How much is enough when entering into a trade?  A trade, people, not an investment.

I enter the transaction with a goal in mind, if you don’t do so, you are GOING to allow your emotions to get involved in your decision.  It is almost impossible not to.

Generally, the profit goal in a trade will be in your head as a dollar value.  If I trade $2500 in a stock or option, I want to see $175-$200 out within 24-72 hours.   I never really analyzed the numbers, but my feel is always around an 8% gain.  When I enter a position, I will bracket for the 8%, or I will pick my limit prices at entry that would allow for my 8% within the short term trading range of the investment vehicle.

I didn’t pick the 8% number out of the blue, I just ended up at the number after reviewing what my trading goals had been.

Now, let’s discuss how unreasonable that 8% might be.  If someone came to you in late 2006 and told you they would guarantee you 8% per year for the next couple of years, what would you have said?  Who knows.  Hindsight says you would have certainly said yes.  Your crystal ball would have jumped at the number.  Greed says that you would have balked.  What I am getting at is 8% is a good return for a year, much less 24-72 hours.  Am I unreasonable?  Not really.

Here is my problem.  I wan’t 8% upside and yet I am willing to take a loss of more than 20% to get it.  Really, that seems to be my threshold on a loss.  I will sit on it for 20%.  Has it worked?  So far, yes.  Out of 21 trades, I have profited on 15 of them.  However, the percentage down on my losses has been too high.  I have got to work on that part.

I heard Jim Cramer on CNBC during his show “Mad Money” with a great bit of advice.  If you are an active trader, you will appreciate this simple bit of advice.

“Don’t turn a trade into an investment and don’t turn an investment into a trade!”

I can relate to that with my own trading.  The key is to have a plan and stick with it.  There will be major events that can have an impact on that, but for the most part you have to remember the quote above.

I am on vacation and will be out all day, but I get a sense that Citi could be a good short and long trade today. A short at the current level of $3.42 followed by a cover and follow up buy around $3.31, with a later sale of that position around $3.38, could probably be had. I wouldn’t make this trade if I wasn’t available to bail if things went bad, but I have a sense that we will see these numbers.

Good luck to anyone who gives this a shot. Today’s activity could very well be a good amount of short covering leading up to earnings.