Time To Practice

You’ve written your trading plane on a page and you understand the emotions that try to erase them. This Week you finally trade. Just not with money.

Before we Start.

Five Stone Investments and Trading is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

I’m not a licensed financial advisor. I’m not selling you a course. I’m a trader and investor sharing what I’ve learned with the same front-porch talk I’d use with my kids or with the folks at church on a Sunday morning. Take everything I write as one trader’s perspective. Not as advice. Your money is yours. Your decisions are yours. I’m just here to teach.

Why paper trade

Nine articles of learning. You can read a candle chart. You can find support and a resiteance . You know a real bounce from a falling knife. You’ve got a strategy to use , you have a defined risk unit, understand order types, a written plan, and last week you got introduced to the voices inside your head that will try to keep you from your plan.

But let me just say. Knowing all of that and doing all of that are two different muscles.

I remember learning to tow a long trailer. I did not jump right onto the highway. My dad took me to a church parking lot when it was empty. Same steering wheel. Same pedals. Same truck. The only thing missing was other cars I could crash into.

This week is kind of like the empty parking lot.

We’re going to take everything you’ve built over nine weeks and run with it, beginning to end, with real trade but fake money. Practicing buttons, following every rule of your plan, so the first time you do it with real dollars, it isn’t the first time you’ve done it.

Who should do this

If you’ve been reading along for nine weeks and you’re itching to finally place a trade, you’re in the right place. This week you get to do just that.

If you’re afraid of messing up an order, that you’ll fat-finger an order and buy 1,000 shares instead of 100, you’re in the right place. You want to make those mistakes in practice, not when it actually counts.

What is paper trading

Paper trading is simply practicing on a simulator. A practice account that has acual live data so you can trade in real time, just not with real money. The name comes from the old days, when folks would write their practice trades down on paper instead of calling their broker.

You cannot lose one single penny in a paper account. You cannot make a penny either.

Virtually every broker has one, and they’re all free. I use thinkorswim, and its practice mode is called paperMoney. You toggle one switch at login and you’re trading the same platform, same charts, same order screens, with fake money. Whatever broker you are on, look for words like paper trading, simulated trading, or demo account.

One thing to keep in mind before you touch anything, and it make a difference. The simulator will hand you a big pile of pretend money. thinkorswim starts you with $100,000. Most of you are not going to start trading with $100,000, so don’t practice like you will. Set up your practice account balance to the number you would actually fund an account with. If that’s $2,000, practice with $2,000. If it’s $25,000, practice with $25,,000.

Practicing with money you’ll never have teaches you habits you’ll never use.

The one rule that makes paper trading work

As much as possible treat it like it’s real. All of it, every time.

I don’t believe in paper trading for a long time, just long enough to get good at order entry, sizing, how the charts move, getting out of trades, and testing of your strategy. Paper trading is not practice at making money. The pretend profits dont mean anything. Paper trading is practice following your plan. The plan is the thing being rehearsed and practiced. The money is just the scoreboard. A paper trade looks like this…

The same setup. You wait for the breakout retest from Week 5, or the bounce off support from Week 4. If the chart doesn’t give you a trigger, you don’t place a trade. The paper account doesn’t change what a valid setup looks like.

The same risk size. Your plan says how much of your account you risk on one trade. That’s your risk unit, your R, from Week 6. One R is the dollar amount you’re willing to lose if the trade goes against you. If your plan says risk $50, your paper trade risks $50. Not $500 because it’s fake.

The same order. The bracket order from Week 7. Entry, stop, and target, all placed at once, before the trade is placed. A stop is the price where you admit you’re wrong and get out. A target is the price where you take your profit. The bracket puts both in first so the voice from last week doesn’t get a say.

The same notebook. Every paper trade gets written down or tracked just like real money moved. What your setup was, the price you entered, where your placed the stop and target set, and what the voice in your head said it was open. Week 9’s homework doesn’t pause because the money’s pretend.

Run it that way and every paper trade is a full walk through. Don’t skip any piece of it

What the paper account can teach you, and what it can’t

I’ll be straight up with you on both halves, because a lot of people selling courses only tell you the first part.

Paper trading is the best teacher in the world for mechanics. Order entry. Reading your fills. Watching how a bracket behaves when price gets near your stop. Learning what every button does so your hands know the platform the way you know how to drive a car. Nobody should learn the buttons with real money on the line. Nobody.

It’s also a good teacher for practicing patience. Sitting on your hands through four days of no setups is a muscle and skill that can be built and developed, and the paper trading account lets you practice it for free.

But there are two things it can’t do, and you and this is why one the mechanics are down, its time to move to a real money account.

The first one is small, in a paper trading account you always get filled on your orders. In the real market, fast moving stocks can slip past your price and fill you a little worse than your entry. That’s what’s called slippage, the gap between the price you wanted and the price you actually got filled. On paper there mostly isn’t any. In real trading there is. Typically not a huge issue but it does matter

Second, and this is the biggest one. The voice we talked from last week is mostly quiet in a paper trading account. It yells and screams in real life.

When there’s no real money on the line, holding through a pull back feels easy, and natural. Getting stopped out is no big deal. You will be tempted to think you’ve conquered this trading game and the emotions that come with it. You didn’t conquer them. They just didn’t bother suiting up for pre-season. Remember loss aversion from last week, losing hurts about twice as much as winning feels good, especially if you are competitive. Pretend losses don’t hurt one bit, so that wiring doesn’t get triggered..

That’s not a reason to skip paper trading. It’s a reason to be honest about what it teaches us. It proves you can run the process, click the right buttons, and set up the trade properly. It does not prove you’re ready to make money for it.

How to judge a paper trade

You do not grade a paper trade by whether it made pretend money. You grade it by whether you followed your plan. If you have a good strategy , this actually applies to a live account as well. If

A trade where you waited for the trigger, sized it at one R, placed the bracket, let the stop do its thing, and wrote it down is a grade A trade. Even if you got stopped out. Especially if it lost, because taking a loss without thinking twice is the single most valuable rep in learning to trade.

A trade where you chased a high flyer with no trigger, doubled the size because you were bored, and it happened to make money anyway? That’s an F. Lucky winners happen.. In a real account, that trade is how the price of learning gets really expensive.

Good trades and winning trades are not the same thing. REMEMBER that, while the money’s fake. The market pays lucky people just often enough to wreck them.

So here’s your scorecard. After every paper trade, your notebook should answer four questions. Did I follow my plan? Was the size one R? Did the OCO bracket order go in before I placed the trade? Did I let the orders go do their job? Four yeses is a great trade, whatever the profit column says.

And how long do you do this? Until the mechanics are easy. Just like learning to drive. Awkward at first, but then somehow you can drive somewhere and not even think about. About 10 trades where you follow your plan is usually enough.. Not ten winners. Ten trades, wins and losses both, where all four answers were yes.

For this week.

One thing. Open your paper trading account and take one trade through the entire process.

Turn your platform into practice mode, set the balance to your real number, and then wait for a setup from your plan. When one appears, run through the whole process., Trigger, one R, bracket order, notebook entry.

Common beginner mistake I see

Treating paper money like arcade tokens.

You know what I’m talking about. Somebody opens the simulator, sees $100,000 of pretend money, and starts gunning for every trade possible. 10 or 15 trades a day. Full account on one stock. No stops, because who cares, it’s fake. The account doubles or blows up, either way they’re entertained and had fun, but either way they learn anything.

I get it. With nothing at risk, it feels like the rules don’t apply. And that’s exactly backwards. The rules and mechanics are the only things the paper account can actually teach you.

Here’s why it blows up accounts later. Every sloppy paper trade is a rep for your habits, same as a clean one. Practice chasing runners for a month and you have trained yourself to chase runners.. Then you fund a real account and wonder why you keep doing the thing you practiced.

Sloppy practice isn’t neutral. You are programming habits.

What to do instead is what this whole post has been. Real balance. Real rules. Real notebook. The only fake thing in your paper account should be the dollars.

The bottom line

You’ve spent nine weeks learning. This week you start doing.

Paper trading is the empty parking lot. Same truck and trailer, same pedals, none of the traffic.

Treat every paper trade like real money. . Same setup, same R, same bracket, same notebook.

Grade how you did following your rules, not the profit. A planned loss is an A. A lucky chase is an F.

Go take your first at bat.

See you next week

Kevin | Five Stone Investments and Trading

One more honest note before you close this out.

I’m not a financial advisor, a broker, an accountant, or an attorney. I’m a trader sharing what I do with my own money and how I’d explain it to a friend. Trading and investing carry real risk. You can lose money. You can lose all of it. A practice account can’t hurt you, but the real one can, which is the whole reason this week exists. Do your own work. Take what’s useful and leave the rest.

If this series is helping you, subscribing is free and it tells me to keep going.

This is my personal swing trade I am taking on FCX. My entry is a stop/limit of $63.64 and stop loss of 60.28 and 2R target of 70.36. I will only be entered into the trade with a break up $63.64. I will cancel if price closes below $60.80

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The Plan Meets Its First Opponent

Last Week you wrote ten lines on one page. This Sunday we meet the thing that tries to erase them.

A word before we start.

Five Stone Investments and Trading is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

I’m not a licensed financial advisor. I’m not selling you a course. I’m a trader and investor sharing what I’ve learned with the same front-porch talk I’d use with my kids or with the folks at church on a Sunday morning. Take everything I write as one trader’s perspective. Not as advice. Your money is yours. Your decisions are yours. I’m just here to teach.

Why this week matters

You wrote your plan on a calm Sunday. The market opens on a loud Monday.

That gap is where most trading accounts die. Not from bad charts. Not from bad luck. From a trader talking himself right out of his own page.

Back in Week 1, I gave you the short list of reasons most folks lose money at this. No plan. No risk management. Chasing what’s already running. Trading too big. Trading too often. No patience.

Last Sunday fixed the first one. You’ve got a plan now.

