Date: 2/15/2023
Author: Chris Hood
You know how much I hate entering stop losses.
I don’t like giving my broker and the stop-hunting algos anything to work with.
Showing them your point of max pain is like tipping your hand at a game of high-stakes poker. It’s just not advisable.
I don’t recommend it on stock, long calls, debit spreads, or anything I purchase.
However, there are times when I use them.
I mean, actually enter them into my platform and let them go rather than just using alerts.
This isn’t me being wishy-washy, but some high-probability trades have a risk far greater than the reward.
On these trades, a single full loss could wipe out the profits from a dozen winners.
So here’s how I handle the risk.
Just last week, Corey snatched up a quick 103% return in 25 minutes.
Meaning you could have doubled your money with a few taps on your phone while having lunch…
And now, Corey is going to show you precisely how you could harness this stock to boost your income by $1,000 a week for the next year…
Find out more about how to get in on the action
The trades I’m referring to are credit spreads (call or put).
Remember how these work. On put credit spreads you make money if the stock price stays above your short strike. Call credit spreads are the opposite. If the stock price stays below your short strike.
I place many spread trades because they have a high probability and keep money flowing into my account.
At expiration, you keep 100% of the profit if the stock price doesn’t breach your short strike.
However, I prefer to close them at 50-70% profit to increase my probability of winning, and to recycle my money into new trades.
The flexibility of deciding your probability of winning makes them fit any trading style.
You can sell a spread that has a theoretical 90% chance of winning, but you’ll be risking about 10 dollars to make a buck.
If you want a riskier trade, then sell the spread at-the-money.
You’ll only have a theoretical win potential of 50% but the risk-reward is about 1 to 1.
Most traders I know don’t use stop losses on credit spreads…some have never even considered it. However, I always use them because I can’t afford to take a full loss.
For example, imagine you plan to take profits at 50% and you’re risking $1000.00 for a potential max gain of $100.
You’re basically going to get $50.00 for every winner.
A 100% loss on one trade means you’ll erase the profits from 20 winning trades.
It’s nearly impossible to be consistently profitable doing this.
So I enter a stop order in my platform to close the spread when it gets to 2x the credit received. This way, my max loss on the trade is $200.00, not a grand.
Can volatility sometimes trip your stops?
Yes.
But if your set-ups are correct you should still make a tidy profit over time.
If you’re more conservative then you could set it at 1 – 1.5x the credit received. For those who want to give the trade more room to move then use 2.5-3x the credit.
Set up your trades correctly and these shouldn’t affect your win rates very much… you’ll never have to absorb that full loss.
Just some ideas to help you make more and lose less.
Cheers,
Chris Hood
PS – By using this one indicator, Corey Snyder reeled in over 250 winning trades on this one stock…for lightning-fast returns of 193%…262%..even 294% on one overnight play. And the wins keep on coming. Just last week, he snatched up a quick 103% return in 25 minutes.
Click here for the full details.
