My Current Strategy + Risk Management

Hello and welcome back,

It feels prudent for me to say that I’m not a financial advisor, I have no real training, and I am not YET a long term profitable trader. None of this is financial advice by any means. They are just thoughts and musings from a girl who’s out there every day in the trenches with you. Read at your own risk.

My main strategy is playing the opening range. I am not qualified to teach the opening range strategy. I learned it from my mentors and have adopted it to fit a style I like. If I break it down to the most basic concept it’s being long above the opening range (as defined by whatever timeframe you choose) and short below it. Getting into more specifics isn’t really necessary for us at this time.

So, if it’s above the opening range I buy calls, if it’s below I buy puts (options). That’s it.

Once I am in the play I am looking for essentially a 30 cent gain on my contracts, which is where I place a sell order. Phase two of this is obviously taking some off and holding runners… but I found that over and over again I would take off half, and try to hold runners. Then I’d get so scared about losing my gains, that I’d put a stop at slightly below break even, which would make that gain so small it was essentially negligible. Let’s say I had a $300 gain, sold half, locked in $150, and then set a stop slightly below break even to avoid a wick out… which seemed to hit 100% of the time… so I’d walk away with maybe $80 when I had $300 just seconds before. That would make me mad and often lead to another trade and then a complete derailment.

There are many ways to combat that of course, and many will tell you it’s impossible to grow your account scalping or taking your full amount off at once. While this probably is true, it’s the best way I’ve ever found to build confidence and discipline as a trader. You can ALWAYS build upon a strong foundation, but building a 10 story building on sand is just asking for an epic collapse.

Risk management in this strategy is tricky. But honestly risk management is always tricky. I don’t have a hard and fast rule for it, which will probably produce cracks in the strategy soon.

However, my hypothesis, based on the fact that the market is so choppy, is simply that I am significantly more likely to get a $.30 move in my direction than I am for the contract to expire worthless. That’s it. That’s how I started the entire idea.

In the three years I’ve been trading, I don’t think I’ve ever seen a complete lack of retracement, or an index move so quickly away from my average that I lose 100% of the contract. So it’s almost like a game of chicken… which comes first, a 30 cent gain or zero. At zero you lose your entire upfront investment (these are options, and I try to play at least 5 days out)… which for me is about $2000. So, I’m betting that my win rate will be far higher than my lose rate… but if I lose and let it go to 0, I would lose about 2 weeks worth of earnings. So that’s a big bet. But it’s also not so much money that it would significantly impact my life. And going to zero isn’t actually something I’ve ever let happen… but it’s just the theory behind the trade.

The better I get at playing just the opening range, the better I get at risk management. I’m developing an intuition for the market and just know a lot more factors that make it strong, weak, choppy or trendy. Intuition means nothing and the market can do anything at any time. It doesn’t care about your EMAs or VWAPs or levels. I know that. And I repeat it to myself every morning. No matter how right you think you are or how many factors support your thought process, the market doesn’t care. I’ve honestly also started thinking of the market as a pretty evil character and one that I want to be around as little as possible. It seems to me the market likes to do whatever it can to cause the most people the most amount of pain, so I like to limit my exposure. Get in, get what’s mine, and get out - thus the sell order.

That’s really all I have for today. I had a red day this morning. You can see my trades on Twitter. I did not let the contract go all the way to zero but put in a stop at the OR because the market felt weak and I had calls… again… just intuition.

That’s the basis for my current strategy. I know I jumped around a lot, but nothing in my mind is ever linear.

Please feel free to leave a comment, and if you want to tell me that my risk management is horrible and I’m going to blow up my account, I’m open to hearing that as well. I do realize that’s a possibility… but everything’s a possibility. The market can do anything at any time. ;)