Just about everything left on that list is the voice’s work. And I need you to hear this part plainly. The voice doesn’t bother you while you’re doing homework on a Saturday morning. It waits. It shows up when money’s on the line and the candles are moving, when you’re tired, when the position ended up a little bigger than it should’ve been, when the red on the screen starts to feel personal.

So before we spend the last three Sundays testing your plan against the market, we’re going to spend this one on the opponent that gets a vote first. You.

Who this is for

If you wrote your ten lines last Sunday and felt a little bulletproof, you’re in the right room. This is the week we test the armor.

If you’ve ever held a losing trade too long because selling it would make the loss real, you’re in the right room.

If you’ve never placed a trade in your life but you’ve broken a diet on day three, you already know this opponent. You’re in the right room.

And if you think discipline is something folks either have or don’t have, stick around. That’s the exact idea we’re taking apart today.

Meet the voice

Let’s name it.

The voice isn’t a character flaw. It’s not proof you’re weak or not cut out for this. It’s standard-issue human wiring, and every trader who ever lived got a copy. Fear and greed, the same two forces that move whole markets, don’t just live out there in the crowd. They live in you.

That’s what makes the voice dangerous. It doesn’t scream. It doesn’t sound like the YouTube guy with the rented Lamborghini. It sounds calm. It sounds reasonable. It sounds like you, thinking.

And I’ll be straight with you. It doesn’t retire, either. I’ve been at this a good while now and it still talks to me. We’ll come back to that.

There’s a reason it gets loudest around losses. Researchers have measured this every which way, and the finding always comes back the same shape. A hundred dollar loss hurts about twice as much as a hundred dollar win feels good. The fancy term is loss aversion. Your granddaddy would just say losing hurts worse. And because losing hurts worse, your brain will do some impressive gymnastics to keep a loss from becoming official, and to get one back in a hurry once it is.

The voice has four favorite sentences. Each one goes after a specific line of the plan you wrote last week. I’m going to walk you through all four, in the order they usually show up, so when you hear one you’ll know it for what it is. A recording. Not a new idea. A recording.

Trap one: The Stock will come back

This is an attack on your stop.

Remember, because every term gets defined every time it matters. Your stop is the price where you admit the trade is wrong and get out. You picked it before you entered the trade, back when you were calm and cool, and you put it where the chart said your thesis or trade idea was wreong. Usually just below a support level or piviot, the floor we talked about in Week 3.

It works like this. The stock drops toward your stop. And right before the stop loss does its job, the voice in your head chimes in. It’ll come back. This stock always comes back. Just give it a little more room.

So think about what is acutally happening . Your stop wasn’t a random price. It marked the spot where the floor no longer holds and the reason you bought the stock is gone. When your mover your stop like this, and you’re not holding a trade anymore. You’re holding hope. And hope is not a plan.

The math is the math. In Week 6 you learned to measure everything in a risk unit (R), where one R is the amount you are willing to risk on any one trade. A stop that gets moved once tends to get moved more than once. A one R loss can suddenly become a 2,3,4 or more R loss. It takes a lot of winners to recover from that. Accept a loss

To be perfectly clear. I have moved a stop I had no business moving. More than once, back in my early trading career. It cost me real money, and I’ll leave the details in the past. Its something even the most experienced traders struggle with.

What should you do instead. Let the stop loss and target limit order do the selling. In Week 7 you learned the bracket order, the one that how both you your stop and your target on one order. That order exists precisely so this decision never has to survive a loud day in the market. You decided your target and stop before you ever placed a trade. You can even walk away from the screen. Some of the best traders do not stare at a screen when the market is open.

Trap two: I can get it back

This usually comes to your head about 10 seconds after you have taken a loss.

The trade stops you out. You did everything according the plan, you felt good about the trade, and you still lost, and honestly what a probability focused profession does some days. And before you are even had a sip of coffee, the voice in your head give you a deal. Im going to get it back. today, before the close. Thats why Line 10 of your plan is there. Its your limits.

Theres a name for this. Its’ called revenge trading. That is taking trade to win back money you just lost, instead of taking a trade because a set up was there that fit your plan. It’s stock market version of doubling down on a bet in a casino after a bad hand.

To say it as simply as I can in as I know how. The market does not care or know you’re down, and it doesn’t owe you anything. Again our battle is not against the market, its against ourselves. When you trade to try and get money back, you’re not trading based off a chart anymore. You’re trading based on feelings. This emotions often cause you to go bigger and faster than you need to. That’s how one planned, survivable loss turns into three or four off the cuff ones before lunch.

This is exactly why your plan has Line 10. The stop loss that says how much you’re willing and allowed to lose before you shut her down for the day. That rule wasn’t put in place for the days you’re focused and sharp. Its there for the two seconds after a losing trade.

Do this instead. Take the trade to your notebook instead of the market. Write down your loss, write down what the voice in your head was saying, and close your computer. Most of the time the best trade after after getting stopped out is usually not taking another trade. There are more setups in a month than you could ever take.

Trap three: “Good ole fear of missing out”

The first two emotional traps are fear based.

Now the greed side, and it comes for the rules around your entries.

It looks like this. A stock starts running and you have a entry to get in on a pull back. but you see green candle after green candle, and other traders are talking about it, maybe its on the news. But the stock never pulls back far enough to your entry to get in. You see how much money you could be making. You start doing the math. Everyone else (especially on social media….is getting rich) and your missing it. Your brain yells GET IN BEFORE ITS GONE.

We call this FOMO. The Fear of missing out. The is is greed part of our emotions when trading. It is just as strong as the fear side in my opinion. I have made more dumb buys trying to get in a trade than I have worried about not gettting stopped out.

Think back through the weeks we’ve already walked. Week 4 was the difference between buying a real bounce and catching a falling knife. Week 5 was the breakout retest, where you wait for a stock to break through its ceiling, come back down, and show you that the ceiling is now a floor. Money is made with good informed entries and exits.

Often when you chase stocks like this, you are buying someone else’s exit. They are getting out for a nice profit when you are just getting in.

Y’all know I love to fish, saltwater, freshwater, it doesnt matter. The lakes of the Carolinas, to the gulf and Atlantic oceans. Forgive me one more fishing picture. When you see fish blowing and the birds are diving, the feeding is mostly over. By the time you get your boat or kayak over there, it’s done. You don’t chase the splah. You find a spot that has similar characteristics and the bait might show up next. The market has more fish in it than you could catch in ten lifetimes.

So what do you do instead? Nothing. And nothing is hard for smart driven people, and I know thats not a very satisfying answer. But if there is no trigger, there is no trade. Put the high flying stock on your watchlist and make it prove itself the same way every other stock has to. If it is a real move it will give you another opportunity. Once in a blue moon, it never does, flush it!

Trap four: “Im on a roll.”

The last one is sneaky , because it doesn’t show up when you have losses . It shows up when you’re winning. And it effects your sizing rules.

Two or three trades in a row go your way. You feel like an absolute boss! You feel like the next Warren Buffett, you followed your plan, the plan worked, your accounts up. And then here comes the voice in your head….and says… You’re hot. Youre on fire, this trading stuff is easy money. I got this market figured out. Im going to size up on the next trade. I’m playing with house money anyway.

When i say “house money” I mean the feeling that recent profits aren’t real money, so it’s fine to go big with them. Casinos love that feeling in its players. Casinos know thats how they get their chips back. Every dollar in your trading account is real, whether it got there last year or last Tuesday.

And the thing about hot streaks. Three wins in a row feels like skill. But I have flipped a coin and gotten heads three times in a row. A short winning (or losssing) streak proves almost nothing. What it often does is make you careless. Its the main reason so many traders take their worst loss right after their best win. I have been there!

The math is the math. Say your plan says risk one R per trade. You then win one R, then another. You’re up two R and feeling bulletproof. . The inner voice in your head convinces you into doubling size on the third trade, and bam, it stops you out. A normal loss, except this time it’s at double the. size… it’s a two R hit. Two wins, one loss, and you’re back where you started. Nothing about the market changed between trade two and trade three. All that changed was your size.

Its not that complicated of a fix.. Your size is written in your plan, written on calm day when the market wasn’t open, and it doesn’t give a crap what the last three trades did. If your account grows to a number that it makes sense for the R amount to grow, then thats a dicision for a Saturday or Sunday!

You can’t shut the voice up . You don’t have to.

The voice never goes away. I still hear it…sometimes very loudly. Traders who’ve been at this far longer than me still hear it. You have to accept it never fully goes away. Fear and greed are battles we face in every area of life.

The biggest difference between the folks who make it and the folks who don’t isn’t silence. It’s that the ones who make don’t negotiate with it . The plan and rules matter the most.

Your plan is ten decisions made by the calmest version of you, on a Saturday or Sunday, with no money at risk, no cnbc, no candles and price moving on a chart. . The voice is a loud opinionated version of you when your are most rattled.. Which version do you want managing your money?

You combat it by noticing the the voice. Naming the trap. Checking the plan.

And if the voice ever has a real point, and honestly very occasionally, but even when the voice makes sense, it goes to the plan first. Professionals do not make decisions on emotion. Your plan is written in pencil. Arguments get heard on the weekend. .

This week’s homework

Write in your notebook, the same one that’s been there from Week 1, and start a fresh page titled “The Voice.” Over the next week, every single time you feel the urge to break one of your rules, write down these three things.

• The date and time

• Which line or rule of your plan the voice was arguing against

• The exact words you here in your mind.

You don’t need to place a single trade to do this homework. But when real money is on the line is when this voice are loudest.

Common beginner mistake (the one I want you to avoid)

Negotiating with the voice while the trade is open.

Not ignoring the plan. Almost nobody tears the plan up. What beginners do is renegotiate it, one little exception at a time. Oh just this once, a little more room on that stop. Just this once, a little bigger size wont hurt. The plan has to be in charge.

I think most folkes do this in the moment becuse the voice sounds like new information. But its not. You almost never get new facts or new info in the middle of a trade. But new feelings come at you fast.

