Weekend Update: Anatomy Of A Trade

Entering trades is the easy part. Managing trades is a different animal. A lot of trading services measure their success...and make their promises...based upon a model that considers every trade a "win" that shows a profit, even a 1c profit, and even it was seen only for a matter of seconds before drifting into the red. Then they throw in a disclaimer that says something to the effect of "the actual amount of profits is dependent on the trade management strategies of the individual trader." In other words, this track record is meaningless. 

If we did that at Blue Line, we would how something like 98% winning trades. Instead, we track our success by actual results, not only from beginning to end but while the trade is unfolding. There is never any doubt, or wiggle room in our numbers.

Case In Point: AAPL

AAPL triggered a Buy Signal on July 25th @ $152.74. We bought the October $150 Calls @ $8.30. Those calls reach a high print of $16.20  (+98.18%) on September 1st. From there both AAPL and the calls started to decline in price until this Friday when the calls hit their trailing profit taking stop @ $12.05 (+45.78%) causing us to exit the trade.  

There are two ways to look at this: (1) Wow, you had a double and then let half of it slip away; or, (2) Wow, you made 46.78% in six weeks. 

Trailing Profit Taking Stops (Caution: Math Ahead) 

In the past we would have either ridden the calls all the way up and then back all the way down until AAPL reversed, or we took graduated profits along the way up while significantly reducing the size of the position. This summer we developed a trailing profit taking stop strategy that kept us in these trades so long as the momentum of the gains stayed in tact. The higher the momentum to the upside, the tighter our stop. This AAPL trade is an example of a more moderate rise in the calls, so the stop hovered right at about 50% from peak price. Had those calls risen to +150% or more, the stop would have risen commensurately, but in doing so it would have tightened until it reached 25%.  In other words, beyond a certain percentage profit level the stop gradually tightens to a 25% decline from maximum profit.

All of these calculations are updated automatically based on real time data and displayed on the trading tables sent out during the week. We do the heavy lifting, you just have to take the trades. 

More trades coming in the weeks ahead.