Road to Wealth: 307% In One Year
By Rick Saddler, HitAndRunCandlesticks.com
I've been an employee and a business owner. Both placed a lot of money in someone else's pocket. Whether it was the company or the tax man and it seemed to be a lot of headaches for little return.
It was a dream to quit my day job and learn to trade the stock market. And, so my journey began. Now, 30 years of trading and coaching experience later, I am living my dream! Another part of that dream was to help others avoid some of the difficult lessons learned along the way so Hit and Run Candlesticks was founded. Now every day in our live trading room, it is a pleasure to not only live the dream but to share with others what I’ve learned. The most important lesson learned was that you can enter with low-risk on a short-term trade, grab your profits and sleep well at night. The bottom line has become simplicity equals success. It is a great experience to teach others who are looking to take that next step to transition to Trading for a Living and to see them prosper from their efforts.
In January of 2018, I decided to post my live trading results in an account opened for just for that purpose so that it could be demonstrated to others that it can be done and how to start with a small account and grow it through the year.
A trading account was opened with $5,100 on January 1, 2018. The monthly account statements and trades done were shared. The starting amount of $5,000 was chosen because it is an attainable amount for almost anyone to have to start a trading account, a reasonable starting point for young and/or new traders. The original goal was to double the money in the account without a time period in mind. How quickly could the money be doubled when starting with such a small account? I called this process the "Road to Wealth."
Since I’ve been trading for over 30 years, I do have an advantage over a new trader, but like a new trader, I had never traded an option before opening this account. Like many new options traders, my thinking was that options were very complex, hard to understand and trade for a reasonable profit. Since I was already a successful trader, it was my ‘why ﬁx it if it isn't broken’ type of thinking.
Already knowing how to read a chart, how to interpret price action, how to recognize trends, and recognize buy signals was very helpful. I have built a career trading, have trained countless people how to read charts, how to trade and how to successfully become a trader. I currently train people with accounts from $1,000 to people with millions of dollars available for trading.
In the Hit and Run Candlesticks live trading room, we focus on relatively short-term swing trading, with an emphasis on candlestick trading. In 2018, I traded 99% options in this small account. As you can tell, I was very determined to learn how to make simple options trades successfully. I was interested in learning to trade directional options trades only – no complicated spreads, etc. To me, the key to successful trading is simplicity.
My initial goal was to double the account and so I started trading options for the ﬁrst time ever. Remember, the objective was to make simple directional call and put trades. Long calls were purchased if I thought the trade was up and long puts if I thought the trade was a move down. Trading in this account began by buying 1 contract at a time, which cost anywhere from $250-$500 per trade, depending on the price of the contract.
I already had a set of rules that have used for my trading for many years so I also made a set of rules for options and stuck to them. I used the two in combination - rules for the trade, then the rules for the option purchase. My rules for the trade are as follows:
1. Chart is trending, up or down.
2. Wait for a pullback/rally or consolidation back to the trend
3. Watch for a buy signal to enter
Having my basic trading rules in place, now it was important to establish and apply rules for options trading. My very simple set of rules were easy to understand and to execute. First, I would ﬁnd the chart that met the rules above. Then, I would apply my options rules that follow:
1. Open interest greater than 10 times the amount of my purchase on the selected strike price
2. A delta of .70 for calls, and -.70 for puts
3.40+ days until expiration
These rules work well because when there is enough open interest, there is liquidity – meaning that there are buyers and sellers in that specific option contract. A delta of .70 implies that if the stock moves up $1.00, I will make at least .70 and the trade will work in my favor. And, an expiration date of greater than 50 days, gives the trade time to work.
The options rules are strict, but can be modified just a little. With open interest, you need to be able to get in and out of the trade easily. Delta can be .68 or .80, but not much more or less. Time until expiration can adjust according to your plan for the trade.
For example, if there is a trade leading up to an earnings event, anticipating a run up or down into earnings, there may only be an expiration date 30 days out since the trade will be over before the earnings event. The rules are strict, but one needs to know the tolerances.
Speaking of tolerance, I had to adjust my patience with options, because I learned very quickly that I could lose 100% of my trade pretty fast. Fortunately, I already knew that the price of the underlying moved up and down throughout the day and week. The only adjustment was managing the risk tolerance.
In a stock trade, when the stock goes up or down 3%, your gains/losses are 3%, but with options trading the gains/losses are much greater in that 3% move. The exact percentage depends on many factors beyond this article. I still traded from the chart. I still had the same rules as a stock trade, my stops were still in the same place, and my targets were in the same area.
My ‘Road to Wealth’ journey was a challenging one, especially knowing that I had a commitment to post the monthly results to the public and was a ‘newbie’ options trader. It was a successful experiment that turned out better than I ever anticipated. My objective was to double the trading account and by December 31, 2018, the increase was a large 307% for the year. To say that I am now an options trading fan would be an understatement and it is my goal to share this process with others. A current statement is shown below.
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