And here’s why it blows up trading accounts. The first exception writes a permission slip that allows you to continue breaking more rules.. BreaNo single “just this once” blows up an account. But lots of them, stacked over time surley will.

So this is what i want you to do. I want you to make a deal with yourself today, while you’re calm. You’re allowed to disagree with your trading plan. You’re not allowed to break any of its rules while a trade is open. Any disagreements get written down get in pencil. Keep that deal and it’ll be worth more to you than any indicator I could ever show you.

The bottom line

You wrote ten rules or lines last Week. This week you met your greatest opponent. Yourself.

We tell ourselves. It’ll come back. I’ll get it back. I’m missing out. You’re on fire. Each one targets a rule in your plan.

You can’t silence it. Nobody can. The good news is you don’t have to.

Be aware of the the voice. Recognize it as emotion.

A well written thoughtout plan wins! Again, as one of my mentors, Jerremy Newsome says “master the yourself and your will master the markets”

See you next Week.

Kevin | Five Stone Investments and Trading

Everything We’ve Built Goes On One Page

A word before we start.

Five Stone Investments and Trading is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

I’m not a licensed financial advisor. I’m not selling you a course. I’m a trader and investor sharing what I’ve learned with the same front-porch talk I’d use with my kids or with the folks at church on a Sunday morning. Take everything I write as one trader’s perspective. Not as advice. Your money is yours. Your decisions are yours. I’m just here to teach.

This really matters!

Back in Week 1, I told you that on Week 12 you’d write a one-page trading plan, and that your “why” would be the very first line of it.

I changed my mind. Not about the plan. About the timing.

Here’s why. Last week I taught you how to place an order. Some of you have been practicing in a paper account all week, and that’s exactly what I asked you to do. But I’m not going to let you spend the next month clicking buttons, even pretend buttons, without written rules. That’s how habits form, and I want you forming the right ones from the first click.

So the plan comes now. In pencil.

We’ll spend the next four Sundays pressure-testing it. By Week 12, you’ll rewrite it in ink, and it’ll be yours in a way it can’t be today. But starting today, you don’t place a trade, real or paper, that isn’t on the page.

One more thing before we get into it. Everything you’ve learned in this series so far has been a tool. Candles in Week 2. Support and resistance in Week 3. The bounce and the falling knife in Week 4. The breakout retest in Week 5. The R system in Week 6. Order types in Week 7.

A toolbox isn’t a house. Today we build the house.

Who this is for

If you’ve done the homework every week and your notebook is filling up, you’re in the right room. Today is the day it all snaps together.

If you skipped some homework along the way, you’re in the right room too. Today’s post will show you exactly which weeks to go back and reread, because every line of the plan comes from one of them.

If you’ve already been trading, with real money, without any written rules at all, you’re especially in the right room. I’d ask you to read this one twice.

If you just found this series and this is your first post, welcome. You’re in the right room, but you’re standing at the top of a ladder you haven’t climbed. Start at Week 1. This post will still be here.

What a trading plan is

Let’s define it plainly.

A trading plan is a short written document, created before you risk a dollar, that answers every question a trade will ask you. What do I trade? When do I get in? Where am I wrong? Where do I take profit? How much do I risk? When do I stop for the day?

You answer those questions on a Sunday afternoon, calm, with no money on the line. Then, when the market is open and your heart rate is up, you don’t have to think. You just have to follow.

A plan moves your decisions from the worst possible moment, mid-trade, to the best possible moment, time. The process is in place so you can focus on other things.

Now what a plan isn’t.

It isn’t a prediction. You are not writing down where the market is going. Nobody knows that, including the people on the financial news who sound certain.

It isn’t a promise of profits. A good plan followed perfectly still produces losing trades. Plenty of them. The plan’s job is to make sure the losers are small and survivable.

And it isn’t a diary of hopes. “I want to make $500 a week” is a wish, not a rule. Wishes don’t go on the page.

Why your plan is technical

I need to explain a word before we go further, because it’s the backbone of this whole series.

Technical analysis is a fancy phrase for a simple idea: making decisions by reading the price chart itself, instead of the news, the earnings reports, or somebody’s opinion. The chart shows you what buyers and sellers actually did with real money. Everything we’ve studied since Week 2, candles, trends, floors and ceilings, is technical analysis.

There’s another school called fundamental analysis, which studies the business behind the stock. Revenue, profits, management. It’s a fine discipline, and it matters a great deal for long-term investing, and I am a huge proponent and practitioner of it. But it is not how we’re trading in this series, and here’s the rule that keeps your plan honest: This is about bill paying money.

Every line on your page must be something you can check on . chart or an order.

If a rule can’t be verified by looking at a chart, it doesn’t go on the page. “Buy good companies” can’t be checked on a chart. “Buy the retest of a broken resistance level, confirmed by a strong bullish candle” can. One of those is a plan. The other is a mood.

The news doesn’t get a line. Your feelings don’t get a line. Your brother-in-law’s stock tip does not get a line.

The chart decides. That’s what makes it a technical plan.

The one page, line by line

Here’s the page. Ten lines. Every one of them comes from a Sunday you’ve already lived.

Line 1. Your why. The sentence you wrote on the first page of your notebook back in Week 1. “I want to learn how to trade because ___________.” It goes at the top of the plan, word for word, because this line is what keeps you following the other nine when you’re three losses into a bad week.

Line 2. What you trade. Your watchlist. Five to ten stocks, written by name. Pick large, liquid names, and liquid just means heavily traded, so there are always plenty of buyers and sellers and you can get in and out without the price jumping away from you. Boring is good here. You want stocks that respect their levels, not lottery tickets. Future articles will talk about finding quality stocks to trade every day.

Line 3. Your timeframe. The chart you make decisions on. For short term swing trades that’s the daily chart, where each candle represents one full day of trading, same as we’ve used all series. One timeframe. When I day trade I’m primarily going off a 5 minute chart.

Line 4. Your setup. The one pattern you’re allowed to trade. For this series, it’s the breakout retest from Week 5, and you write out its full definition: a stock breaks out, meaning it closes clearly above a resistance level, a price ceiling where sellers have repeatedly shown up. Then it pulls back down to that old ceiling. If the old ceiling now acts as a floor, that’s role reversal, old resistance becoming new support, and that’s your setup forming. One setup. Not two. Not “whatever looks good.”

Line 5. Your entry trigger. The exact candle that gets you in. Not the breakout itself, we don’t chase, we trade the hold, not the break. Your trigger is the confirming candle at the retest: a hammer or a strong bullish close that proves buyers are defending the old level. Write it that specifically. If you can’t point at one candle on the chart and say “that one, that’s my entry,” you don’t have a trigger, you have a hunch.

Line 6. Your stop. A stop, short for stop-loss, is the pre-set order that gets you out when the trade goes against you. Yours goes just below the old resistance level. The logic comes straight from Week 5: if price crosses back under that level, the role reversal failed and the idea was wrong. The stop isn’t where it hurts too much. It’s where the chart says you’re wrong. I have grown to LOVE stops!

Line 7. Your target. Where you take profit: the next resistance level above your entry, the next ceiling on the chart, because price tends to run from one level to the next. And here’s the filter from Week 6: measure the distance to your target in R, and if the trade doesn’t offer at least 2R, twice what you’re risking, you skip it. Write the number 2 on the page. Skipping trades is a skill.

Line 8. Your size. Straight from Week 6, the R system. R is the most you’ll lose on one trade, no more than about one percent of your account. Then the math is the math: risk per share equals entry price minus stop price, and shares equal R divided by risk per share. Write your actual R in dollars on the page. Not a percentage. The dollar number. You should be able to say it out loud without flinching.

Line 9. Your orders. From last week. You enter with a limit order, an order that fills at your price or better. And every entry goes in as a bracket order, also called an OCO, one cancels the other, so your stop and your target are sitting in the market from the second you’re filled. No naked positions. And before you hit send, you read the ticket back to yourself like you’re reading a check out loud.

Line 10. Your limits. This is the one new tool this week, so lean in. Your limits are the rules that protect you from yourself. Three of them go on the page. Maximum number of trades per week, and I’d suggest two or three while you’re learning, because the setup we trade doesn’t show up on command. Maximum losses in a day, and I’d suggest two, then you close the laptop and go outside. And one day a week, minimum, where you don’t look at a chart at all. The market will be there Monday. It always is.

That’s the page. Ten lines.

The blank template

Copy this into your notebook, or print it and tape it inside the cover. Fill in every blank. If you can’t fill one in, that blank is telling you which week to reread.

1. I trade because: _________________ (Week 1)

2. I trade these stocks only: _________________ (5 to 10 names)...even 1 stock you look at everyday.

3. I make decisions on the ______ chart. (one timeframe)

4. My setup is: _________________ (Week 5, write the full definition)

5. I enter when: _________________ (the exact confirming candle)

6. My stop goes: _________________ (Week 5, just below the old level)

7. My target is: _________________ and I skip anything under ____ R. (Weeks 3 and 6)

8. My R is $______, about 1% of my account. Shares = R ÷ (entry − stop). (Week 6)

9. I enter with a ______ order, always as a bracket/OCO. I read every ticket out loud. (Week 7)

10. My limits: no more than ____ trades per week. ____ losses in a day and I’m done. ____ is my no-chart day.

Date it. Sign it. Pencil is fine. Pencil is the point.

This week’s homework

One thing.

Write your plan. All ten lines, one page, your Week 1 sentence at the top, today’s date at the bottom.

Then put it where you’ll actually see it. Taped next to your monitor. Inside the notebook cover. I don’t care where, as long as it’s in your line of sight before you place any trade, paper or real.

If a line stumped you, that’s not failure, that’s the homework working. Go reread the week it points to. The plan is a map of the whole series. A blank line just shows you where the fog still is.

Hit reply and tell me which line was hardest to fill in. I read every one, and it tells me what to slow down on.

