Are You Giving Yourself Enough Running Room on Trades

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Are You Giving Yourself Enough Running Room on Trades?

Based on discussions and from seeing the strategies many novice traders are operating off of, there is one thing that stands out. Successful traders are getting out of their trades just as novice traders are getting in.

Successful trades look for open spaces where the price can run, and when the price looks like it will turn and head into one of those open spaces, these traders jump in. Successful traders are also out of their trades before the price hits potential support or resistance areas. When the price reaches those support or resistance areas this is where novice traders start to get interested, looking for breakouts.

Unfortunately most novice traders believe they are trading the open spaces, but often it is a lack of perspective which leads them astray.

Figure 1 shows an hourly chart of the GBPJPY. This concept applies to all time frames.

Figure 1. GBPYJPY Hourly Chart (click to enlarge)

First notice a few things about the chart.

  • I have drawn a very crude trend channel establishing the price direction on this time frame.
  • I have tried to draw the channel through major tops and bottoms, drawing the channel smaller than it actually is. I have reduced the open space and in doing so make my expectations conservative. I only assume the price will run to my conservative trendlines.
  • I have highlight a major resistance area which forms a nice entry area for when the price pops back into it (as it did on May 13).
  • The price enters the resistance area while in a downward trend channel.
  • By taking a trade at the top of the channel–and I can only assume the channel will continue since there is nothing to indicate otherwise (yet)–the price has loads of room to fall back to the bottom of the channel, but very little room to run higher based on resistance and the channel top.
  • Novice traders like to go long after a strong run (like in the resistance area) or at the bottom of the channel expecting an even more severe decline. But we can’t just assume that because we took a position the market will do what we want.

Here’s the thought process for the trade.

  • Where is the price in the structure (channel)? And is it a downtrend or uptrend? If the channel is down, I want to short near the top of it, or on a pullback within the channel where there is enough room for the price to run to the bottom. If the price is right at the bottom of a downward trend channel, I leave the trade alone.

If the channel is up, I want to go long near the bottom of the channel, or on a pullback within the channel where there is enough room for the price to run to the top of the (conservative) channel.

When the price recently moved to the top of the channel, even though it just had a very strong run up I wanted to get short. I did so in the resistance area (see The Valley Floor Trading Approach).

Now the price is near the middle of the channel. There is resistance above, and still room to move to the downside, so I still prefer being short (buying puts).

Here’s an overall thought process to keep in mind

  • I don’t know which way the market will go. It could move higher, and that is ok, I will just have a losing trade. But more often than not this process of looking for open spaces works. I trust the structures the market is moving within, until there is evidence to the contrary.

Evidence to the contrary includes: instead of the price dropping it rallies above the prior high, and moves above the resistance area. If that occurs, the structure has changed and I need to adapt. I then go through this whole process again; draw new lines based on new channels that are forming and once again look for open spaces I can trade.

Final Word

Draw “conservative” price structures on your chart. Typically I find when I draw lines most often I see channels, wedges or triangles. These help establish resistance and support areas. Assume these areas will hold until proven otherwise. That means trade in the direction of the trend, in conjunction with the structure, and only when there is lots of room for the trade to run in your direction. This requires a leap of faith, but such leaps often provide fantastic prices. As always, make sure you have a well defined method of managing risk and picking your entries (and exits if trading traditional markets)…and go through the same process (mental and physical) each time you place a trade.

Small account? 5 options trades under $300

Last updated on March 11th, 2020

One of the biggest issues facing newer traders is the lack of trading capital.

We sent a survey to traders and asked why they were for not registering for one of our upcoming Options training webinars.

Towards the top of that list of responses was the feeling that their account size isn’t big enough to trade options.

What really baffles me, is that traders often think they need to go to the futures or Forex markets when they have a small account size.

In reality, you need a much larger account size to trade many of those markets when compared to options.

Check Your Non-Essential Spending

Unfortunately, people are programmed to think trading options requires a large account size. This couldn’t be any further from the truth.

To show an example of this, I will cover 5 option trades that we have taken over the last month that have required less than $300 of capital per trade.

Before we get to those trades, I want you to think about something while you read the rest of this article.

Think about what your budget looks like and about your spending habits to compare what else you spend $300 on throughout the month. I’m not talking about the energy bills or the mortgage here. I’m talking about money that is spent on extras.

For example, looking at my own budget I know I spend $300 on TV/internet and one date night with the wife (not to mention a few rounds of golf and the new University of Michigan football gear that I had to have for this season).

This list could go on and on. Think about your own situation and we will revisit this in a bit.

Small Trading Accounts Welcome

After seeing the results of the survey we sent out to traders, I decided to take a look back at my trade journal to see how many option trades were taken in the last month with less than $300 of risk per trade.

The list is actually quite long!

While I won’t take a ton of your time walking you through all of them, let’s take a quick peek at 5 examples. I think you will notice that these trades are on very popular markets that most traders look at on a daily basis.

5 Option Trades for Under $300

SPY Long Trade 10/1

SPY is an ETF that tracks the S&P 500. I love trading this product because it has a ton of volume each day and it’s also a fraction of the price of SPX. This means I can get in and out easily and with far less capital.

