{"id":16230,"date":"2024-08-06T12:31:00","date_gmt":"2024-08-06T16:31:00","guid":{"rendered":"https:\/\/mtatradeoftheday.com\/?p=16230"},"modified":"2024-08-06T12:30:14","modified_gmt":"2024-08-06T16:30:14","slug":"3-trade-adjustments-you-need-to-make-right-now","status":"publish","type":"post","link":"https:\/\/mtatradeoftheday.com\/3-trade-adjustments-you-need-to-make-right-now\/","title":{"rendered":"3 Trade Adjustments You Need to Make Right Now"},"content":{"rendered":"

This past week hasn\u2019t been easy for many traders, including myself.<\/p>\n

I saw traders who plowed money into semiconductors face margin calls and steep losses.<\/p>\n

Now, those same folks are doubling down on those bets, praying for a rebound, or chasing money as it rotates from one sector to the next.<\/p>\n

However, there\u2019s a better way to approach this market.<\/p>\n

I introduced three specific adjustments to Profit Surge Traders<\/a><\/u><\/strong> over the past month, designed to keep money in my pocket while riding the rebounds.<\/p>\n

Here\u2019s how they work.<\/p>\n

1. Reduce Position Size<\/strong><\/p>\n

Volatility and position size have an inverse relationship.<\/p>\n

When volatility goes up, my position size decreases.<\/p>\n

This level sets all my setups so the losses and potential profits are roughly the same.<\/p>\n

Think about it this way.<\/p>\n

I have the same setup on two stocks, A & B.<\/p>\n

Stock A will go up or down by 50%. Stock B will go up or down by 25%.<\/p>\n

If I want to keep my losses and profits the same for both stocks, I need to use half the shares to trade Stock A as I would Stock B.<\/p>\n

When the market is extremely volatile like it is now, I may cut my position size even more.<\/p>\n

I can use the VIX as a gauge to determine my position size.<\/p>\n

<\/p>\n

Right now, the VIX is trading in the high 20s. Yesterday, it was over 60.<\/p>\n

Just a few weeks ago, it was around 13.<\/p>\n

To keep things simple, if the VIX was 13 and now it\u2019s 26, I need to reduce all my position sizes by 50%.<\/p>\n

If the VIX was 13 and now it\u2019s 39, I need to reduce my position sizes by 2\/3rds.<\/p>\n

This is a simple way to think through the problem.<\/p>\n

However, let me point out something quite obvious.<\/p>\n

You need a position size small enough for the setup to work. Otherwise, you\u2019ll stop out early because you\u2019re afraid of taking a massive loss.<\/p>\n

Let\u2019s stick with the idea of the VIX for a moment as we talk about the next adjustment.<\/p>\n

2. Pick Shorter Duration Options<\/strong><\/p>\n

The VIX is a measure of demand for options on the S&P 500 index, also known as implied volatility or IV.<\/p>\n

Option prices are comprised of four components:<\/p>\n

    \n
  1. Distance between the strike price and the stock\u2019s current price<\/li>\n
  2. The intrinsic value of the option (how far it is in-the-money)<\/li>\n
  3. The time until expiration<\/li>\n
  4. Implied volatility<\/li>\n<\/ol>\n

    For the moment, we\u2019re going to ignore the first two and focus instead on time and IV.<\/p>\n

    Here\u2019s the basics:<\/p>\n