Common beginner mistake Writing the plan in adjectives instead of numbers.

Here’s what I mean. A beginner sits down, full of good intentions, and writes: “I’ll buy strong stocks when they pull back to support, take profits when they’ve run a good amount, and keep my losses small.”

That feels like a plan. It reads like a plan. It is not a plan.

“Strong” isn’t on any chart. “A good amount” isn’t a price. “Small” isn’t a dollar figure. Every one of those words has a different meaning at 9:30 Monday morning than it had on Sunday afternoon, and I promise you the Monday version will be whatever your emotions need it to be in the moment. Vague rules bend. Bent rules break. Broken rules blow up accounts.

Hand your page to another trader (or send it to me) and ask them to watch your next trade. If they can tell you, with no judgment calls, whether you followed your plan or broke it, your plan is written right. If they’d have to ask you what “strong” means, rewrite the line.

Numbers and chart conditions. Nothing else goes on the page.

The bottom line

One page of rules.

Written on a calm time when the market is not open, so you don’t have to think on a loud Monday.

Every line checkable on a chart or a ticket. Every blank traceable to a week we’ve already walked through together.

In pencil for now. We’ll spend the next four Sundays pressure-testing it, starting with the hardest opponent your plan will ever face. Not the market. The voice in your own head that tries to talk you out of the page. That’s next week.

Write the plan. Tape it up. Date it.

See you next Week. .

Kevin | Five Stone Investments and Trading

One more honest note before you close this out.

I’ll say it again because it matters. I’m not a financial advisor, a broker, an accountant, or an attorney. I’m a trader and an investor sharing what I do with my own money, the way I’d share it with my kids or with the folks at church. Nothing in this letter is advice for your specific situation. It’s one man’s experience and the lessons he’s picked up. Take what’s useful and leave the rest.

Trading and investing carry real risk. You can lose money. You can lose all of it. I won’t dance around that. A written plan reduces mistakes. It does not eliminate losses, and anyone who tells you otherwise is selling something. If you’re putting real dollars in the market, do your own work before you make a decision that matters to your family. Your money is yours. Your decisions are yours. I’m just here to teach what I know.

You know the setup and the size. Now you have to click buy.

This week I show you how to take the trade you drew on the chart and actually get it into your broker, cleanly, without a costly slip of the finger.

A word before we start.

I’m not a licensed financial advisor. I’m not selling you a course. I’m a trader and investor sharing what I’ve learned with the same front porch talk I’d use with my kids or with the folks at church. Take everything I write as one trader’s perspective. Not as advice. Your money is yours. Your decisions are yours. I’m just here to teach.

Where we are on the ladder

Its hard to believe we are now over halfway through our 12 week beginner trading course. Let me walk you back up the steps, because this week is where all of it finally leaves the paper and touches your account.

Week 5 gave you your first real setup, the breakout and retest, with three lines. An entry where price holds. A stop just under the floor. A target at the next ceiling. Week 6 gave you the math to size it. You set your R, the dollars you’ll lose if you’re wrong, you measured your risk per share, and you divided one by the other to get your share count.

So right now you’ve got everything you need on paper. A stock. An entry price. A stop price. A target price. And a number of shares.

Now you have to turn that piece of paper into a real order in a real account. That’s today. And it’s the step where beginners, who did all the hard thinking right, still manage to hurt themselves. Not because the plan was wrong. Because they pushed the wrong button.

We’re going to make sure you don’t.

Why this matters more than it sounds

Placing an order feels like the easy part. It isn’t.

Here’s the truth. The order screen is the one place where a single wrong click costs real money in a single second. You can do weeks of homework and undo it with one careless click. Buy when you meant to sell. Type 1000 shares when you meant 100. Grab a price you never intended to pay.

The buttons do exactly what you tell them, fast, and they don’t care that you were rushing.

So this week isn’t glamorous. It’s plumbing. But it’s the plumbing that carries everything else. Get sloppy here and the best setup in the world leaks money before it ever has a chance to work.

Plain as I can say it. You learned what to do. Now you learn how to enter it without shooting yourself in the foot.

Who this is for

This is for the trader who has the plan and freezes at the order screen.

If you’ve ever stared at a broker ticket with words like “limit” and “stop” and “GTC” and just closed the app, you’re in the right room.

If you’ve ever placed an order, watched it fill at a price that surprised you, and wondered what you did wrong, you’re in the right room.

If you’ve ever fat-fingered a share count or a side and felt your stomach drop, you’re in the right place, and you’re not alone.

The order ticket, plain English

Every broker has an order ticket. They may look slightly different but the terminology is all the same. It looks busy the first time. It’s really just answering four questions.

What stock. The ticker symbol. Easy to get right, easy to fat-finger. More on that in a minute.

Buy or sell. The side of the trade. Are you getting in, or getting out. This is the single most common place beginners slip.

How many shares. Your quantity. This is the number the Week 6 math already handed you. You’re not guessing here. You’re typing in the answer you already worked out.

At what price. This is the order type, and it’s the part that has a learning curve. So let’s take them one at a time. There are four worth knowing, and which one you reach for depends on the trade.

Order type one: the market order

A market order says “fill me right now, at whatever the going price is.”

It’s the fastest order. You tap buy, it buys, done, usually in an instant. The trade-off is you don’t control the price. You take whatever the market’s offering at that split second.

On a big, heavily traded stock, that’s usually fine for swing trading and investing. But it can make a big difference day trading. I almost never use market orders to get into a position. It doesn’t matter it its a day trade, swing trade, or long term investment.

In all my years of trading I have used a market order just a few times and only to get out of trade in a hurry. My entry , stop , and exit are defined before placing a trade. It’s a risky habit for getting in, because your careful entry price can slip right out from under you.

Order type two: the limit order

A limit order says “fill me at this price or better, and not worse.”

This is the one you lean on when you want price to come to you. You name the price. If the market comes to your price, you fill. If it doesn’t, you don’t. You never pay more than the number you set.

Go back to the breakout and retest. Your plan said enter at 50 dollars when the level holds. With a limit order, you set your buy limit at 50. You will not pay 50.10. You will not pay 51. You pay 50 or better, or the order just waits.

You control the price, but you’re not guaranteed a fill although on most liquid names the order is filled.. If the stock never trades back to your number, you sit on the sidelines. That’s not a bug. That’s the order protecting you from chasing. While everyone is getting FOMO, you are being patient.

For a choosing a specific entry price, the limit order is your friend. It keeps your risk per share honest. Remember, your whole Week 6 math assumed you got in at your entry price. Pay more than planned and your risk per share quietly grows, and your position is bigger than you meant it to be.

Order type three: the stop order

A stop order is how you put your Week 5 stop line into the account so it works even when you’re not watching.

Here’s the idea. A stop order sits quietly and does nothing until the price hits a level you set. The moment price touches that level, the stop turns into a live order to get you out.

This is the order that enforces the discipline we’ve built the whole series on. Your stop is the price where you admit you were wrong. A stop order makes that admission automatic. You don’t have to be at the screen. You don’t have to win an argument with yourself in the heat of the moment. The exit is already parked and waiting.

Say your plan put the stop at 48. You place a sell stop at 48. If the trade goes against you and price falls to 48, the stop triggers and you’re taken out, right where you planned, before the loss can grow into something that hurts.

A plain stop becomes a market order when it triggers, so in a fast drop it can fill a little below your stop price. But professional traders learn to love stops!

Two ways into a trade, and the order changes with it

There are two moments people try to get in, and they call for different orders. Get this part right and the order screen stops feeling like a guessing game.

The first is the pullback. Price is above your level and you want to buy the dip back down to it. That is the retest we drilled in Week 5. Your entry sits below where price is trading right now, so price has to come down to you. A plain buy limit oder is exactly right here. It waits below the market and fills when price dips to your number.

The second is the breakout. Sometimes you don’t want to wait for a retest that may never come. You want in the moment price breaks up through the ceiling. Now your entry sits above where price is trading. To buy strength above the market, you need an order that waits up there and only fires when price actually gets there. That is the stop-limit.

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Order type four: the stop-limit, for catching a breakout

Let me build it in two pieces, because the name scares people and it shouldn’t.

A stop-limit is just a stop with a ceiling on the fill price. Two numbers. The stop is the price that wakes the order up. The limit is the worst price you’ll accept once it’s awake.

Here’s how I do it… on a breakout entry, I set the stop and the limit to the same price. Say the ceiling is 50 and I want in on the break. I set a buy stop-limit with the stop at 50 and the limit at 50. That tells the broker, wake up at 50 and fill me at 50 or better, but not a penny higher. I get the break at my price, or I don’t chase it.

The trade-off, because I promised you the truth. If the stock rockets straight through 50 and never trades right at it, a stop and limit set to the same price can miss the fill. This doesnt happen very often on liquid stocks but it can and does happen. You watch it run without you. I’m fine with that. Missing a trade costs nothing. Chasing one costs real money. I’d rather buy it right or not at all.

Putting the whole trade on at once

Here’s the good news, and this is important. On most brokers you don’t have to babysit three separate orders. You can send them as one package.

The setup you want is often called a bracket, or an OCO, which stands for one cancels the other. You place your entry, and you attach both the target and the stop to it at the same time. When your entry fills, the broker puts your stop and your target to work together. If price hits your target, you’re taken out with a profit and the stop cancels itself. If price hits your stop, you’re taken out for your 1R loss and the target cancels itself. One or the other, never both. That is the OCO doing its job. In THINKORSWIM it often shows up as 1st Triggers OCO, and you can set the entry, stop, and target all in one shot, even right from the chart.

I love setting up my orders in thinkorswim becasuse i can trade directly from the chart and and OCO oder lets you set it and forget it. Once the bracket is set, the plan runs itself. You already decided everything when you were calm. The bracket just enforces the decisions you already made. No staring at the screen talking yourself out of your own stop.

This week’s homework

If you have Schwab you can get access to thinkorswim. This is where practing placing orders in a practice account is worth gold.

