How to Enter a Position
In a recent poll of Trading Trainer members, I discovered that one issue a lot of option traders have is determining when to enter a position. In fact, out of five different trading steps, they said this one was the hardest.
This surprised me a bit since I have a very specific process for determining when I enter a position. I don’t decide when to get in; the process decides. So I thought I would share with you the five simple steps I use for entering a position…
- Create a watch list.
- Create a pick list.
- Analyze the picks with qualitative and quantitative templates.
- Create a hot list.
- Only enter trades based on what’s on the hot list.
Obviously, you can’t go out and be a successful option trader based only on what I’ve provided here. But it gives you an idea of the flow… the process I use before I ever enter a position.
You can’t watch thousands of stocks every day. You can’t analyze hundreds of stocks every day. So you have to have a system for filtering out the noise. This is the process I personally use.
So, this raises a question. If you have a time-tested process and you are still afraid to enter a position with real money, what is the problem? The problem is not the process; it is your emotions. No process on earth will eliminate fear, even if it has been proven to be successful. To eliminate fear, you must take action. Only by facing your fear will you conquer it.
Let’s assume for a moment that you have control over your emotions, but you lack a proven system for trading options. If you had this system, you would be equipped to begin making real trades. Did you know this system is already available to you? Would you like to learn how to create a watch list and filter down to a hot list? You’ll learn how when you become a Trading Trainer member.
Best Regards Always,
A.J. Brown
Comments on How to Enter a Position »
I’ve made lists to help me track potential winners, but they lose their relevance after a period of time. I admit I have a problem. Not only do I track potential equities, but then I need to track my lists! Unless I have a position, I don’t do the watching due justice. Should you continue to adjust the entry price to try and pick the bottom or just be glad when you get in at less than if you had been quick on the trigger, and not worry to much about the ones you missed?
Hi Curt,
Here’s what I do. I have a watch list that changes very little
day to day. I may get a candidate or two that I add here and
there, but otherwise the watch list is fairly static.
Every evening, I perform a pick list screening process. Takes
just a few minutes. I flip through my watch list and find
candidates that are setup in patterns that could lend themselves
to being ready to trade. (I also have some automatic tools that
help in this screening process for when I’m feeling a little
lazy.)
From that pick list, I start to do a deep dive on the candidates
to sift out which one’s will be ready to trade the next day.
Those are the one’s that I am so confident about, that I am ready
to open my wallet and slap money on the table. That’s my hot list
for the day.
From there, I like to craft follow through rules about what
exactly I need to see during the next trading session for me to
open a position and I pre-select options that will best leverage
the setup.
The point I’m making is that with the filtering system I use to
get from list to list, narrowing down my candidates, I quickly
create a new set of lists every night (except for the base watch
list). This way, my lists never become irrelavent.
It may seem like the process I’m describing is long and
complicated just because in writing it seems that way. But, if
you looked over my shoulder, you’d see that I do the whole
process in under 20 minutes every night. That’s creating the pick
lists, doing the full analysis on candidates, and preparing for
the next day of trading.
I actually create short screen cast videos every night for the
members of trading trainer, so they can see and hear exactly what
I do every night to prepare for the next trading day. This
"looking over my shoulder" strategy really helps people learn in
a better way than just reading the process.
I hope that helps.
Thanks AJ. Your comment was as good as the original article.
I’m always making lists, and sub lists, generaly based on trends, moves within trends, imminent set ups, and alerts. However, unless I’m very diligent my watchlists can become unwieldy, and then I miss entrys into good positions.
Hi Ken,
If your lists are becoming unwiedly, than it means your filters need tweaking. You’re letting too much of the riff-raff through.
My watch list has just over 100 tickers on it.
My nightly pick list rarely have over 10 tickers on it.
My hot list has no more than four tickers on it.
Don’t look at “maybes”. That’s a waste of your time. Look at sure things only. If you’re not sure, have a peer review your trades for a second opinion.
I hope that helps.
Thanks, that seems about right. I was accumulating stocks in what should have been my pick list. I need to be more diligent about dumping this list and repopulating it with only those picks I’m currently looking at trading.