and future steps very well, as well as what went wrong. We beginners will learn a lot from you. Thanks and Keep up the good work!

    jaypee

19. Mojo Says:
    February 6th, 2008 at 4:01 pm

    Thanks jaypee!

    Sticking with long options is not a bad plan; especially if you sell some front month time against it. Sometimes I wondered if I wouldn’t get the same or better results than what I’m doing now.

    Hang around, trade with us and let’s exchange some ideas. We are working on installing some forum software soon.

    Regards,

    Mojo

20. Joe Says:
    February 6th, 2008 at 5:07 pm

    Thanks ,,
    i definitly have a lot to learn , ill be around watching what others have to say , so i can learn from them ,, Joe

21. Angela Says:
    February 8th, 2008 at 4:31 pm

    Hallo Mojo. I am Angela from Italy and I have just descovered your very informative web site. Thank you for sharing that many informations.
    I am also new to options, still learning and struggleing with paper trading. I learned only from books and in the last 5 months I spent plenty of time reading and practising (papertrading). Until now I papertraded only call and put long. I came to the conclusion that long call/put is a strategy only in a stable market with a defined trend (middle and long term). A market which we don’t have at the moment. Under the present conditions would be too risky. And for the calls you need a watchlist of absolut “good” stocks, based on fundamentals and a stable up trend.
    Now I am looking for an educational tool. I saw different home study courses : Optionetics, Invest tool, the books of Randomwalk and so on. I would like to choose one, but I am a bit confused. If you or somebody else has tryed one of these companies courses/methodology and could give me an advice would be a big help for me.

22. Mojo Says:
    February 9th, 2008 at 12:38 pm

    Hi Angela,

    Thanks for coming by and all of the compliments. I’m glad that you are enjoying my website and learning about option trading.

    Long calls and long puts are the riskiest option trades you could have. Unfortunately, most courses teach you this first because its easier to understand and the returns are spectacular.

    I think Investools home study is good but I would recommend live training above home study. More important than all of that is to join a serious and successful trading group. Look for a group with a good combination of techniques, multiple leaders, and consistent meetings. Most of these groups will require a monthly or quarterly membership to pay for their website, meetings, weekly teleconferences and video storage.

    Learning the basics is about 20% of trading. Learning adjustments and trading psychology is the other 80%. We are putting a trading group in the next 30 days if you are interested.

    Mojo

23. Angela Says:
    February 12th, 2008 at 7:40 am

    Hi Mojo,

    thank you very much for your advaices. I would be interested in a trader group. maybe not immediatly (I will do a course at first) but in a short period of time. Let me know when you have your group started.
    good trading from
    Angela

24. Mojo Says:
    February 12th, 2008 at 5:15 pm

    Angela,

    OK, will do. Let me know what course you chose and what you think about it.

    Regards,

    Mojo

25. Jack Says:
    February 17th, 2008 at 10:13 pm

    AIG might be an interesting spread play

26. Mojo Says:
    February 18th, 2008 at 1:11 pm

    Jack,

    What kind of trade do you like on AIG? I’ve been watching them for a while as well.

    Be sure to head over to our new message forum at http://www.insanemoney.com/forums/ .

    We are in beta but will be going full steam in a couple of weeks!

    Mojo

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