Place each type of oder . With no real money. 1. Buy Limit Order 2. Buy Stop/Limit Oder 3. Sell/stop loss oder 4. OCO order. Reach out if you have any questions!

Nearly every broker has a paper trading mode, a practice account with fake money that behaves like the real thing. thinkorSwim has one built in.

Open the practice account and take the trade you already planned in Weeks 5 and 6. You’ve got the stock, the entry, the stop, the target, and the share count. Now put it in.

Do it in this order. Pick your entry order first. If you’re buying a pullback back to your level, use a buy limit at your entry price. If you’re buying a breakout above it, use a buy stop-limit with the stop and the limit set to the same price. Either way, use your exact share count from the Week 6 math. Then attach, or place right after, a sell stop at your stop price. If you’re feeling it, add the target too and make it a full bracket, an OCO.

Then just watch what happens. Does the limit fill, or does price walk away without you? When it fills, is your stop sitting there doing its job? Get the feel of it with fake money until the buttons stop feeling scary.

When you’ve placed it, hit reply and tell me what broker you’re on and whether the bracket clicked for you or tangled you up. I read every one, and the tangles tell me what to explain better.

Common beginner mistake

Rushing the ticket and getting the side or the size wrong.

Here’s how it gets people. You see the setup trigger, your heart rate jumps, and you slam the order in fast because you don’t want to miss it. In the rush you tap sell instead of buy, or you leave an extra zero on the share count from a previous order, or you fire a market order into a jumpy stock and fill way above your entry.

Now you’re in a position you didn’t plan. Wrong direction. Or ten times the size. Or a cost basis that already blew past your entry and quietly enlarged your risk. One rushed ticket can undo a week of careful work in a single second, and the market won’t give it back.

The fix is a boring little habit. Before you hit send, read the ticket back to yourself like you’re reading a check out loud. Symbol. Buy or sell. Share count. Order type and price. Four things, three seconds. I still do it on every order, after years. The pros aren’t the ones who never make mistakes. They’re the ones who built a habit that catches the mistake before it costs anything.

Slow is smooth. Smooth is fast. Read the ticket, then send it.

The bottom line

You did the thinking. This week is about getting it into the account cleanly.

A market order fills now at whatever price is there. A limit order fills at your price or better, or it waits, and it’s how you buy a pullback back down to your level. To buy a breakout instead, use a stop-limit above the market with the stop and the limit set to the same price. A stop order is your automatic exit, parked at your Week 5 stop, working whether you’re watching or not.

Put them together as a bracket, an OCO, when you can, so the plan runs itself and takes the emotion out. And every single time, before you hit send, read the ticket back. Symbol, side, size, price. Four things.

Practice it with fake money until the buttons feel boring. Boring is exactly where you want to be.

Next week we start turning the messy pile of pieces into one page. Your written trading plan, the thing that ties your why, your setup, your R, and your orders into a single sheet you can trade from.

See you next Week.

P.S. …I also intentionally did not talk about selling a stock short/short sell. I encourage most new traders to start by learning to long/buy stocks before learning to short stocks.

Kevin | Five Stone Investments and Trading

One more honest note before you close this out.

I’ll say it again. I’m not a financial advisor, a broker, an accountant, or an attorney. I’m a trader and an investor sharing what I do with my own money, the way I’d share it with my kids or with the folks at church. Nothing in this letter is advice for your specific situation. It’s one man’s experience and the lessons he’s picked up. Take what’s useful and leave the rest.

Trading and investing carry real risk. You can lose money. You can lose all of it. I won’t dance around that. If you’re putting real dollars in the market, do your own work before you make a decision that matters to your family. Your money is yours. Your decisions are yours. I’m just here to teach what I know.

Five Stone Investments and Trading is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Position sizing with R, how much to risk so one bad trade can’t hurt you

Last week I showed y you your first setup. This week I hand you the math that keeps you in the game long enough to use it.

How much should you risk on one trade?

That is the question we answer this week. Not which stock. Not when to buy. How much. It is the most important question in trading, and it is the one beginners skip.

Five Stone Investments and Trading is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

A word before we start.

I’m not a licensed financial advisor. I’m not selling you a course. I’m a trader and investor sharing what I’ve learned with the same front porch talk I’d use with my kids or with the folks at church. Take everything I write as one trader’s perspective. Not as advice. Your money is yours. Your decisions are yours. I’m just here to teach.

Five Stone Investments and Trading is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Where we are on the ladder

Let me walk you back up the steps, because this week sits right on top of last week.

Week 1 was your “why.” Week 2 you learned to read a candle and name the trend. Week 3 you learned support and resistance, the floors and ceilings. Week 4 you learned to wait for a candle to close before you act. Week 5 I gave you your first real setup, the breakout and retest, with three rules. Entry at the hold. Stop just under the floor. Target at the next ceiling.

Notice what that setup did. It gave you a stop. A place where you admit you were wrong and get out. That stop is the whole reason this week is even possible.

Because once you know where you’ll get out if you’re wrong, you can do something most beginners never do. You can decide, before you ever click buy, exactly how much you stand to lose. And once you can control how much you lose, you can make sure no single trade ever takes you out of the game.

That’s position sizing. That’s today.

Why this matters more than picking the right stock

Here’s the part most people teaching this stuff skip.

You can be right about the setup and still blow up your account. You can pick a beautiful breakout, wait for a clean retest, get a perfect entry, and still go broke. Not because the trade was wrong. Because you risked too much on it.

The reality in trading... You are going to lose. Not might. Will. Even a good trader loses on plenty of trades. Strings of losses are normal. Three, four, five in a row happens to everybody. The math is the math.

So the real job isn’t to avoid losses. You can’t. The job is to make each loss so small that a whole string of them barely scratches you. Survive the losing streaks, and the winners get a chance to do their work. Blow up on one oversized trade, and you never get there.

Picking the right stock is the part beginners obsess over. How much to risk is the part that actually decides whether you’re still standing a year from now. We’re doing the part that matters.

Who this is for

This is for the trader who has a setup now and needs to know how many shares to buy.

If you’ve ever bought a stock and just sort of picked a number, a hundred shares because it’s a round number, you’re in the right room.

If you’ve ever had one trade lose more than your last five winners made, and couldn’t figure out how that happened, you’re in the right place.

If you’re looking to swing for the fences and double your money on one trade, this isn’t for you. This week is about making sure you can’t be knocked out. Boring keeps you alive.

Meet R, the only number that matters today

Let’s name it plain.

R is your risk. One R is the most you’re willing to lose on a single trade. One number, picked on purpose, before the trade.

That’s it. R stands for risk, and it’s measured in dollars. If you decide you’ll risk 100 dollars on a trade, then 1R equals 100 dollars for that trade. If that trade goes against you and your stop gets hit, you lose 1R. One hundred dollars. No more.

The whole point of R is that you set it before you’re in the trade, when you’re calm, instead of discovering it after the fact when you’re scared. You decide the size of your loss in advance. The market doesn’t decide it for you.

I trade with a fixed R on my short-term trades. Same risk on every trade, win or lose. It takes the emotion out of sizing, because the size isn’t a decision I make in the heat of the moment. It’s already done.

How to turn R into a number of shares

Here’s where R meets the setup you learned last week. Two small pieces of arithmetic. No algebra, I promise. If you can use a calculator app, you can do this.

Step one. Find your risk per share.

Your risk per share is the distance from your entry to your stop.

Risk per share = entry price minus stop price.

Remember the breakout and retest. You enter when price retests the old ceiling and a candle closes to prove it held. Your stop goes just under that level. So the gap between where you got in and where you’d bail is your risk per share. That’s how much you lose on each share if the trade goes wrong.

Say you enter at 50 dollars and your stop is at 48 dollars. Your risk per share is 2 dollars. Every share you own will cost you 2 dollars if the stop gets hit.

Step two. Divide your R by your risk per share.

Shares to buy = R divided by risk per share.

This is the whole trick. You already decided your R. The chart already told you your risk per share. Divide one by the other and the number of shares falls right out.

Let’s use real numbers. Your R is 200 dollars. Your risk per share is 2 dollars. 200 divided by 2 is 100. You buy 100 shares.

Check the logic. You own 100 shares, each one risks 2 dollars, so if the stop hits you lose 100 times 2, which is 200 dollars. Exactly your R. The math closes the loop. You decided to risk 200 dollars, and you will lose exactly 200 dollars if you’re wrong. Not a penny more.

The thing that surprises every beginner

Here’s where this gets powerful, and where it breaks the habit you came in with.

The distance to your stop decides how many shares you buy. Not how much money you have. Not how much you like the stock.

Watch what happens when the stop is farther away. Same R, 200 dollars. But this time the setup needs more room. You enter at 50 and the right spot for your stop is down at 46. Now your risk per share is 4 dollars. 200 divided by 4 is 50. You buy 50 shares.

Same account. Same R. Same 200 dollars on the line. But a wider stop means you buy fewer shares, and a tighter stop means you buy more. The risk stays locked at 200 either way. The share count flexes to keep it there.

This is backwards from how a beginner thinks. A beginner asks “how many shares can I afford?” and buys as many as the cash allows. The trader asks “where’s my stop?” and lets that set the size. You’re not sizing by what you can buy. You’re sizing by what you can lose.

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Reading the reward in R, too

Once your loss is measured in R, your winners get measured the same way, and this is where it gets fun.

Go back to last week’s target rule. Your target is the next ceiling above you. Say that next resistance sits at 56 dollars. You entered at 50. So if the trade works and runs to your target, you make 6 dollars per share.

Now put that next to your risk. You were risking 2 dollars per share to make 6 dollars per share. Six divided by two is three. You were risking 1R to make 3R.

Risk to reward is the name for it, and from now on you measure it in R. Risk 1 to make 3 is a 3R trade. Risk 1 to make 2 is a 2R trade.

