𝞂 The Ultimate Options Trading Mind Map 𝞂
➠ 3-Part Series
Part 2☟
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➠ RISK MANAGEMENT
𝞂 At this stage, it is time to start thinking about your:
• Stop placement
• Target price
• Risk-reward
• Sizing
The first two (stop & target) can help to give you an idea of the third (your risk-reward).
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𝞂 Then you can move on to sizing based on the amount of capital you are willing to put to work/risk.
Perhaps you allocate an equal amount/percentage to all of your positions.
Maybe based on variance or #volatility.
Or, it could be based on some other criteria/ranking system you prefer.
This is entirely up to your investing/trading style & comfortability.
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☞ CRITICAL REMINDER ☜
Your stop is the admission that you were wrong.
It could have been your entry or your entire trade thesis.
Either way, you need to treat your stop as an invalidation point.
BE REALISTIC.
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𝞂 Now, the checklist above (Stop Placement, Target Price, Risk-Reward, & Sizing) may be influenced by many factors.
Such as:
• Your existing exposure
• Status of #greeks
• Technical confluence
• Fundamentals.
So let’s look at a quick example…
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➠ EXAMPLE
𝞂 Let’s say you want to buy $EURUSD calls spreads.
The boxes you’re looking to check might be:
𝞂 Trade in line with the weekly trend
𝞂 Technical confluence via 50% #Fibonacci + support/resistance
𝞂 European-wide #PMIs turning north
𝞂 German-US 10y bond yield divergence higher
The more boxes ticked, the more capital you may feel comfortable putting at risk.
But of course, within the pre-determined parameters we established at the onset.
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𝞂 This is how you utilize a framework to systematize your risk allocation.
Bottom line…
You must create a process and/or checklist of a handful of things you need to see before going long or short.
And. Stick. To. It.
Don’t say you’re getting into an asset as a fundamental long-term trade but then put your stop as 2% away.
That’s completely inconsistent.
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𝞂 Remember, our fundamental plays are long-term.
You don’t know when that 1-year + idea may play out.
That’s why our fundamental trades are less about the stop placement and more about asset allocation to sectors you want to be in down the road.
We are running to where the ball is going, not where it’s been or is at right now.
So something would need to fundamentally change about the narrative at hand for us to exit the position.
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𝞂 In the short to mid-term plays, your stop-loss placement becomes much more relevant.
As we mentioned before, your stop is your signal to put your hand up and admit…
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“I was wrong.”
☞ I’m afraid you’ll have to wait two days for the final installment of our Ultimate Trading Mind Map! ☜
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➠ Have you seen enough and already know you need our trade ideas and Ultimate Trading Mind Map in your life?
You’re in luck.
➠ Use the link in my Twitter Bio, then enter code RV2023 at checkout for a free month of everything Options Insight has to offer!
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➠ Have questions for me about the mind map?
Let me know in the replies!
Or better yet…
➠ Come ask me in person this Thursday from 11am ET – 12pm ET during our Options Insight Live on Twitter Spaces!
You’ll also be able to hear from our special guest…
@RealVision’s very own – @AshBennington!
We are pumped to have Ash join the convo!
So be sure to take advantage of what’s bound to be an outstanding chat.
See you there!
Cheers
