- Written by OptionDave
With the Market and individual stocks as unpredictable as ever, it is often hard for Traders to find the right mix and balance of trade types that will allow them to profit and at the same time to avert risk in their portfolios. At ETNtrade, we take a number of steps to ensure we do both of these on a consistent basis.
First step is to use proper asset allocation. While many Traders feel the need to over-allocate themselves in positions, we maintain strict standards in our trading that allow for us to create 4-6% profits on our overall portfolio per trade, while never risking more than 2-8% of our overall portfolio. This allows for much more diverse trading, better probability for success, with much less stress, which is one of the most important necessities in proper trading.
Next, we diversify our trading strategies. Many Traders get stuck in a pattern of trading that can lead them to high highs but even lower lows. What I mean is that they pigeon hole themselves into a style of trading that may work well currently, but carries too much exposure to outside variables. For example, they might trade Out-of-the-Money Credit Spreads. While this can be a somewhat effective way of trading (though I believe they are Alligator Trades for most Investors), they also carry immense risk if the Market were to make a dramatic move. This can wipe away months or years of gains in a single moment. We never want to have that type of exposure. So, ETNtraders diversify. And I am not talking about doing more than one trade. I mean our strategy selection covers multiple stocks, sectors, directions, risk profiles and much more.
Lastly, we are very selective in our developing of our watch list. It is very important as Traders to take the time to lay out multiple opportunities and only take the best of the best. We start by developing a watch list of candidates every weekend that will ensure that we are only in stocks that actually have options, have plenty of open interest, have strike prices that make the trade customizable, and of course ensure that there is a catalyst which will potentially provide profits. Once we have done this, we work through that list and assign trades to each of them. Once we have 10-20 good trades, we select the 5-10 that are the absolute best and execute them. That is how a diligent, Elite Trader manages his/her trading day. And to top it all off, the numbers prove that it works. At the end of the day, that is all that matters: PROFITS!