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Trading System.

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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 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. 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.

These are just recommendations and not trading advice.

Setup two accounts. "Capital Account" and "'Profit_Account'". Initially when you start, all your money will be in "Capital Account" and "'Profit_Account'" will have a balance of $0. We have different set of rules for these accounts as capital account needs to be handled differently than a 'Profit_Account'.

Rules for Capital Account

Rule #1. Do not invest more than 2% to 4% of the balance in a single trade.

Rule #2. Pick 3-5 Symbols. And all the trades should be in these symbols.

Rule #3. Only one active open positions at any given point of time. No matter how good you think a setup is, if you already have 1 active open positions, do not open a new position.

Rule #4. Do not ever buy all in in one go. Buy in 2 lots. For example, if you are planning to invest $400 in a call option, invest $150 first (1st lot) and when the position goes against you, get in using the remaining money and buy the 2nd lot. Basically we are trying to bring the average cost down. The 2nd lot purchase can be in the same direction of 1st lot or it can be in the opposite direction. It really depends on where the price is on the chart. And also, the 2nd lot purchase does not have to be for the same strike and expiry used for the 1st lot. We call the 1st lot as "Starter Lot" and 2nd lot as "Accumulation Lot". As a rule, never accumulate more than once on a losing position.

Rule #5. Exit when profit hits this range 30% - 40% (Be a little flexible based on the chart.

Rule #6. Do not buy options that expire within 5 days. If the stock goes in opposite direction, time decay will wipe out your investment.

Rule #7. When you make a profit and if the capital account balance is more than your "initial investment level", withdraw 20% of the profit as your reward for hard work. Retain 20% of the profit in the capital account, and move 60% of the profit to "'Profit_Account'". Consider the updated balance in your capital account as the new dollar amount used as "Initial investment level".

Rule #8. Assume 100% loss on those that did not peak at a minimum of 30% profit after entry.

Rules for 'Profit_Account'

Rule #1. Do not place any trades in 'Profit_Account' until the balance in the 'Profit_Account' reaches 3% of your balance in the capital account.

Rule #2. Do not invest in options that expire within 5 days

Rule #3. Only 1 active open position at given point of time.

Rule #4. After closing the 1st trade, regard less of what the balance is, you will move 20% of the balance back to the capital account and invest the remaining in the 2nd trade.

Rule #5. After 2 trades, regard less of the balance, move the entire balance in the 'Profit_Account' to capital account.

Rule #6. Repeat the steps, all over again. '

Try this, use an excel sheet and simulate paper trades by applying the above rules, assuming you traded the setups posted only for $AAPL. Below button will take you to the page that lists all setups posted for AAPL so far. Ignore then ones that have not expired yet for this simulation.

All setups posted for AAPL

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