Stock Trade Management
By: Chuck Hughes
In this video the Hughes Optioneering Team will explore their three stock trade management rules:
1) Exit losing trades quickly before they turn into large losses
2) Don’t exit winning trades with a small gain
3) Use options to protect profits with winning trades
Cutting losses short and not limiting your profits has allowed the Hughes Optioneering Team to maintain a better than 3 to 1 profit to loss ratio with their stock trading and gives us the discipline needed to be successful stock traders.
As stock traders we are always excited when our trading system or program produces a winning trade. But this poses a dilemma. Do you hold a winning stock trade for further upside profit potential or do you take profits in case the stock declines in price with the possibility of a profitable trade turning into a loss?
It’s human nature to want to take profits quickly when we have a profit in a trade. We have closed out winning trades only to see the underlying stock continue to rally knowing that we left profits on the table. Many times the stock you own will have a sustained rally producing substantial profits for your stock trade way beyond your expectations.
We normally will exit a stock trade when we incur a 7 to 10% loss before it develops into a large loss. And when we have a 15 to 20% profit in a stock we normally purchase a put option to protect those profits. This allows us to follow our second trade management rule of not exiting winning trades with a small gain. Purchasing a put option does not limit the upside profit potential of our stock trade if the stock continues to rally.
Purchasing a put option can actually guarantee a profit for your stock trade. In this video we will look at actual trade examples with guaranteed profits for our stock trades using our third trade management rule.
Futures, stocks, bonds, currency and options trading involves high risks with the potential for substantial losses.
PLEASE READ. Past results are not necessarily indicative to future results. There is a substantial risk of loss trading stocks and options with or without this or any other advertised product, service or system. Also, hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Since the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.