How to Read our Newsletter
Every Sunday you will receive the newsletter from HPtrades. The newsletter will consist of 3 parts.
- The first part will be a market commentary discussing what happened in the market the previous week as well as some of the upcoming news events, earnings, and expected market movement in the coming weeks.
- The second part of the newsletter will be a review of our previous picks that are still open trades. If you are an existing customer, you will see updates as to what should be done with these open picks including an update of suggested exit, target prices and stops. If you are a new customer you can still review the previous picks but we do not recommend entry mid trade.
- The third section of the newsletter is our picks for the upcoming week. This will give you some background information of the underlying company as well as the rationale for why we chose that trading opportunity. It will also state the current price of the underlying stock, a target price, a stop loss price, and the suggested Option month and strike price. The entry is designed to coincide with market open Monday.
Terminology in the Newsletter
Stop Loss – this is conditional exit price based on the price of the underlying stock to limit the loss if the trade goes against you. For the most part we don’t use stops based on the option price, we prefer to use the underlying stock price because the theoretical value of the option is constantly changing. The stop loss price is based on the closing price of the underlying stock and not on intra-day movements.
Target Price/Take Profit – this is a conditional exit price based on the price of the underlying stock to lock in gains/profits at a desired level. We use target prices/take profits based on the underlying stock price because the theoretical value of the option is constantly changing. The target/take profit price is based solely on market movement, so if the target is hit during intraday trading, the target is considered reached and the trade closed. Even if the target price is not reached, if desired partial profits can be taken when the investment reaches 100% gain.
Risk to Reward Ratio - ratio used by HPtrades to compare the expected returns of an investment to the amount of risk undertaken to capture these returns. The minimum risk to reward ratio that HPtrades uses on any given pick is at least 2.5:1. This means if we expect to make $250 dollars on the trade we will never risk more than $100. The reasoning behind using a risk to reward ratio is best explained in the following example: If we make 10 trades and expect to make $250 per trade and risk $100 per trade, even if the success rate of these 10 trades is 50% the trader is still profitable. You would make $1250 on the gains and only lose $500 on the losses, giving you a net profit of $750 dollars.
Partial Profit/Position - When it is suggested in the newsletter to take a partial profit or to take part of your position off the table, this means that this pick has reached a level of profitability and you should be closing out about half of your position. The reason for this is that you want to ensure you take some profit on the trade. One of the most important rules of trading is that you never want to have a winning trade turn into a losing trade. After you take partial profits off the table, your stops should be moved to a break even point. (Entry Price of the trade)
