NetPicks Trading Guide
Stock & Option Advisory
The trades are all entered as "Buy Stop $x.xx" and "Sell Short Stop $x.xx" This means we will get filled when the stock trades through our desired entry areas. If the stock gaps above a buy stop or gaps below a sell short stop, then we will get the most immediate fill possible. Typically this should be the open price (give or take a small fraction).
For example, if a stock has an entry of 44.25 on a buy stop and the stock opens below $44, it will not trigger as a trade until that stock trades to 44.25 - at that time your trade will be executed. Should the stock instead open in the morning at 44.75 - above our entry trigger - the order goes immediately to market since your buy stop said to enter at 44 1/4 (or higher).
We calculate our profit zone targets and stops for you each evening once a trade is entered. We like to target approximately 10% - 13% profits and our risk is usually initially within the same range and we look to lower that as soon as the trade starts to progress in our favor.
Here is an example:
You can see in this trade that on October 3rd we entered a long/buy trade on BRCM. The trade was entered at 23.75 and our current stop price to exit the long trade is $28.00. In the process of trading this set-up it did hit our Profit Target hence the "Yes" indication. This was a 12% profit gain. As we have disussed some traders might take all profits at this number, some might sell 1/2 their trade, some might choose to ignore it and go for the larger moves. That's an individual choice. You can see the closing price was today's close and the current open gain/loss. The Trading Notes are pivotal since those show you that we are going to reverse and enter a new short trade if BRCM was to break below $28. If it did we would now be short, and our initial buy to cover stop would be $32. That would be upated any evening the trade actually starts - most trades we will issue the risk after the trade initiates but you'll know that it tyipcally is in the same general range.
As for placing your limit order for your profit target and your stop order for your loss, not every broker will allow both a stop and a limit on the same order. If this is the case, you probably want to place your stop order first and then switch to the limit order should the stock be performing strongly in your favor sometime during the day. Obviously if your broker will take a One Cancel Other/One Cancels All type order, you are at an advantage because you don't have to track anything and simply need to exit end of day if your limit order or stop was not hit. There are several brokers we can name that do allow these type of orders using their software, including Cybertrader, Interactive Brokers , Tradestation Securities and many of the day trading brokers who use RealTick's platform, for example. You might want to check with your broker and see - many times they'll call it "contingent ordering." Option traders would probably like brokerages that offer options trading contingent upon the stock price. This is not commonplace but we're beginning to see brokers who offer it online. OptionsExpress and Preferred Trade are two we are aware of that offer this feature.
Options Traders - You can trade options instead of stock with these set-up. Rather than purchasing stock or shorting stock you'll be buying calls or puts. The stock price will always drive the decision. We will not buy a call or put until the stock triggers our entry price. If we are going long at 29.30 on a stock then we only buy that call option when the price of the stock has hit 29.30 and you know the stock is now active in this portfolio. The option to choose? Usually in this example we'd like to see an in the money option such as a 25Call or 27.50Call. If the premiums are very high then you can consider one slightly out of the money such as the 30.00Call. From there you want to ensure there is at least a week or more until expiration of that option to give the trade time to develop. Two weeks is even more ideal. There is no need to buy an option with expiration months in advance since the average holding time on these trades is 1 - 2 weeks. Some do go beyond this but if that happens you can always roll to the next month (sell the current month, and buy the next) if you needed to do this. You would take your profits on the option when the stock price hit the profit zone that is established. Exit at your best price possible on the option at that time. Or, follow the 50/50 strategy or straight trail if you want to be more aggressive on the exit. In both cases you still let the stock price drive the action on the when to trade the option.
Keep in mind that commissions are a cost you want to control as well. At Interactive Brokers, for example, you can buy 500 shares for $5.00, 300 shares for $3.00 and 1,000 shares for $7.50. Many discount brokers might not be in this range but you certainly should be able to pay $20 or less per side on your trading. Just ensure that your broker handles short trades proficiently and that your executions are speedy.
Some of you may wonder how much to invest in each set-up. That's your personal decision but we find that taking an equal allocation works well. For example, take the stocks and dividing the risk capital by the number of stocks you are comfortable trading at one time and coming up with a share total for each is the best way to spread the risk and keep it mechanical. If this doesn't allow for enough shares, then decide on five stocks you want to track and trade, and each day divide your risk capital by five and put equal allocations in each set-up. Or 3, or 7 and so on. Whatever works best for you including trading all the set-ups. You can decide to use margin if you understand the risks and rewards of leverage, and certainly if you decide that you favor certain stocks over others, that can go into your decision-making. For the purposes of our tracking and reporting, we always consider each trade set-up to have an allocation equal to all the others.
This is not the only approach to take. You can choose to focus on a smaller subset of stocks such as 2 or 4 and with equal allocations achieve similar results. The key is to be sure that when you divide your capital you have enough allocated to each position to make commissions and slippage a very small percentage of your trading profits. It would even be possible to trade just one of the stocks and take all the set-ups. You'd have days without trading, and your equity curve might not be as smooth but there is no limit to the creativity you can use on these set-ups since you are starting with such a sound strategy. We just like equal allocation no matter what the "number" turns out to be.
You need to consider that commissions and some slippage will be "costs" or your expenses in taking trades. Make sure you have enough capital allocated on any one trade to the point where it makes your commissions and potential slippage costs a very small percentage of your overall return.
