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How Often Your Spread Has To Win

Hey trader, Every option spread comes with a price. That price sets your required win rate, the share of trades you need to win. A spread is two options traded together, one bought and one sold. The distance between the strikes is the width, which caps the payout. Overpay for that width, and you need to win more often than the market expects. Good setups can still bleed money over time when the price is wrong. On Thursday, I ran this math in the end-of-day room on a Walmart call spread. It cost $3.40 for a spread $6 wide. That price set my required win rate at 56%. The platform put the odds at about 57%, so I knew I wasn’t overpaying. A Broadcom spread I priced that afternoon needed 67% against the platform’s 62%. Running this check takes one division and a number your platform already shows. You can

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One Rule That Protects Every Trade

Hey trader, Risk management separates the traders who make money from the traders who lose it. Position sizing sits at the heart of it, and nothing else I teach matters as much. Setups get far more attention anyway. Charts are fun, and a fresh signal is a lot more exciting than a position-size calculation. Managing risk doesn’t have to be hard, though. If you only follow one position sizing rule, make it this one: size the trade from the stop. You place your stop first, wherever your rules say it belongs. That stop then tells you how many contracts you can afford to trade. On Wednesday, a member in the room said his stop-outs kept hitting his daily loss limit before price came back off his levels. I asked whether he was risking too much on each trade. Skip this rule and a run of ordinary losses can end your

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Why I Check The Dollar Before Shorting

Hey trader, On Monday, the S&P 500 futures and the Russell both pushed to new highs. The 10-year Treasury yield hit 5.35% that same day. That’s the highest borrowing cost since 2007. Rates that high should scare anyone running on borrowed money. And yet, we rallied. I decided to take a small short into the strength. Fading a rally only pays when sellers finally show up. I don’t take their arrival on faith. Before I trust a fade, I check where the money is going. I watch the U.S. dollar for that answer. When investors dump stocks and move to cash, the dollar tends to gain. I follow it through Euro futures, which move opposite the dollar like a seesaw. Into Monday’s close, the dollar wouldn’t gain. That one glance told me my short was a low-probability trade. Skip the check and you risk sizing up a fade with no

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Pause on the Bridge

Hey trader, You may have heard your parents ask, or maybe you’ve asked your own kids, “If everyone was jumping off a bridge, would you?” The warning, hyperbolic as it is, makes an extreme example of why you shouldn’t follow the crowd and give in to peer pressure. As a teenager, I didn’t need “everyone” to be doing something. I just needed my best friend to be doing it. A simple comment, an issued dare (maybe that’s why his name was Darren), or even an unspoken action would often compel one of us to do what the other was doing or suggesting. One late November day, Darren and I went on a 5-mile run up Provo Canyon. Snow covered the sides of the trail, and the air sat in the high 30s. That was the perfect temperature for a brisk run to Canyon Glen and back. As we finished the

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The Stop Price That Doesn’t Exist

Hey trader, Trailing a stop off an indicator feels precise. You read the number and move your stop to it. Sometimes that number is a price the market can’t trade. Parabolic SAR is an indicator that prints a dot above or below each candle, and it’s my go-to for setting stops. On a short, you slide your stop down those dots as price falls. On Monday, the dot from the Parabolic SAR on my MES short read 7771.43…except that’s not a price I can use. You see, the MES micro S&P 500 futures contract trades in 0.25 increments. No problem, just round up or down, right? Here’s the thing – the wrong choice can leave you with a tight stop that can knock you out of a winner on one small wiggle. That’s an expensive way to lose a good trade. Yet, you don’t want to give up any more

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What To Do When A Breakout Stalls

Hey trader, A trade that goes nowhere still costs you. Your risk stays on the table the whole time you wait for a move that may never show up. I use a simple candle count to decide when a stalled trade has to go. You can run it on your own chart tomorrow and stop waiting on dead positions. Holding on feels like patience. On a momentum trade, that patience mostly gives the market time to turn against you. A Bollinger Band breakout is one of those momentum trades. The signal fires when price closes outside a band built around its normal range. On Friday, I shorted the Euro off one of those breakouts. I had $62.50 at risk. I told the room up front that I didn’t love the setup. Price sat still for several candles. When it finally ticked my way, I got out anyway for one tick.

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Where To Get In On A Breakout

Hey trader, Buying a breakout at the top of a big candle puts you in at the worst price of the move. One normal pullback then shakes you out of a trade you read correctly. On Tuesday, gold flashed a buy right after printing a higher high and a lower low. Chasing that candle meant paying up for a move that should give back about half first. When price expands both ways like that, I wait for the 50% retrace before I get in. On Tuesday, that meant waiting for a pullback to at least 4372, with my stop at 4365 and a target of 4391. Below, I’ll show you how to spot the pattern and find the halfway entry on your own chart. Why Buying A Breakout Costs You A breakout candle feels like the market handing you permission to buy. That candle usually closes near its extreme. Your

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Check This Number Before Your First Trade

Hey trader, Some days the market simply won’t move far enough to reach your profit target. Trade those days like any other and you take on the risk without a real shot at the reward. The options market tells you how far price is expected to travel today. It takes seconds to check, and it can save you from a string of dead trades. On Tuesday, that number said the S&P 500 futures would move only about 12 points for the rest of the day. A normal day at that hour allows about 18 points, and the days around last week’s Fed allowed closer to 40. My usual setups needed more room than Tuesday was offering, so I passed on them. Below I’ll show you how to read this number and use it to decide whether a day is worth trading. Plus, I’ll give you the low-cost trade I priced

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Just One Donut

“Just one donut.” I’ve said it. You’ve said it. The problem is that the donut in question is 13 inches across and 2 inches thick. These are the internal arguments we use to allow ourselves a little extra treat. It won’t break my diet. It won’t hurt me. It’s fine. The justification of wanting just one donut can be a slippery slope. To be transparent, I rarely indulge in anything sweet. If I’m going to satisfy a craving, my top three choices, in order, are cookies, cinnamon rolls, and donuts. Here’s where the problem starts. There’s a donut shop inside a gas station about an hour from my house, a place we’re rarely near. They make some of the most amazing apple fritters I’ve ever had, with a glaze that carries just a hint of citrus. They’re delightful. They sell out most days by 10 a.m. When my wife was

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When Your Stop Becomes Your Entry

Hey trader, Did you miss the trade but the entry still looks good? Sure you could try an entry here, but you’ve halved your profit potential while doubling your risk. Not a good idea. So pullback to the original entry should work then…right? Not so fast padawan. Once price runs halfway, that trade is done…at least the way I do things. And it all has to do with the way I manage my risk, something we’re going to dig into today. This isn’t just some hypothetical. Thursday morning I watched it happen live. My ES short sat at 7690.50 against a 7670.50 target. Price covered half the distance without me. I canceled my standing entry order. Getting in down there meant sitting right next to where I’d already decided to be wrong… …because it had nothing to do with the entry or my profit target, but the adjustments I made

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Most Recent

How My Spreads Beat 50/50 Odds
Where Global Money Goes After The Fed Pauses
How Often Your Spread Has To Win
The Backup Plan Behind Your Stop Loss
The Only Times I Move My Stop Loss

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