This is the transcribed version of the podcast linked above ^^^
This is a MAILBAG Podcast. These will be listener questions that are sent to us via email and are answered by Matt here on the Podcast. They are also available to our Five Minute Video subscribers immediately after we make them in video form. In this episode of mailbag Matt talks about the common misconception of having a perfect entry and exit for every trade.
Matt: [00:00:00] Hey Matt here from the One Minute Trader something we’re going to be releasing , sporadically is our listener mailbag. What I mean by that is we get a lot of e-mails. And you by the way you can send those also to me directly. [email protected] lot of these e-mails ask the same questions that we hear from clients over and over again so we’ve put together a series that we’re going to call one minute trader listener requests and we’re going to answer questions during these sessions. And we hope you like them. Thanks for listening to the one minute trader podcast. And as always keep your questions coming. I’m Matt Davio and this is the One Minute Trader podcast.
Brint: [00:01:10] Alright Matt, Do you have a specific entry and exit for every trade you make?
Matt: [00:01:15] A lot of people. It’s a good question and a lot of people talk about they want to buy one and sell it to sell it three by two. It’s really the way I look at markets it’s not is the fact is that I mean you can try to pick exact entries and the exact exits. I tend to do that in chunks. So if I have a two to three percent risk of my trading capital that I’m willing to trade I might step into the position in. One to five legs so if I’m going to sell 10 I might start with two, add another two, add four, and then maybe add another two as it as it begins to go my direction. So what does that mean? It basically means that you’re spreading your risk over an area instead of saying I want to sell the highest point where I want to buy the lowest point. Often you’re not going to be able to pick up either of the spots as you’d like. At least fully. So I think it’s kind of a fool’s game try to say-. And then on the other hand if you’re if you’re looking at an area like that and you want to buy low but you’ll buy at the top here a little bit just in case it never touches the bottom. That’s really the way that you have to look at it. And then within that you’re going to know really what your average is and then from there that should not really take on any more of your risk capital than say any the individual and the size that counts. It’s probably somewhere in the 1 to 5 percent. So if I’m going ten sell contracts of the S&P and my risk is $2500. That means by the time I have a full position, I have 10 contracts, each contract is worth $50 per point and if I sold five at 24.20 and I sold five on it when it goes higher at 24.40 my average is going to be 24.30 and I’m going to have 10 contracts. And with that at 24.40 my risk is already beyond the you know what let’s say my risk was twenty five hundred. So I couldn’t do it in that situation I’d have to wait possibly for a higher price or maybe sell at 24.30 and then 24.40 and then the risk goes on the trade 10 points higher at say 24.45. So it really depends on where you want to get and where the risk is and how you want to get into the trade often and. More often not getting a full position. Meaning if my size is 10 I may only get six. I may only get four. Sometimes I get 12 sometimes a little bit more. I feel strongly about it. Something changed. The market looks like it’s going to go further and further So that’s the way I look at it. And it’s a really good question and I would kind of use some game theory and and use setups that allow you to spend some time kind of back testing where you’re going to be wrong because once you do that then once you put on the trade you’ve kind of let it go and you know that if it goes against you and once you can take care of the risk you can start pulling profits. And increments. So leg-in-leg-out it’s more of an accordion. It’s it’s the inhale exhale of trading that is really natural. Most of the time markets aren’t going straight up or straight down to get the bigger pieces of that you try to get on the trend and try to inhale, exhale many times before it actually breaks out of a trading range.
[00:05:09] The One Minute Trader was developed to bring you fresh trade ideas every day of every trading week. Make sure you go sign up for and our invaluable. One Minute Trader daily emails along with our five minute video emails to get timely insights into evolving trade possibilities. Let One Minute Trader be your second set of eyes for trade opportunities that may have passed you by. We appreciate you listening today to the podcast and we hope you’ll support the show by leaving us a positive rating on whichever platform you’re tuning in from. I’m Matt Davio and this is the One Minute Trader podcast.