My Trading Plan – Anya Sheth

[Anonymous]

1) Risk Management.

Never risk more than 2% of my total portfolio on any new trade setups (1% for day trades). If I must ever ask whether I should be in the trade or not, then it is better to get out of that trade. I get into a trade assuming that I am going to lose the amount invested. Never go into a trade where I am looking at profits first. Look at the potential losses first and size accordingly. I will never have more then 50-60% of my total portfolio invested at any given time. That means I will always have at least 40% cash on hand. Ideal number of positions differ per account, but no more then 10 in any one account and never more then a total of 25 over my 5 separate accounts. If I want to buy a new position, then I will prune one of my existing positions. (Sell the loser or the non-performer first, unless you can justify selling something else-very rare).

If a trade is moving in my direction, I will add to my position for a maximum portfolio size of 5% (in extremely rare cases – even up 10%). Never average down but add to winning positions on a lower volume pullback to the moving averages and where I have a good profit cushion.

Getting back in is just another trade away. Remember that holding on to a position overnight is the same thing as buying that stock or option at the end of the day. My plan is simple. Do not bet more than you can lose and when you’re at a loss don’t renegotiate the plan. Stick to it

Hedge by doing pairs trades. For example, buy NVDA long and short AMD or buy Gold and short Silver in equal amounts to create Alpha.
Hedge using beta weighting against SPX, SPY,NDX and QQQ

2) Daily, Weekly and Monthly Goals

Day Trading Futures: Daily Goal is to risk $ x to make 2x
Day Trading Stocks: Daily Goal is to risk $ x to make 2x
Weekly Goal: Make at least 2.5-4% of my portfolio while investing no more then 40-50% of my Total portfolio
Monthly Goal: Go over my total portfolio and prune the laggards and the losers and add to the winners.

3) Trade Setups for Longer term trades

Follow Investors.com style of investing to look for stocks that are just coming out of good bases. The chart setups I like are cup with handle, high tight flags, W shaped patterns and bounces of the 50 day on huge volume. Always consider the market conditions (whether the market is in an uptrend, consolidation or if it is in a downtrend). Remember that about 80% of the stocks will follow the market trend.
Comb through the various watch lists using MarketSmith (monthly subscription of $147), Customized scans in TOS, investors.com (Yearly subscription), “stocktwits” and many other paid sites to find stocks that are in a base and are ready to break out. I use Moving Averages (cross over, support at 8 EMA, 21 EMA, 34 EMA and 50 SMA), price and volume. I also incorporate Fibonacci levels to predetermine support and resistance levels. Also use Voodoo lines (a Simpler Trading proprietary tool) for the same. I am also a big fan of TTM_Squeeze_Pro (the free version is the TTM_Squeeze). I also love the multiple time frame squeeze indicator and the 10X indicator. I also use the RAF and MTF indicator. These are all proprietary tools and too expensive for about 80% of the regular traders.
If a chart does not excite me in 15-20 second’s then it is not worth spending any more time. There are lots of fish in the pond. Move on to the next ticker.

4) Seasonal Analysis

Have my own database of every stock’s closing price for the last 20+ years. I like to buy stocks with a strong seasonal trend (I incorporate market conditions, open interest, market sentiment (overall market and individual stock sentiment) and the stocks chart characteristics (moving averages). These trades are usually 50 delta calls or higher and the typical hold period is 2-3 months. Sell near dated upside calls to reduce cost, trade around core positions to reduce overall cost of trade every week.
In an up-trending or down-trendling market, I like to play weekly and 2 and 3-week seasonality also.
Example: Netflix. The best time to buy Netflix is middle of December. Netflix has gone up by 25% over the next 3 months 83% of the time over the last 17 years.

5) Types of trades I will do and will not do.

• Long Calls– weekly, monthly, and longer term 3-8 months out (never below 30 Delta)
• Butterflies – weekly, monthly, and longer term 1-3 months out.
• Pre-earning trades 1 day to 4 weeks out.
• Vertical spreads (Calls and Puts)
• Long Puts – weekly and monthly only
• SPX, NDX and IWM trades. Never Dow Jones.
• Never sell Naked Puts
• Never buy anything in the first 15-30 minutes unless it is at a price level I cannot ignore (lower never higher).
• Straddles
• Strangles
• Iron Condors
• Risk Twist Spreads
• Unusual Options Activity from my sources.
• Unbalanced Butterflies for a credit where I expect a certain price level to be maintained.
• Calendars

6) Intraday Setups

Use the 5/13 EMA crossover for day trading futures and options for anything less than a 15- minute trade.
Use the 8/21 EMA crossover for day trading futures and options for anything between a 15 minute – one-hour trade.
Use the 10/20 EMA crossover for trading for anything over an hour to few day (no longer then the end of the trading week).
Look for stocks gapping up pre-market and buy them on the first pullback to key support levels and then trail the stops and take profits in chunks to reduce cost.
Opening Range breakout trades. Look for stocks that break out of the opening 30- minute range (long or short)
Use market direction to trade key stocks like AMZN, AAPL, MSFT, GOOGL, JPM, FB, BA, NFLX etc. that move with the market (up or down)

7) Expected Move

Use Expected move to find good trade ideas to trade butterflies, unbalanced butterflies, Iron Condors, credit and put spreads for weekly and monthly expiration’s. Also use Open interest to help determine key price levels.