Why this matters so much. If your winners are worth 3R and your losers cost 1R, you can be wrong more often than you’re right and still come out ahead. Lose three trades, that’s minus 3R. Win one, that’s plus 3R. You broke even while losing three out of four. That’s the quiet power of letting your winners be bigger than your losers. R makes it visible before you ever take the trade.

So before you click buy, you’ll know two things. How much you’ll lose if you’re wrong, 1R. And how much you stand to make if you’re right, measured in R. If the trade isn’t at least worth 2R, a lot of traders pass on it. The reward has to be worth the risk.

How big should your R be?

Now the question you’re really asking. What number do I put on R?

Here’s the rule that keeps beginners alive. Your R should be small enough that a string of losses can’t hurt you. Small. Smaller than feels exciting.

A common, sensible guideline is to risk no more than about one percent of your account on any single trade. So if your account is 20,000 dollars, one percent is 200 dollars, and that’s your R. On a 10,000 dollar account, that’s 100 dollars. The bigger the account grows, the bigger R can be, but the percentage stays small.

Why one percent and not ten. Run the streak. At one percent per trade, ten losses in a row costs you about ten percent of the account. Painful, but you’re standing, and you’ve got plenty left to keep trading. At ten percent per trade, ten losses in a row is your whole account. Gone. Same ten losses. One trader is bruised, the other is finished. The only difference is the size of R.

Pick a number you could lose ten times in a row and still sleep. For most beginners that’s one percent or less. Set it once. Write it on the first page of your notebook, right under your “why.” That number is your R until your account is big enough to change it.

This week’s homework

One chart. Size one trade.

Pull up the breakout and retest you found last week, the one you already marked with an entry, a stop, and a target. Your lines are drawn. Good. Now we put a number on it.

Three steps, on paper, no real money.

First, write your R. Pick a number. If you don’t have a live account yet, pretend the account is 10,000 dollars and make R 100 dollars, one percent.

Second, measure your risk per share. Entry price minus stop price. Just the distance between your two lines.

Third, divide R by your risk per share. That’s how many shares you’d buy. Write it down.

Then do the bonus, because it’s the good part. Measure your target distance, entry to target, and divide it by your risk per share. That’s your reward in R. Is it a 2R trade? A 3R? Would you take it?

When you’ve got your numbers, hit reply and tell me the stock, your R, and how many shares the math gave you. I read every one.

Common beginner mistake

Picking the number of shares first, and the risk never.

Here’s how it gets people. You’ve got 10,000 dollars in the account, you like the stock, so you buy a round 100 shares because it feels right and it’s a clean number. You never looked at the stop. You never did the division. The size came from your gut and your cash balance, not from your risk.

Then the stop gets hit. But because you sized by feel, that loss might be 600 dollars, or it might be 50, you had no idea going in, and it’s whatever the distance to the stop happened to be times a share count you picked out of the air. One bad trade like that can erase a week of good ones. You were playing a game with no idea what was at stake on each hand.

The trader who sized off R knew the exact dollar amount at risk before clicking buy. Win or lose, the loss was capped at 1R, on purpose, every time. Same stocks. Same setups. One guessed at the size. One let the math decide it.

What to do instead. Set your R first. Measure the distance to your stop. Divide. Let the share count be the answer to a math problem, not a feeling. Boring, repeatable, and it’s the thing that keeps you in the chair long enough to get good.

The bottom line

How much you risk matters more than which stock you pick.

R is your risk, the dollars you’ll lose on one trade if your stop is hit. You set it before the trade, and you keep it small. One percent of the account or less is a sensible place to start.

To size a trade, measure your risk per share, entry minus stop, then divide your R by it. That’s your share count. A wider stop means fewer shares, a tighter stop means more, and the dollars at risk stay locked at 1R either way.

Measure your winners in R, too. Risk 1 to make 3, and you can be wrong more than half the time and still come out ahead.

Keep R small enough to survive a losing streak, because the streak is coming. Survive it, and the winners get their chance.

Set your R. Do the division. Let the math pick the size.

Next week we put it all together into how you actually place the order in your broker, the buttons, the order types, no fat fingers.

See you next Sunday.

Kevin | Five Stone Investments and Trading

One more honest note before you close this out.

I’ll say it again. I’m not a financial advisor, a broker, an accountant, or an attorney. I’m a trader and an investor sharing what I do with my own money, the way I’d share it with my kids or with the folks at church. Nothing in this letter is advice for your specific situation. It’s one man’s experience and the lessons he’s picked up. Take what’s useful and leave the rest.

Trading and investing carry real risk. You can lose money. You can lose all of it. I won’t dance around that. If you’re putting real dollars in the market, do your own work before you make a decision that matters to your family. Your money is yours. Your decisions are yours. I’m just here to teach what I know.

Five Stone Investments and Trading is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Your first real setup. The breakout and retest

This week you get your first real setup with rules you can repeat. The breakout and retest.

A word before we start.

I’m not a licensed financial advisor. I’m not selling you a course. I’m a trader and investor sharing what I’ve learned with the same front porch talk I’d use with my kids or with the folks at church. Take everything I write as one trader’s perspective. Not as advice. Your money is yours. Your decisions are yours. I’m just here to teach.

Five Stone Investments and Trading is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Where we are on the ladder

Let me walk you back up the steps, because everything this week is built out of pieces you already own.

Week 1 was your “why.” Week 2 you learned to read a candle and name the trend. Week 3 you learned support and resistance, the floors and ceilings where price keeps stopping. Week 4 you learned the hardest habit there is, waiting for a candle to close and prove the level held before you act, so you catch a bounce instead of a falling knife.

Four weeks of reading. This week we put it together into something you can actually do.

Up to now I’ve taught you to see. A trend. A level. A candle that holds. This week I hand you your first setup, a named pattern with rules, where all of that reading turns into a plan. Where you buy. Where you get out if you’re wrong. Where you’re aiming.

It’s called the breakout and retest. It’s the first setup I teach every beginner, because it’s built entirely out of things you’ve already learned, and because it makes you wait. Waiting is the whole game right now.

Why this matters before we touch the actual “how to enter order types into your broker”.

A breakout is exciting. Price has been stuck under a ceiling for weeks, everybody can see the line, and then one day it punches straight through. White (green) candle, big body, closes above the level. Your heart says chase it, get in before it runs.

That feeling is the same trap we talked about last week, wearing different clothes. Last week the trap was buying a falling knife because it looked cheap. This week the trap is chasing a breakout because it looks strong. Both are the same mistake. Acting on the move instead of waiting for the proof.

The truth is most breakout get retested. The price comes right back to the point of the breakout. Price clears the ceiling, everybody piles in, and then it sags back down to the line. That pullback is not the breakout failing. Most of the time it’s the breakout breathing. And it hands you something a chaser never gets. A second chance to get in at a better price, with a place to hide your risk right underneath you.

That second chance is the retest. Learning to wait for it instead of chasing the first candle is this week’s entire job.

Who this is for

This is for the trader who wants one repeatable setup, with rules, that they can run over and over instead of guessing.

If you’ve ever watched a stock break out, jumped in on the green candle, and then watched it sink back down on you, you’re in the right room.

If you’ve heard a trader say “I’m waiting for the retest” and weren’t sure what he was waiting for, you’re in the right place.

And if you’re further along and already trade pullbacks, this is the clean version of that, written down with rules so it’s a thing you do on purpose instead of a thing you feel your way through.

If you’re looking for a setup that gets you rich by Friday, this isn’t it. This is one solid, boring, repeatable pattern. Boring is what works.

What a breakout actually is

Let’s name it plain.

A breakout is when price pushes through a level it has been stuck under, and closes on the other side of it.

Remember resistance from Week 3. A ceiling. A price where sellers kept showing up and knocking the stock back down, two, three, four times. Every time price got there, it failed. That line is a wall in the chart, and everybody watching that stock can see it.

A breakout is the day the wall gives way. Buyers finally overwhelm the sellers sitting at that ceiling, and price closes above it. Not pokes above it for an hour. Closes above it. You already know why the close is what matters, we hammered on that all of last week. An intraday poke above the line is a maybe. A close above the line is a decision.

So that’s the break. The ceiling cracked, price is now sitting above a level it couldn’t get past for weeks. Good. But we don’t buy it here. Here’s why.

The old ceiling becomes the new floor

This is the idea the whole setup hangs on, and it’s the prettiest thing in all of chart reading. We touched it back in Week 3. Now we use it.

When price breaks above a ceiling and stays above it, that old ceiling flips. The level that used to be resistance becomes support. The wall that was over price’s head is now the floor under its feet.

Reversal is the name for it. Old resistance becomes new support. Old ceiling, new floor.

Think about why it happens, because it’s not magic, it’s people. All those sellers who kept knocking the stock down at that line? Once price closes above it, they’re gone, or they’ve flipped to buyers. And all the folks who wanted in but kept waiting for a pullback now see that line as the spot to buy. The crowd that used to sell there now buys there. The ceiling becomes the floor because the people changed their minds, and the level remembers.

So now you know what to expect. Price broke out above the old ceiling. If this breakout is real, price should be able to come back down to that old ceiling, now a floor, and hold it. And that, right there, is the trade.

The retest, where the setup actually happens

Here’s the part that separates a chaser from a trader.

The retest is when price, after breaking out, drifts back down to the level it broke through, and touches it again from above.

You do not buy the breakout candle. You let it go. You wait, and a lot of the time price comes back down toward that old ceiling on its own. Now you’re watching the exact thing Week 4 trained you for. Price is falling into a level. Knife or bounce? Break or hold?

Everything from last week comes back, in order.

Start with the trend. Is the bigger picture pointing up, higher highs and higher lows? A breakout in an uptrend retesting into support is the cleanest version of this setup. That’s the one you want.

Then the level. It’s the old ceiling, the one with memory in it, touched and respected several times. Strong level. Good.

Then, and only then, the candle. Price is back at the old ceiling. Now you wait for the close, same as last week. A hammer that stabs into the level and snaps back up. A strong green candle that closes back up off the line. That’s the crowd defending the new floor. That’s your confirmation.

