batchmethod Logo - Trading System

Copyrights: sleekOPTIONS.COM

Disclaimer: The sole purpose of this document is to introduce you to a sample trading rules and money management system. The rules defined here are not a trading advice. Consider this as a sample system for learning purposes. After reviewing, feel free to create your own system based on your risk tolerance, trading style and capital available. We do not guarantee any success by following this system as success depends on a lot of other factors as well. Money Management is only one aspect of trading.

Set up an excel sheet or log your trades in sleekoptions.com to manage this system. Practice not to place any trades without reviewing your logs. It is all about cultivating a good mind set. Feel free to modify this system to suit your personality, trading style and initial capital available. Use this as a template. But once you finalize a system that you are going to follow, follow that strictly. Do not change the system as soon as you are hit with a losing or winning streak. Try the system all the way through regardless of winning or losing streak. You can initially try the system using fake money ( paper trades) and see how it works out. Paper trading will also help you tweak the system by reviewing the logs.

Create 4 different (virtual) accounts to manage your funds. Please note that you do not have to create multiple brokerage accounts. These are just virtual account that you can set up in excel or manage in sleekoptions.com website. The 4 different types of accounts are:

Capital Account

Capital Account is where you deposit your initial investment capital. Funds are moved from Capital Account to Batch Accounts whenever required.

Batch Account

Batch Accounts are your actual trading accounts. You place trades from Batch Accounts. At any given point of time you should have only one active batch account. Name your batch accounts as “Batch 1”, “Batch 2” and etc. Do not create a new batch account until all the positions in the current batch are closed.

Multiplier Account

This account is to grow your profits. You can be little agressive here, since this is your profit money. See below for more details on how to manage funds available in this account.

Withdrawal Account

This is your 'Take_Home_Account'. In other words, at certain point some money has to taken out to preserve and enjoy the profits. This account will help you set aside profits for taking home.

No more than 20 trades per batch. At the end of 20 trades, you close the batch and start a new batch regardless of whether the batch ended in a profit or loss. You do not have to open 20 trades the same day. You will endup overtrading if you do it that way. Wait for the best set up. It is okay not to place any new trade in a batch some days. Typically a batch can be active for 10-20 days before all the positions in the batch are closed. Don't open a new batch until the current batch is closed.

Fund the batch account whenever you start a new batch. Do not fund more than 20% of the balance of the Capital Account for the batch. For example, let us say you have $10,000 in your capital account then “Batch 1” account will be funded with $2000 which is 20% of $10,000. If you want to be more conservative, you can set aside only 10% instead of 20%.

Don't invest more than 5% of the amount allocated for the batch on any single trade. For example, if you allocated $2,000 for the batch, then each trade within the batch should not exceed more than $100 (including commission).

Don't invest all the money allocated for a single trade in one shot. First, buy the “starter position/1st lot” and then buy the “accumulation lot/2nd lot”. Don't accumulate more than once. In other words, do not keep adding to a losing position more than once in the hope that it will all come back. Also note that the 2nd lot is not Mandatory. You don't have to add to an existing position if the chart setup is not favorable. You can either exit the trade and take a loss or wait until expiration. For example if $100 is what is allocated for each trade within a batch based on your initial capital allocation, First buy a position for $50 (1st lot) and then buy for another $50 (2nd lot). Your average cost will come down. 2nd lot need not be at the same strike or same expiry date. You have to make a decision based on chart here and the number of days left for expiry on the 1st lot.

Question 1: Do I have to make 20 trades in a batch?

No, you can close the batch when the net profit on the batch is more than 50%. But if the batch is in a loss, do not close the batch until all the 20 trades are executed and closed. When batch is at a loss after 10 trades, human tendency is to close the batch and start a new/fresh batch with the hope of recovering loses of the current active batch. In the option world, it is possible that your 1 trade will help you recover losses of 19 other trades in a batch and that trade may well be your 20th trade of the batch. So it is important to follow the system.

Question 2: How do I manage all this?

If you are comfortable with excel, you create different sheets for each account and manage it that way. You can do the same thing by creating journals and accounts in sleekoptions.com website. Sleekoptions also lets you share your journal with other users of your choice.

Question 3: Well, my first batch after 20 trades is in profit. What next?

Let us say you allocated $2000 for “Batch 1”. And, after 20 trades if the net profit is $800. This is what you do.

