Weekend Update: Focus On Stops (And Bitcoin, For Sure)


We use stops on option trades for two reasons:

(1) So that no one position ever gets wipes completely out, and,

(2) To preserve as much gain as possible before a signal reversal.

For both Blue Line services we use the same stop algorithm. It starts at -50% and self-adjusts lower as the trade goes in our direction. Even a modest gain in the trade quickly takes the stop down into the negative 30's to negative 20's. A little higher and the stop locks in a break-even trade and as further gains are seen the stop starts tightening from max print. 

Stop Alerts

The stop price level is updated in real time. Usually it doesn't change much from day to day. We have tried to send out real time Alerts when a stop is hit, but until we can fully automate that process, the responsibility to pay attention to the stops belongs to the individual trader. At a minimum we will update positions where stops have been hit with interim and/or close of market Alerts.

In other words, although an ambitious intent, don't always expect us to issue stop Alerts at the moment the stops are hit. Until we automate those posts and emails, be aware of those stop price levels and take action when necessary. 

Maximum Returns

The far right column on each table represents the best percentage return seen for each trade. As you can see, entries into these trades have resulted in substantial gains during the course of the trades, yet our current stop system is leaving too much of those gains on the table. We can do better...and we will. In both the Intermediate and Short-Term portfolios, the average maximum gain per trade is up over 100%. 

Bitcoin (GBTC) Corner

Bitcoin is too important a phenomenon to ignore and our Bitcoin Trading System is performing very well. We trade GBTC Long only, using a hard stop based on the 240 minute bar trend model and/or my own adjustments to minimize risk. Generally, if the 240 minute stop is more than 15% away from current price we use that 15% drop for a stop. If it gets hit and we may have to get back Long at a higher price. It hasn't hurt performance yet. 

Along those lines, the trading of Bitcoin Futures commences next week. This is a wild card that will affect the price of bitcoin in ways that span the gamut from insignificant, to out-of-control chaos resulting in extreme market instability. 

That's also why we use stops. 


*There are very few open positions in either service. This isn't necessarily bad as most of the stop exits are above where current prices would be. The only position I wish I had re-entered were the SPY calls, which have increased close to 500% since entry. Lesson learned.  Expect more re-entries going forward. 

**UVXY was stopped out on Friday's close. Stand-by for re-entry.