TraderMinute 100K Challenge Philosophy

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Our Challenge Philosophy
by Jeff Yaede, Lead Trader

Today we are a week away from beginning our new challenge, and we have a week left in our current challenge. Every challenge we take $3K and try to turn it into $100K. This challenge began in my fund managing days. We were challenged to do it and we gave it a shot. In four months we got to $100K, we didn’t think much of it and we moved on. But as time went on we realized that most options traders don’t make money. According to conventional wisdom, 90% of traders lose money. That’s why we started this challenge. We want to teach traders how to manage risk while still making fantastic returns.

Our challenge philosophy really boils down to one question: What can we control? We can’t control news or price action. Even if you have a system that works 99% of the time, one day it could stop working. Markets are dynamic and constantly changing. As traders, the only thing we can control is risk.

We can control our risk with our individual trade choices and by how much money we can put into our account. We have all heard stories about options traders with accounts that have gone from $100K to Zero. We start with $3K because it’s an amount that if we lose, we feel is an acceptable risk. If we lose it all, it won’t break anybody (if losing $3K will break you, then this challenge isn’t for you).

Using this risk, we use long call and long put options in order to trade the directional movements of the market. In a nutshell, we are looking to double our money approximately five times during the course of a four-month challenge. Our goal is to go from $3K to $6K to $12K to $24K to $48K to $96K. Of course, these amounts are approximate and they never get there trending in a straight line. The way we trade and the decisions we make are the same every challenge. Sometimes our strategy makes money and sometimes we lose money. Occasinally, we lose the entire $3K.

Another way we can control our risk is to enter trades that provide a 3 to 1 reward potential. That is, any trade we get into we want to have three times the reward potential than our risk potential. If we decide to put 100% of our money at risk, we want a 300% reward potential. If 30% of our money is at risk we want a 90% reward potential. We don’t do day trades, but in our current challenge we did do a day trade but only because the stock was flying and we wanted to take profit. Typically we are in most trades for one to three weeks, sometimes more.

In our challenges, we don’t expect to make money on every trade. In our current challenge, so far we have had about 25 gains and 14 losses. Our typical loss was $1K and our average win was about $2K. Ideally I would like to see this average win be $3K for that 3 to 1 reward potential.

Our goal is always to hit $100K but we know we can’t hit $100K every time.
Our current challenge ends in seven days, and at this point we could end up with an amount ranging anywhere from $30K to $50K. On Friday, July 18th our current challenge officially ends but that doesn’t mean we’ll automatically close out all our positions if we still believe that we can make more money. Regardless of where we are with our current positions, we’ll start the new challenge on Friday, July 18th with $3K.

All of our trades are sent out real-time, via text and e-mail. Occasionally there are technical issues that may prevent people from getting these texts and e-mails, i.e. if AT&T doesn’t allow the text through we can’t help that. This challenge we are going to have a few other options such as a private Twitter feed.

A warning to new members: option values change quickly. Trade values can move up and down quite a bit over the course of holding a position. As reward goes up, so does risk. A 30% loss on a $3K account is a lot different than a 30% loss on a $60K account, so be prepared. Volatility increases the larger the account value grows. This isn’t a long-term retirement strategy. This is a game. Let’s take a small amount of money and see if we can make some more money. This isn’t a recommendation to take $30K of your retirement account and try to turn it into $1 million. The risk/reward potential changes significantly with different amounts.

I’m excited for this next challenge. I am seeing some signs of increased volatility, which means, for me, an increased chance to make money. I actually prefer when the market is bearish, but this last challenge we did all call positions. The way the market has been, bears have gotten crushed and bulls have been rewarded. Patience has been rewarded. Right now I am looking at some stocks that have been consolidating for quite a while and I’m excited about their potential upside. We also have earnings season starting, which will tell us a lot about the future direction of the market.

We hope you join us in our new challenge, and please feel free to e-mail us your questions!

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