Wednesday, July 8, 2009

Trading Volatile Names

How does one get involved in a volatile name that is "in play?" Today I considered CME and ICE "in play." However they were moving quickly. These stocks can move $0.50 at a clip. If I entered these with my "full" size I could be stopped out quickly.

To get involved in a situation like this I trade less size and expand my profit goals and my loss goals. For example, say I normally trade 1,000 shares (or options) and risk $0.50 on a stock. In these names I might trade 300 shares and risk $1.50. On the profit side I will set my goal for a bigger move also.

This is a great way to get involved, control risk, and reap the rewards of a big move. I am risking the same dollar amount and targetting the same profit amount as a 1,000 share trade in a less volatile stock. Having less size on means I do not have to micromanage the position and live and die with every blip on the chart.

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