Shorting Stocks - Keep in mind that when you Short a stock it has to have an up-tick. Thereofre, if we give a set-up as a BRCM Short 34.50. And the low of the day on BRCM is 34.50 then there is no short trade. If your broker will fill your trade when the stock hits 34.50 then you should adjust your sell short stop slightly to something like 34.48 or 34.47 for example to ensure that the 34.50 is broken on the downside. Otherwise you might short a situation where the low of the day is 34.50 and we will not show that short as a trade since it did not "break" that level since we are expecting it to uptick into the trigger. Another example to reinforce this. If the set-up is BRCD Sell short stop 35.00 then we would only short that stock if it broke $35. If you need to set that up at your broker as a sell short stop and you think you might be filled if it hits $35 and doesn't break that level then simply adjust the price you enter to something like $34.95 for example - this ensures the $35 level was broken.
If you do not want to short or buy puts you can just stay in cash during those times some or all of the stocks are trading to the short side and moving lower.
NetPicks IntraDayTrading Guide
Trading Guide & Important Trading Notes
We have had many requests for day trades that take into account what happens after the opening bell. In our core OneDayTrades trade set-ups we are basing our entries upon what has taken place the prior trading day. However, we all know that frequent gaps and late breaking news can dramatically alter trading by the next morning. The Intra-Day Trade Set-ups are designed to take into account these changes and reflect what is occurring just after the opening bell.
Here's how it will work. You will see both a long/buy and a sell/short set-up. You can enter the trades as buy stops on the buys or sell short stops on the shorts. Or simply monitor the trade until you see those prices printing and enter the trade. If we enter a long trade then the short set-up becomes our stop area as well as our new entry to reverse the trade. We only reverse a maximum of twice per trading day so the most trades you'll have are 3 in a stock, and most days actually 1 per stock.
The profit target remains at 3% or you can trail the entire trade until reversed or the market close. Just like before. The risk works out to be 3% or less depending .
It is important to review the full Trading Guides for the OneDayTrades to follow how we calculate the 3% profit target. It also discusses the keys to shorting and the need for price to break below the prices given as our entry set-up prices. Do not trade until you are clear on these guidelines. They are the same as our regular OneDayTrade set-ups in this regard.
Lets assume you have a stock - for this example QLGC. And the buy stop is 40.15 and the sell short is 38.80. We know that after the first 10 minutes we'll go with whichever triggers first. Lets say that it is the buy stop and QLGC rallies through 40.15 (or if after 10 minutes it's already above 40.15 you trade it immediately at whatever price that might be -- do not wait for it to pullback -- the trade is a go right then.) We know our target is 3%. So 40.15 x 1.03 = 41.35 and rounded down to the nearest 1/8th as we choose to do is 41.25. At this point you can simply "toss" out the short set-up of 38.80. It no longer applies. You still will be calculating a potential stop and reversal just now based upon the long trade we are in.
At all times we'll be trailing a potential stop and reversal 3% below the maximum move in our favor of the long trade. Lets say QLGC rallies to 40.50 and that is where it topped out. 3% below that 40.50 is our new stop and reversal or 40.50 x 0.97 = 39.28 and rounded down to the nearest 1/8th (when going long to short we round down) is 39.25. You can see we now have reduced our risk in the trade to below 3% having started long at 40.15 and have a price to short. Should QLGC rally through 40.50 we could make the calculation again once we see a clear new high price (no need to calculate it for every tick - there is time to let it play out some.)
Should QLGC now fade back to 39.25 and trigger our short we would exit the long trade and have a new short. The profit target would be 3% or 39.25 x 0.97 = 38.07 and rounded up to the nearest 1/8th is 38.13. Just like the long trade our potential stop and reversal would be based in this case upon the low in the move for QLGC. Lets say it drops to 38.50. Not to our target but we can now adjust our stop and reversal to 38.50 x 1.03 = 39.66 or rounded up to the nearest 1/8th is 39.75. You can see at a minimum we have really lowered our risk on the short trade and have a new potential long trade closer to market.
Note: when you calculate the reversal if you get a buy and it's just below a round number - for example we calculate a new buy to be 30.97 it is smart trading to make it get over the round $31.00 area before taking the trade (such as 31.02...) Same on a short -- if you calculate a short entry very close to a round number - lets say 29.03 -- it's best to make it break 29.00 and adjust lets say to 28.98. The reason? There is sometimes clear support/resistance at round numbers.
Money Management Strategy (2% & 3%)
Note: We will now show in our second column a money management strategy. This comes from the feedback of two subscribers in particular. Since most people wouldn't do a full trail on the trades as we had listed before this makes better use of the alternative exit strategy. The exit strategy says this: Take 1/2 your profits at a 2% profit target. When you hit that 2% profit target raise your protective stop on the balance of the trade to break-even. Take the balance of that exit at the usual 3% profit target or the protective stop. Exit at close if neither is reached. Basically this strategy would mean on a full 4% move you will exit half the trade at 2% and half at 3% for a 2.50% net so it's a bit lower than the primary strategy which would have made 3%. At the same time, there are many times trades will go the 2% and then fade on us and those examples you'll have profits where the primary strategy might not. The reversal calculations remain the same.
We hope this guide helps you in understanding the recommendations and trading suggestions. Let us know if you have further questions at email@example.com