  • On 10/1 we had a long trade setup on our Active Swing Trader chart (see below)
  • once it triggered in we decided to buy the October 193.5 call option for $2.56 or $256 per contract.
  • This gave us control of 100 shares of SPY at $193.50 until October expiration.

We needed this trade to go to the upside and that’s exactly what happened. Once our target was hit we sold our call options for $4.44. This gave us $188 of profit or a 73% return.

Not too shabby for a trade that we are in and out off in less than a week.

QQQ Long Trade 10/2

QQQ is an ETF that tracks the Nasdaq. Like SPY this ETF is very active, making it very easy to get in and out of trades. The options are also inexpensive as well.

  • On 10/2 we had a long trade setup on our Active Swing Trader chart (See below).
  • When it hit our entry point we went in and bought the October 101.5 call option for $2.51 or $251 per contract.

Once the trade hit our target on the chart we sold out of our long calls for $4.10. This gave us $159 of profit or a 63% return. Again, not too bad for a trade that we were in for only 2 days.

XLE Long Trade 10/2

XLE is an energy ETF that we have traded for all of 2020. It’s a great product because it’s a slower moving ETF. This makes it ideal for us to trade when we don’t have all day to look at charts. It also gives us exposure to the volatile world of energy trading.

  • On 10/2 we triggered into a long trade on our Active Swing Trader chart (see below).
  • We bought the October 61.5 call option for $2.05 or $205 per contract.

Once we hit full target on our chart we sold out of our calls for $3.70 which gave us $165 of profit or an 80% return.

C Short trade 9/18

The financial stocks are often times big market leaders and one of the names that we trade is Citigroup. Back in September we actually had a short trade setup on our Active Swing Trader chart, which had us looking to play a move to the downside (see below).

  • Bought the October 52.5 put option for $1.98 or $198 per contract.
  • We hit the target on our chart 6 days later and sold out of our put options for $3.90.
  • This gave us $192 of profit or a 97% return.

I’ll take that return from holding a trade 6 days anytime.

EWZ Short trade 9/18

EWZ is an ETF that tracks the markets in Brazil. With all the activity in global markets these days, I think it’s important to have some stocks/ETF’s that allow you to take advantage of those markets. EWZ is a name that we have traded for the last few years with really nice results.

  • Back in late September we had a short setup print on our Active Swing Trader chart which had us looking to play a move to the downside (see below).
  • We bought the October 24 put option for $1.78 or $178 per contract.
  • We hit full target on our charts a few days later and sold our put options for $4.00.

This gave us a $222 profit or a 125% return. Not a bad return for being in the trade for less than 5 days.

Do You Have $300 You Can Use For Trading

So those were 5 trades taken in the last month that required less than $300 of capital per trade. In fact, a few of those trades took less than $200 of capital per trade!

I want you to think back to our budget exercise earlier.

Did you think of things that you spend money on each month that added up to $300? I’m sure it didn’t take long. Now think about taking that $300 and putting it to work for you.

Instead of spending that $300 on golf or a dinner date, you are giving yourself the potential for a nice little bonus each month. You start taking some of that capital and putting it to work for you by trading options and after a few months you will have a nice bonus to spend on those other budget items.

Key To Wealth Building

The key to building wealth is to have ways where your money is working for you. Most people think that in order to do this it requires a large sum of money.

This is potentially hundreds of dollars of profit that you can continue to build on over time. Start to add up some of the profits listed above over a few months or even years and it gets exciting.

What if you get to the point 6 months down the road where you are taking these trades with 2-3 contracts?

I think you can do the math.

That is an impressive bump in your monthly income.

Bottom line is this, don’t get fooled into thinking options take a ton of money and time to be successful with. Sure, it’s like anything else that is new. It will have a learning curve.

However, when you start talking about ways that you can get your money working for you, this is a perfect place to start.

In fact I’ll make it a no brainer.

I’ll give you free access to one of our favorite systems.

Just click on the link below and you will have access to our custom indicators that give us exact entry and exit points.

6 Responses to “Small account? 5 options trades under $300”

Hey Coach Mike..thanks for the post..I’ve recently been interested in trading options and I think I could do well. I want to get started with a small account like you mention but the only thing holding me back is….don’t I need enough capital to cover the cost if the contract I sell gets exercised by the buyer?

Hey Steve. Shoot Mike an email with your question: [email protected]

Hello, is this “Mastery System” still valid/up to date?

Mellinda we actually have some new programs that might be a good fit for you. Send me an email to [email protected] and I will get you more details.

What exchange or site can I trade options where it won’t inhibit me to have only 300 dollars to play with? I thought I needed at least 25k in an account in order to be a day trader? Thank you in advance for clarification.

Mike I highly recommend you look into TastyWorks for your broker. They are the most popular broker in the industry with the lowest commission rates. I also recommend you start with $2000 at a minimum. Starting with $300 just doesn’t give you any margin for error. One losing trade and your account is crippled. Send me an email and we can discuss this in more detail. [email protected]

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