8) Earnings and event driven trades

Use CMLViz pro to come up with pre-earning price run up trades, with my own custom-built strategies. I never take their suggested trade ideas as almost all their trade ideas are public, and most hedge funds know about these.
Example is Buy MSFT 14 – day 50 delta calls bought 14 day prior to earnings date has an 85%-win rate if sold 1 day before earnings and if MSFT is over its 50 day and if the market is not in a correction.
Play for a move within the expected move or if bullish then a price moves up above the expected price and vice versa for bearish strategies.
9) High Short interest plays (Honey Badgers)
Use FinViz or other sources to find stocks that have an extremely high short interest and defying the market and are very close to 52-week highs or in a squeeze. These are also called honey badger stocks and really do not care what the market is doing.
Examples are TSLA, BYND, WORK, AMD, ZM, etc.
https://finviz.com/screener.ashx?v=111&f=cap_midover,sh_avgvol_o500,sh_curvol_o500,sh_price_o10,sh_short_o15,ta_highlow52w_a80h&ft=4&o=-price

10) Pin Action plays

Use news or squeezes to find stocks that will benefit from people chasing stocks that benefit from another stock going up
Examples are ROKU based on good news in Netflix, AMD based on good news in NVDA, BJ ‘s based off good news in COST.

11) Position Sizing

Always position size so that even if I lose my whole investment, I live to fight another day. Never risk more than 2% on any one new trade (1 % for day trades). Take profits at regular intervals and my first goal is to always bring back the original capital risked.
Roll the deltas to lock profits, sell an upside call to lock in profits or sell the near dated calls to get into a longer dated call.

12) Entries
Wait for the trade to come to you rather then chase it or get in earlier than the price level you have determined in your research and analysis (homework).

Plan your trade and then trade your plan. Do not take the market’s personally. They are not out to get you and learn to accept defeat graciously and sell when your original thesis is proved wrong. Do not challenge the market or try to justify holding on to something. Never fight the market by holding on to one’s beliefs. Opinions should change if the market changes.

13) Daily, Weekly and Seasonal Watch list

Do your research and analysis (homework) to set up a list of 15 stocks to trade on a daily basis, 15 stocks for a weekly trade and 5-10 stocks for day trading and seasonality trades. Then prepare levels of entries, exits and alerts based on Fib levels, Moving averages, Volume, Voodoo lines.
Update this list daily. Spend time analyzing the markets every day and rethink your strategy if charts or facts change. Try to summarize the day’s activity to reinforce. At least 2 hours of homework every day and 5 hours on a weekend.

14) Unusual Options activity and chatter

This is my fun or indulgent money (never more than 1% of my portfolio) to trade stocks or options with very unusual volume in shares or options or any unusual chatter. I have my sources to alert me to such opportunities. These are very high-risk high reward trades and position sizing is critical with the full knowledge and understanding that only about 1 in 3 trades work. But the 1 trade that works is usually enough to offset the losses in the 2 losing trades. Pay special attention to UOA on Monday mornings, or Friday afternoon, because someone always knows something and is eager to cash in.

15) Butterflies.

I love to play Butterflies. I look for certain criteria to determine what the closing price of a stock will be at the end of the weekly cycle. I play both weekly and longer- term butterflies. Some of my butterflies are 2-4 months out. These are low risk and very-high reward strategies. I usually play about 3-5 a week and my aim is to be profitable on 40% of them.

16) Target

Take profits in chunks (usually 1/3 position at a time) and my first goal is to always bring back the capital risked. No hard targets. Have levels in mind but if market dictates hold on for more or get out before target is hit. Never let a winning trade become a losing trade if gains are over 20%
Differentiate between dollar (price level targets) vs. a certain percentage gain target.
For options I like taking profits on 1/3 position at 30-40% profits, second 1/3 position at 80-100% and let the last 1/3 position run.

17) Stops

Anticipate losing all the money in the trade unless price levels dictate setting stops at 50% loss or if original gain target is 50%. I try to lose no more then ½ of what I was trying to gain for a ratio of 1:2 winning %
In any stock position sell at 7-8% loss no matter what. In Options I am more lenient and am ready to absorb at least a 50% stop loss or up to 1.5 times the daily ATR (Actual True Range) of the underlying stock. But it depends, if market conditions change, I change my stops and might take a loss much earlier or might let the options go down by even 60% – 70%.

18) Rules I will not break

1. Never Revenge trade. I do not want to double down or add to a losing position or show the market that it is wrong. No need to justify your logic or research. Accept the fact that the market and price action is always right.
2. If I have 2 losing trades in a row in a day, then I give myself a 1-hour timeout by going to the gym or take a nap. Reenergize, refocus, and start fresh with a new trade. Start fresh. If I have more than 4 losing trades in a day, then I stop trading for the day and look to fight another day.
3. Never take a trade just because you are bored. Play with the dog, walk, go to the gym, watch a movie.
4. Will not lose more than 2% of my total portfolio on any one trade.
5. Sell if I ever must question the trade or if the facts change. Getting back is just another trade away. First loss is always the best loss.
6. Never sell Naked puts, always sell a put spread to know your risks.
7. Never buy or sell with a market order unless it is a butterfly and the bid ask is too much and there is risk of assignment.
8. Reconcile on a weekly basis and analyze your winners and losers. Try to replicate the winners and reduce the losers and try not to repeat the same mistake. Write down why you did a trade, your mental state, your sense of euphoria or panic, etc. Notes are important to analyze why you failed or succeeded.
9. Keep it simple. Do not complicate.
10. Never let a day trade turn into an investment. Hoping and Praying is not part of a trading strategy.
11. It is okay to take profits. I will never catch the absolute high or the low.
12. My portfolio will always be hedged. I like puts or put spreads, Risk Twist trades, Butterflies in the (weakest) indices and like to have GOLD, Silver, Crypto Currencies and TLT in my portfolio.
13. I would rather buy 1 share of AMZN at $2,000 then buy 1000 shares of some junk company at $2.00

[Anonymous]

Thank you for the post Anya. Very useful and helpful . 🙂

[Author]

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