Step 1: Move $2000 (Amount allocated for the batch) to Capital Account.

Step 2: Move entire profit or some portion of the profit so as to bring the capital account balance to the initial capital you invested.

Step 3: If any money left after step 2:

Move 20% of the balance to Withdrawal Account.

Move 30% of the balance to “Multiplier Account” (Name multiplier accounts as “M1”, “M2” and etc). No more than 5% of your capital account balance in each Multiplier account. For example, if 30% of the balance left is $1000, move $500 to “M1” and $500 to “M2”. Now you have two multiplier accounts with a balance of $500 each.

Move 50% of the balance to “Capital Account”.

Step 4: Create a new batch account “Batch 2”. Allocate 20% of your capital account balance to “Batch 2”.

Question 4:Ok, my first batch after just 7 trades is at 60% profit. What next?

Let us say you allocated $2000 for “Batch 1”. And, after just 7 trades if the net profit is $1200. This is what you do.

It is recommended to that you close the batch and start a new batch since the profit is more than 50% of the initial capital you allocated to the batch account. However, you can also decide to wait until all 20 trades are completed for this batch. If you wish to close the batch, you follow the same steps described in question 1.

Question 5: My batch after 20 trades is at a loss? What next?

Let us say you allocated $2000 for “Batch 2”. And, after 20 trades the account balance for this batch is $1500 a loss of $500. Then, this is what you do.

Step 1: Close the account and move $1500 to Capital Account.

Step 2: Move funds available from multiplier accounts to Capital Account to bring the capital account balance to the initial capital you invested.

Step 3: Create a new batch account “Batch 3”. Allocate 20% of your capital account balance to “Batch 3”.

Question 6: What do I do with the money left in the "multiplier account(s)" (m1, m2…)?

The purpose of multiplier account is to grow the profits. You can place trades on multiplier accounts any time. However, recommendation is not place trades from multiplier accounts until the account balance of the multiplier account reaches 5% of the balance left in capital account. I will wait until the balance reaches that level. You can afford to be bold and fearless with multiplier accounts since it is not your capital account. While the “batch accounts” is for capital preservation, multiplier accounts are profit money set aside for aggressive growth. Follow the below trading system and money management system for Multiplier accounts.

• Do not place trades until the balance on any given multiplier accounts reaches 5% of the balance of your capital account. For example, if the balance on your capital account is $10,000 and balance on M1 Account is $400 and balance on M2 Account is $600. I will not place any trades on M1 Account until it reaches a balance of $500. However, I will place trades on M2 Account since its balance is more than 5% of the balance in the capital account.

• No more than 3 trades in multiplier accounts. After that, you move the balance available in the multiplier account to Capital Account. ( Recommended 2 trades until your balance reaches 25k).

• Place trades sequentially using the entire account balance every time. We are trying to compound the returns by doing this.

• Only one open position at a time in a multiplier account. However, you can place a different trade in a different multiplier account if funds are available in those accounts.

The below example will further clarify the system:

Assuming you have a balance of $400.00 in multiplier Account “M1”.

4/1/2018 - Trade 1: Purchased MSFT Calls for $400.00

4/5/2018 - Closed trade 1 for a 200% profit. Account balance is at 1200.00.

4/5/2018 - Move 10% of the account balance to a new multiplier account “M2”. Now, “M1” Account balance is at $1080.00 and “M2” Account balance is $120.00

4/7/2018 – Trade 2: Purchased ORCL Calls for $1080.00 (Investing the entire account balance)

4/11/2018 – Closed Trade 2 for 100% profit. “M1” Account Balance is now at $2160.00

4/11/2018 – Move 10% of the account balance to a new multiplier account “M3”. Now “M1” Account balance is at $1944.00. “M2” Account balance is $120.00 and “M3” Account balance is at “216.00”.

4/16/2018 – Trade 3: Purchased NVDA Puts for a total investment of $1944.00. (Again, investing the entire account balance).

4/26/2018 – Closed Trade 3 for a profit of 180%. “M1” Account balance now at $5443.00

4/26/2018 – Close “M1” Account. And Move the entire available balance to “Capital Account”. Now “M1” Account balance is zero. No more trades in “M1” since we already made 3 trades.

Question 7: What do I do with the money left in the Withdrawal Account?

Transfer out of your brokerage account. Take home. Enjoy! And do not think of investing back.









logo
 
Home       Option Alerts          sFolio             FAQ