A knife, on the other hand, slices right back through the old level and keeps going. Heavy red bodies closing near their lows, no lower wick, no defense. That’s a breakout that failed, and you’ll be glad you waited instead of chased.

That confirming candle at the retest is the moment. Not the breakout. The hold.

The three rules: entry, stop, target

A setup isn’t a setup until it tells you three things. Where you get in, where you get out if you’re wrong, and where you’re aiming. Here they are for the breakout and retest. Write these down.

Entry. You buy when price retests the old ceiling and a candle closes to confirm the level held. The hold, not the break. You’re buying the floor that used to be a wall, with a candle proving the buyers showed up.

Stop. Your get-out-if-wrong sits just below that old level. Here’s the logic, and it’s clean. The whole idea of this trade is that the old ceiling is now a floor. If price closes back below that floor, the idea was wrong. Role reversal failed, the breakout failed, and you want out. So your stop lives a little below the level. If it gets hit, you were wrong, you lose a small planned amount, and you move on. We’ll go deep on how much to risk and how to size the trade next week. For now, just burn in the habit. The stop goes under the level, and you decide where it is before you ever click buy.

Target. Where you’re aiming. The simplest target is the next ceiling above you, the next resistance level on the chart, drawn the same way you learned in Week 3. Price tends to run from one level to the next, so the next resistance overhead is a sensible first place to take profit. Nothing fancy. The next wall up.

Entry at the hold. Stop under the floor. Target at the next ceiling. That’s a complete plan, and it’s the first one I’ve handed you. Read it twice.

What a failed breakout looks like, so you don’t get fooled

Not every breakout works. Plenty fail, and you need to see a failure so you don’t sit in one hoping.

A failed breakout, some traders call it a fakeout, is when price pokes above the ceiling, sucks everybody in, and then falls right back below the line and keeps going down. The break didn’t hold. The old ceiling never became a floor, because price couldn’t stay above it.

Here’s how waiting for the retest protects you. The chaser bought the breakout candle and is now trapped above a level that just failed. You waited. You watched price come back to the line, and instead of a hammer or a strong green close, you saw heavy red bodies cut straight back through it. No confirmation candle ever printed. So you never bought. The setup told you no, and you listened.

That’s the gift of patience again, same lesson as last week, new pattern. The breakout candle is a maybe. The retest that holds is the proof. Trade the proof.

This week’s homework

One chart. Find one clean breakout and retest.

Pull up TradingView, daily time frame, and use a stock you already know, maybe the same one you’ve been marking up the last two weeks. Your support and resistance lines are already drawn. Good. We’re going to use them.

Scroll back through the last year and hunt for this exact sequence. Price stuck under a resistance level. A candle that closes clearly above it. Then a pullback that comes back down to that old level. Then a candle, a hammer or a strong green close, that holds it and turns price back up.

When you find one, mark the three things on the chart, the same three you’ll need in every real trade. Mark where you’d have entered (the confirming candle at the retest). Mark where your stop would go (just under the old level). Mark your target (the next resistance above).

You’re not trading anything. You’re training your eye to find the pattern and to place the three rules on it before a dollar is ever at risk.

When you’ve got it, hit reply and tell me the stock and where you’d have entered. I read every one.

Common beginner mistake

Chasing the breakout candle instead of waiting for the retest.

Here’s how it gets people. The break happens, the green candle is big and loud, and the fear of missing out takes over. You buy right there at the top of the move, as high as the stock has been in weeks, because it feels like it’s about to run without you.

Then one of two things happens. Sometimes it does run, and you got lucky, and you learn the wrong lesson. But plenty of times price sags back to the old level, the retest, and now you’re already underwater on a trade you chased, with no clear spot for your stop because you bought in the middle of nowhere. You paid the highest price on the chart and gave yourself no floor to lean on.

The trader who waited got a better price at the retest, with a stop sitting right under the level, and a candle that proved the buyers were there. Same stock. Same setup. One chased, one waited. The wait is the edge.

What to do instead. Let the breakout go. Let price come back to the line. Wait for the candle to close and show you the level held. Then you’ve got an entry, a stop, and a target, instead of a position you’re praying on.

The bottom line

The breakout and retest is your first real setup, and it’s built entirely out of what you already know.

A breakout is price closing above a ceiling it was stuck under. When it holds, that old ceiling flips and becomes a new floor, role reversal. The trade isn’t the break. The trade is the retest, when price comes back to that new floor and a candle closes to prove the buyers are defending it.

Entry at the hold. Stop just under the floor. Target at the next ceiling. Three rules, written down, the same every time.

Don’t chase the green candle. Chasing is how you buy the high and pray. Wait for the pullback, wait for the close, and trade the proof.

Pull up your chart. Find one breakout that came back, retested, and held. Mark your entry, your stop, your target. Train the eye before you ever risk a dollar.

Next week we put a number on the risk. How much to bet on one trade so a single loss can never hurt you.

See you next week.

Kevin | Five Stone Investments and Trading

One more thing before you close this out.

I’ll say it again. I’m not a financial advisor, a broker, an accountant, or an attorney. I’m a trader and an investor sharing what I do with my own money, the way I’d share it with my kids or with the folks at church. Nothing in this letter is advice for your specific situation. It’s one man’s experience and the lessons he’s picked up. Take what’s useful and leave the rest.

Trading and investing carry real risk. You can lose money. You can lose all of it. I won’t dance around that. If you’re putting real dollars in the market, do your own work before you make a decision that matters to your family. Your money is yours. Your decisions are yours. I’m just here to teach what I know.

Five Stone Investments and Trading is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

This week you learn the hardest habit in trading. How to wait for the level to prove itself before you act.

A word before we start.

I’m not a licensed financial advisor. I’m not selling you a course. I’m a trader and investor sharing what I’ve learned with the same front porch talk I’d use with my kids or with the folks at church. Take everything I write as one trader’s perspective. Not as advice. Your money is yours. Your decisions are yours. I’m just here to teach.

Five Stone Investments and Trading is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Where we are on the ladder

Let me walk you back up the steps so far.

Week 1 was your “why.” Week 2 you learned to read a candle and spot the trend. Last week you learned support and resistance, the floors and ceilings where price keeps stopping, and I told you something at the very end I want you to remember.

I said don’t buy just because price touched a level. Wait for the candle to tell you the crowd held it.

We’re going to slow it down and build it out, because this is the spot where more beginner accounts blow up than anywhere else. Not picking the wrong stock. Not missing some secret indicator. Acting too soon at a level that was never going to hold.

This week is all chart reading. No theory you can’t see with your own eyes. Just price, levels, and candles, working together.

Why this matters before we touch the mechanics

Here’s the truth.

Knowing where support is feels like a superpower the first time you learn it . You pull up a chart, you see price falling toward a floor you drew, and every bone in your body says buy it now, get the good price before everyone else does.

That feeling is the trap. That’s the exact feeling that gets beginners cut.

Because price falling into support has two completely different endings, and they look identical right up until the moment they don’t. One is a bounce, where buyers step in and price turns back up. The other is a break, where the floor gives way and price keeps falling. Same setup. Same drop into the same level. Two opposite outcomes.

The skill this week is not predicting which one you’ll get. Nobody can do that. The skill is waiting one beat longer so the chart shows you which one already happened, and acting on that instead of on the hope.

That one beat of patience is the difference between catching a bounce and catching a knife.

Who this is for

This is for people that want a repeatable method to their trading. Areas to buy (or sell) a stock that has the highest probabilities.

If you’ve sat there watching price drop toward a line you drew, heart pounding, not sure whether to jump in, you’re in the right place.

If you’ve heard a trader say “I waited for confirmation” and weren’t sure what he was waiting for, you’re in the right place.

And if you’re further along and you already set limit orders into a pullback at support, the way I do all the time, this week is the reasoning sitting underneath that. The candle is how you check whether the level you’re buying into is actually holding instead of breaking. We’re making the read conscious, so it’s a skill you repeat on purpose, not a habit you hope works out.

The falling knife, plain and simple as I can say it

Let’s name the thing we’re trying to avoid first.

A falling knife is a stock dropping fast and hard, with no sign yet that the fall is over. Trying to buy it on the way down is called catching a falling knife. And the reason traders use that phrase is the obvious one. You reach for it, it keeps falling, and you get cut.

Here’s what a knife looks like on the chart. One big red candle after another. Long bodies, pointed down. Little to no lower wicks, because price isn’t getting rejected at the lows, it’s closing right near them and then opening lower the next day. The selling isn’t stopping. Each candle closes near its low and the next one picks up right where it left off.

Now here’s the part that traps people. A knife very often slices right through a support level you drew. Price comes down to your floor, the spot where you expected a bounce, and instead of stopping it cuts clean through and keeps going. Your level didn’t fail you. The level was real. The crowd just changed its mind, and the candles were screaming it the whole way down if you knew how to listen.

The tell is in the candles, not the line. Heavy black bodies closing near their lows, no lower wicks to speak of, means the sellers are still winning. There is no bounce yet. There is only a hope of one.

The real bounce, and what makes it real

Now the thing we actually want.

A bounce is when price falls into support, the buyers step in, and price turns back up off the floor. We covered that last week. This week we add the part that matters. What makes a bounce real instead of wishful.

A real bounce shows up as a change in the candles right at the level. The selling stops. You see it. The big black(red) bodies give way to something different. A long lower wick that stabs down into the level and snaps back up. A candle that opens lower, gets sold, and then claws all the way back to close green. The fall runs out of sellers, and you can watch it happen on the chart.

Two candle shapes you already know are your best friends here, because we covered them in Week 2.

The hammer. A candle with a small body up top and a long lower wick. Price dropped hard during the day, then buyers shoved it all the way back up by the close. At a support level, a hammer is the crowd trying to go lower and getting rejected. That’s a held level you can see.

