As TraderHR’s strategy is to capitalize on momentum and continuation patterns in a stock, we use Buy Stop Limit Orders on our long trades, whereby entry points are set above previous day highs (or, in the case of intraday trades, above the intraday highs) and we wait for the stock to come “up” to our buy price as evidence of continued momentum. Limits are set on swing trades to cap the entry level, protecting against extreme opening gaps. Conversely, short trades use Sell Stop Limit Orders, setting entry points below previous day lows.
TraderHR has two portfolios: stocks and options. The Options Portfolio consists of those holdings in the TraderHR Stocks Portfolio that are optionable, with the goal of leveraging the returns of the Stocks Portfolio. When an entry is triggered in the Stocks Portfolio, an option on that stock is added to the Options Portfolio at the contract price of the time the stock is entered. Likewise, when an exit in a stock is triggered based on a stop or target being met, the option is exited. Orders that aren’t filled are canceled by end of day.
The following are rules for the Stocks Portfolio …
Our rules are to enter at the Preferred Entry Price (also known as Buy Stop Price). If on pre-open orders the stock opens above this price but doesn’t exceed the Maximum Entry Price (also known as Limit Price), entry is at the Opening Price.
Trades are canceled if the stock trades below the Stop Loss Price before the Preferred Entry Price is triggered. On pre-open orders, trades are cancelled if the stock opens above the Max Entry Price or below the Stop Loss Price. Trades are also canceled if order not filled by end of first day, as trades only in force for 1 day.
Stops and Targets:
Protect your position with suggested Stop Loss Price, typically 3-5% below Entry Price. All Targets are between 5% and 12% above Entry Price.
Open positions are automatically exited at either the specified stop or the specified target. Exit 1/4 position at first target and 3/4 at the second target.
Number of Shares:
To determine the number of shares for a trade, we start with a formula that ensures that no more than 2% of the account level is risked in a trade. The formula is 2% of the account level divided by the differential between entry price and stop loss price. For example, with a $30,000 account and a trade with a $0.50 differential between entry and stop loss, the number of shares would be 600 (2% of 30,000) divided by 0.50 — which comes to 1200 shares. If stopped out for a $0.50 loss, the loss is no more than 2% ($600) of account value.
In addition to using this formula, we adjust the number of shares and determine position size by taking into account the beta/volatility of a stock in order enhance our risk management.
Difference Between Trade Alerts, Charts to Watch, and Free Stock Picks
Trade Alert is our best selection (or two) with the highest probability for a winning trade, with targets mostly 5-12% above entry price. Additional Charts to Watch are other interesting charts found when scanning, but either their risk is a little bit higher or their volume is too low (100k-500k). Free Stock Picks mostly have only entry setup details, and we don’t adjust their target or stop loss unless we include them within the Trade of the Day for that day, in which case members receive all instructions from entry to exit (adjusted stops).
More information on our rules is available in Sinisa’s article, “Capitalizing on Continuation Patterns.”