Swing trading live portfolio
The purpose of this portfolio is to teach how to become consistently profitable by following some basic trend-following strategies. All trades are posted and updated live in the portfolio, as well as in the daily post/comments.
In the comments we also discuss each position as well as strategies. Our focus is on discipline and money management. Our goal is to show that by keeping losses very small and letting run our winners it is easy to be profitable in the long-run.
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Summary of our strategy
- Most of the trades are directional, naked options or stock. Sometimes we trade vertical spreads or more complicated positions for earning plays.
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This portfolio is targeted to trades that we usually hold between 2-3 days and a couple of weeks.
- All trades are posted live in the portfolio as soon as they are entered and in the comments as well.
- We use different strategies in this portfolio, one of them being the 5MA strategy. But we do not trade this strategy only. Most of our trades are based on technicals, support/resistance, patterns, candlesticks, pivot points etc. The constant is that we always define our stop when we enter the trade and we always respect risk management and position sizing.
- For most positions, unless indicated, we buy ATM or slightly ITM naked calls or puts. We usually buy one month out, and never hold current month options 2 weeks before expiration.
- R is how much we risk on each position. It is the difference between the entry price and the stop.
- R should not be more than 2% to 5% of your portfolio.
- R is constant. It means that we should always lose the same amount when our stop is hit. If we risk 2% of your portfolio on each trade and our portfolio is $100K, then we should ALWAYS lose $2k when we get stopped-out. And it does not matter if the stock dropped 20% or 1% from our entry.
- By defining our stop and our risk BEFORE we enter each trade, we can then calculate the number of contracts we need to buy to keep our loss at 1R when we get stopped-out.
An example of how we calculate position size:
Let’s say we buy AAPL calls when AAPL is at $152.25.
$151 is our stop.
Delta of the May $155’s is 0.50
Our total account is $25,000
Our risk on this trade is 2% of $25,000 or $500
Our risk is $1.25 on the stock
Our risk or maximum loss per option is $0.625, which 0.5 (delta) X $1.25 (risk on stock).
The number of contracts we should buy is our total risk divided by the risk per option: $500/(0.625*100) = 8
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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