Game Plan

The Trading Game is simple.  We have a plan. We follow it. That’s it. The only question is, do we have a Game Plan?

The Secret Blue Print for Options Trading gives us 5 different Game Plans for different money amounts:

Two of the most important Game Plans are outlined here.

One should be able to develop their own systematic process to grow their money once they understand the Game Plans outlined here. Watch out for the basic principles of consistent growth, limited risk, etc.

Game Plan #1: Big Game Plan ($0 to $10,000)

In the Big Game Plan, there are 2 items to consider:
1. How much is our starting capital?
2. How much of our starting capital are we willing to lose before we call it quits (the Pain Level)?

1 of 2: Starting Capital

The optimum starting capital for trading options is $20,000. With this, we can buy more expensive options and still keep within our money management rules.

Let us start off with a starting capital of $10,000. This reason is it gets harder to find good options to trade if the starting capital is less than $10,000 (due to money management rules, stop loss rules and option trading rules).

2 of 2: Pain Level

In the Big Game Plan, the first thing we need to decide is what is our pain level: how much money are we are willing to lose before we call it quits?

For our $10,000 sample, let us select a Pain Level of 20%, ie. $2,000. This means we are willing to risk $2,000 to try our hands in options trading before we call it quits (this is just an arbitrary number ... we can choose from 10% to 50% of our starting money).

Once we have lost this $2,000 (say), we have 2 options:
1. Cut our Losses: We can call it quits, saying options is not for us, and rescue our remaining $8,000, or
2. Replay: We can pause for a while, pump in another $2,000 and replay.

Option 1: Cut our Losses

This an exit plan. Let’s say we lose $2,000 in our options trading. This should tell us that something is not right with our trading system. In such circumstances, we should take a step back to analyze what has gone wrong (this is where a trading group can be handy).

If something is not right with the trading system, find out the problem and fix it first.

In doing so, we want to rescue the remaining $8,000 from the battle field. We do not want to plow on, hoping that the remaining $8,000 can rescue the lost $2,000. It is foolish to use the same faulty trading system on the remaining $8,000 to rescue the lost $2,000. 

Option 2: Replay

There are more dangers in this replay option.

We are now down $2,000. Something is not right with our trading system. Fix it first. After fixing, we come out with a revised trading system. Do paper trading on this revised system for 2 months. Ensure that revised trading system is giving us continuous profits (paper trades).

If revised system is not giving us profits, do not pump in this new $2,000. If revised system looks promising, then pump this new $2,000 in. Bring your capital up to $10,000 again.

Then it is time to “restart” your trading again. Bear in mind that a good trading system should make money for you, not lose money. If this new $2,000 is lost in the opening few moves again, stop trading for one year. Take your $ 8,000 out and keep it in a bank. By doing so, we are keeping ourselves to a maximum of $4,000 loss per year by trading options. We hope that this does not happen, but if it does happen, this is our exit plan.

You may want to click here for Questionaire on Big Game Plan. Let us go on the the next Game Plan 2 ...

Next: Game Plan 2 ...