Trading Rules and Setups

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Trade Rules Ocean Waves

You cannot stay in this game UNLESS you have rules, so let's discuss them.

Here at Malibu Investment, we’ve learned; the only way to stay in the game is by having RULES and Discipline. I cannot emphasize this enough.

After doing this for many years, what one quickly learns is that each trader/investor has his/her own unique style, and level of risk they are willing to accept. Thats ok, the market is big enough and liquid enough for MANY different trading styles and under different time frames. What works for you, may not work for others.

EVERYONE has a different size trading/investing account, and subsequently, a varied level of risk they are willing to accept, and ultimately, a certain amount of dollars they are willing to lose. Professional traders on Wall St. are constantly adjusting and readjusting how much long/short exposure they actually have at any given point in time. You should always ask yourself before a trade; How much am I willing to lose? Why? All trades are not winners. What we try to do here is have the big winners pay for the small losers and then some.

Position size is perhaps THE most important aspect of trading. Too large a position when you’re wrong, can put a very large hole in your trading capital. That makes it harder and longer to gain back your losses.


Rule #1

No more than 3% of your trading capital in any one trade. Malibu typically trades between 1-2% positions, and when weekly options are involved, 1/2-1% positions. For example, in your hypothetical trading account with $100,000, each trade should be NO MORE THAN $3,000. With weekly options, that would mean no more than $500-$1000.

Rule #2

When trading stocks/equities, we typically employ a 8-9% stop loss. So in that $100,000 hypothetical account, and a 3% or $3000 position, if wrong we would be stopped out with a $240 to $270 loss.

Rule #3

With options trading, each trader needs to be more flexible, as they move much faster than the underlying stock. Here, we typically give the options 40-50% loss to be stopped out. In our hypothetical $100,000 account, and a 3% position, that would mean if wrong, we would accept a $1200-$1500 loss. Again here, everyone has a different threshold for pain. Adjust yours accordingly.

Rule #4

Lastly, plan your trade, and then trade your plan. What does this mean? Stick to your gameplan. Be nimble and a mature enough trader to admit when you’re wrong.

Rule #5 Kdt

What is Kdt? That stands for Key Decision Time. Every day, roughly at 1:50-2:30pm, when Wall Street gets back from long lunches, traders are placing their bets for the next day, few days and longer. Thats why the general market often starts to make its afternoon move around this time.

Rule #6

The key here was and always is; PRESERVE CAPITAL. All trades are NOT winners. What we try to do is to have the big winners more than pay for the small losers.


There are many setups that technical analysis traders look for, see, and patiently WAIT for during trading.

You say “WAIT for a trade setup Malibu?” YES!

One of THE hardest things to do when trading is to WAIT for the right news, right time, and right technical setup. Sometimes its days or weeks or even months, but often its VERY worth it. Think and act like a sniper when trading.

The Slo-Sto 20 low

This setup shows when a stocks slow stochastics reading is at 20 reading or lower (on a 0 to 100 scale) . Its a technical setup whereby the stock has appeared to bottom out, and more likely to bounce or go higher.

The DI Buy / Sell

Another technical indicator is referred to as the DI buy which stands for “Directional Index”. Another popular indicator, this seeks to give you a headds up when the momentum has shifted back to the upside. Conversely, a DI sell signal anticipates a continued move to the downside.

The $10 Deal

Big money runners; pension and mutual funds, and hedgies usually wont touch stocks under $10 a share. When a gets to $10 however, they often move higher, much higher, as the institutions get more involved.

The El Squeezo

Numerous stocks are shorted heavily. What that means is that large numbers of trader/investors are betting against, and profit if, the stock goes down. But often, at some point in time, either good news on the stock comes out, OR, news comes out which isint as bad as expected. Either way, the result is a stock which may start and continue to fly for days.

The El Stretcho

When a stock has been moving continuously for 3, 5, 7 or even 10+ days in a row, in ONE direction, there’s often a good possibility of a counter move in the OTHER direction.

Don’t think it’s possible? Look at $AAPL, 11 days up in a row in March of 2022.  When you get that many days up, the greater the probability reversal back to the mean.  And yes, the same thing can occur when a stock goes down multiple days in a row.
You can then do a swing trade to the upside !

The IPO Go-Go

Trading IPO’s (Initial Public Offering) are sometimes challenging and other times relatively easy, as some well known and not so well known rules come into play. We call it the IPO Go-Go. Why? IPO’s garner attention merely for post IPO coverage, ie; upgrades or downgrades by firms which underwrote the issue or otherwise got involved at the outset of public trading. Moreover, active traders can trade IPO Go-Go’s based on knowing when certain “lock-up” periods will occur, at different time oeriods after the IPO, which do affect the IPO Go-Go’s dance up or down.


Readers always have questions, and theres no such thing as a stupid question. I may be able to answer, I may not. But, many of these things are very new to new trader/investors. If at any time you have a question, reach out to easily accessible Malibu. Schedule a time for speaking on the telephone toll free.

1-888-4 Trade-9


Turbo Trades Malibu Investment

Why are they called "Turbo Trades?"

If you’ve been following @MalibuInvest for a while now, you’re no stranger to Turbo Trades. Although they can be as short as a day, Malibu likes to give the trades several days, weeks or months to “marinate.”

In these trades, Malibu Investment recognizes potential what it calls “Turbo Trades” where accounts can get turbo-charged through an increased use of defined risk option plays.

There are two types of options positions: “CALLS” when we expect higher prices ahead, and “PUTS” when we expect lower prices ahead. There are an array of option trades with fancy names like “spreads”, “straddles”, “condors” and “butterflies” to name a few. But the truth of the matter is that these different names are still only different combinations of puts and calls given unique names.

Calls give you the right, but not the obligation, to buy the underlying stock at a specific price (strike price) within a specified time frame (by expiration.) “Puts” give the investor the right, but not the obligation to sell the underlying stock at a specific price (strike price) within a specified time frame (by expiration.)

When Malibu investment uses options as a part of its overall portfolio strategy, we like to refer to them as “Turbo Trades.” What is best about these “Turbo Trades” is that they carry “defined risk,” in other words; we know ahead of time what the maximum exposure is to any particular trade. The measurable risk is what the investor pays for the cost of the option; also known as “the premium.”