The upper body with a long lower wick. A candle that opens near its low and closes near its high At a support level, after a run of white candles, one strong candle that closes back up inside or above your zone tells you the buyers just took the wheel.

That’s the difference. A knife closes near its lows and keeps going. A bounce shows a candle that rejected the lows and closed back up. One is sellers still in control. The other is buyers taking control back. The level is the same. The candle is the tell.

How to tell them apart, the checklist

So you’ve got a stock falling into a support zone you drew. Knife or bounce? Here’s the way I read it, in order.

Start with the trend. Last week’s work. Is the bigger picture an uptrend, with higher highs and higher lows? A pullback into support inside an uptrend is far more likely to bounce, because the story was already up. Is it a downtrend, lower highs and lower lows? Then “support” is just a ledge on the way down, and a break is more likely. The trend tilts the odds before you look at anything else.

Then look at the level. Is this a strong floor, one that’s been touched and respected two, three, four times? Or a weak one that held once? The more memory in the level, the better the odds it holds again. We covered that last week too.

Then, and this is the new part, wait for the candle. Price is in your zone. Now you watch what the candle does there. Black body closing near its low, no lower wick? Wait, don’t place the trade. A hammer, or a strong white candle close back up into the zone? That’s the crowd holding the line. That’s your confirmation.

Trend, then level, then candle. Stack the three and they tell you a story the line alone never could. None of them is a crystal ball. Together they tip the odds in your favor, and tipping the odds is the entire job.

Wait for the close

If you take one habit out of this whole letter, take this one.

Wait for the candle to close before you trust it.

Here’s why. During the day, a candle is a liar. A stock can be down hard at noon, looking like a beautiful hammer forming right at support, and you get excited and buy. Then the afternoon selling comes, the wick fills in, and that pretty hammer closes as an ugly red body near its low. It was never a hammer. It was a candle still being written.

The close is the only price that’s final. Last week I told you the close carries the most weight on a candle. This is where that pays off. An intraday wick is a maybe. A close is a decision. You wait for the candle to close back up inside your zone, and then you have something real to act on.

For a beginner, that usually means the daily close. Let the day finish. Let the candle become what it’s actually going to be. Then read it.

You’ll miss the exact bottom doing this. Good. You’re not trying to catch the bottom. You’re trying to catch the part after the chart has shown its hand, where the odds are on your side. Patience here is not weakness. It’s the whole edge.

This week’s homework

One chart. Find one of each.

Go back to TradingView and pull up the same stock you’ve been using, daily time frame, last year. You’ve already got your support and resistance zones drawn from last week. Now we’re going to read the candles at those zones.

Scroll back through the chart and find one spot where price came down into a support zone and bounced. Look at the candle right at the floor when it turned. Is it a hammer? A strong green close? Write down what the confirming candle looked like.

Then find one spot where price came down to a level and broke right through it instead. Look at the candles going into the break. Heavy red bodies? Closing near their lows? No lower wicks? Write down what the knife looked like.

One bounce, one break, on the same chart, in your own words. No trades. You’re training your eyes to see the difference between a level that held and a level that didn’t, before a dime of your money is ever on the line.

When you’re done, hit reply and tell me the stock and what the two candles looked like. I read every one.

Common beginner mistake

Buying into the falling knife because the stock “looks cheap” at support.

Here’s how it gets people. You learned support last week, you see price dropping toward your floor, and the lower it goes the more excited you get, because cheap feels like opportunity. So you buy on the way down, before a single candle has confirmed anything, telling yourself you’re getting a deal.

Sometimes it bounces and you feel like a genius. Plenty of times the knife cuts straight through your level, keeps falling, and now you’re sitting in a loser that’s still dropping, with no idea where it stops.

Cheap is not a reason. A stock falling through support isn’t cheap, it’s falling. The whole point of this week is that touching a level is not the same as holding it, and a stock that hasn’t stopped falling hasn’t held anything yet.

What to do instead. Let the knife hit the floor without you. Wait for a candle to close and show you the buyers stepped in. A hammer at the level. A strong green close back into the zone. Then the odds are with you. Until that candle prints, you’re not buying a bounce, you’re hoping for one, and hope is the most expensive thing you can put in a trade.

The bottom line

Price falling into support has two endings that look the same until they don’t. A bounce, where buyers step in and price turns up. A break, where the floor gives way and the knife keeps falling.

You can’t predict which one you’ll get. You can wait for the chart to show you.

A knife is heavy black (red) bodies closing near their lows, no rejection, sellers still in control. A real bounce is a hammer or a strong green close right at the level, buyers taking the wheel. The line is the same. The candle is the tell.

Read it in order. Trend, then level, then candle. And wait for the close, because a candle isn’t real until it’s finished.

You’ll never catch the exact bottom doing it this way. That was never the job. The job is to act after the odds tipped in your favor, not before.

Pull up your chart. Find one bounce and one knife. Train your eyes before you ever risk a dollar.

See you next week.

Kevin | Five Stone Investments and Trading

One more thing before you close this out.

I’ll say it again. I’m not a financial advisor, a broker, an accountant, or an attorney. I’m a trader and an investor sharing what I do with my own money, the way I’d share it with my kids or with the folks at church. Nothing in this letter is advice for your specific situation. It’s one man’s experience and the lessons he’s picked up. Take what’s useful and leave the rest.

Trading and investing carry real risk. You can lose money. You can lose all of it. I won’t dance around that. If you’re putting real dollars in the market, do your own work before you make a decision that matters to your family. Your money is yours. Your decisions are yours. I’m just here to teach what I know.

Five Stone Investments and Trading is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Floors, Ceilings, and the Lines the Crowd Keeps Drawing

Five Stone Investments and Trading is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

The Lines That Were There the Whole Time

Week 3 of the Beginner Trading Series. Last week you learned to read a candle and spot the trend. This week you learn why price keeps stopping at the same spots, and what to do with that.

A word before we start.

I’m not a licensed financial advisor. I’m not selling you a course. I’m a trader and investor sharing what I’ve learned with the same front porch talk I’d use with my kids or with the folks at church. Take everything I write as one trader’s perspective. Not as advice. Your money is yours. Your decisions are yours. I’m just here to teach.

Where we are on the ladder

Two weeks ago we talked about your “why.” Last week we put the first real tool in your hand. You learned that a candle is one frame of the crowd’s mood, and that a stack of candles makes a story, and the direction of that story is the trend.

Remember that AAPL chart I showed you last week? There was a horizontal line running through it. Price kept bouncing off it. I told you we’d talk about lines like that in a couple of weeks.

This is the week.

Those lines have a name. Support and resistance. Once you can see them, you can’t unsee them. They’re on every chart you’ll ever pull up, and they’ve been there the whole time.

Why this matters before we touch the mechanics

Here’s the part most people teaching this stuff skip.

Beginners think price moves randomly. It goes up, it goes down, who knows. So they buy on a hunch and sell on a feeling, and they lose.

Price is not random. Price has memory. The crowd remembers where it bought and where it sold, and it acts on that memory over and over. Support and resistance is the map of that memory.

Learn to read the map, and you stop guessing where price might stop. You start knowing the spots to watch. That’s the whole reason this matters. Not so you can predict the future. So you can stop being surprised by the past.

Who this is for

If you watched a stock drop, told yourself you’d buy “when it gets cheap,” and had no idea what cheap meant, you’re in the right room.

If you’ve bought a stock right as it stalled out and rolled over, and couldn’t figure out why, you’re in the right room.

If you’ve heard a trader say “it’s holding support” and nodded like you knew what that meant, you’re in the right room.

Who it’s not for. The fellow who thinks he can stare at a chart and feel where it’s going. That’s not a skill. That’s a slot machine. We’re building something you can repeat.

What support and resistance actually are

Let’s define it plain, the way your granddaddy would say it.

Support is a floor. It’s a price level where buyers have stepped in before, and are likely to step in again. Price falls down to it, and instead of falling through, it bounces. Like a ball hitting the floor.

Resistance is a ceiling. It’s a price level where sellers have stepped in before, and are likely to step in again. Price rises up to it, and instead of breaking through, it stalls and turns back down. Like your hand hitting the ceiling.

That’s it. Floor and ceiling. Support holds price up. Resistance holds price down.

Now, why does this happen? Why would price care about some line?

It’s not the line. It’s the people. A price level becomes support because a bunch of buyers remember getting a good deal there last time. When price comes back, they buy again. A level becomes resistance because a bunch of sellers remember getting out there last time, or because folks who bought too high are waiting to break even and sell. When price comes back up, they sell again.

The line is just where the crowd’s memory lives. The math is the math, but the memory is people.

How to find these levels on a chart

You don’t need a fancy tool for this. You need your eyes and a horizontal line.

Here’s the simple rule. A level matters more every time price touches it and respects it.

Pull the chart back so you can see six months or a year. Look for prices where the chart turned around. Not once. Look for spots where it turned around two times, three times, more. Those repeated turns are your levels.

A floor that held three times is stronger than a floor that held once. A ceiling that turned price away four times is a ceiling worth watching. The more touches, the more the crowd remembers, the stronger the level.

Back up to that idea of finding the spots where price turned around. Those turning points have a name. Pivots.

A pivot high is a peak. It’s a candle whose high sticks up above the candles on either side of it. Price ran up, ran out of buyers, and turned back down right there.

A pivot low is a valley. It’s a candle whose low dips below the candles on either side of it. Price fell, ran out of sellers, and turned back up.

Here’s why you care. Your lines don’t come out of thin air. You anchor them on pivots. A resistance line gets drawn across a row of pivot highs sitting at about the same price. A support line gets drawn across a row of pivot lows sitting at about the same price.

So the job is simple. Find the peaks and the valleys. Look for the ones lining up at the same price over and over. Connect them with a horizontal line. That’s your level, built on the turns the crowd actually made.

A quick word so you’re not confused later. Some traders use something called “pivot points,” a set of levels the platform calculates and draws for you off yesterday’s high, low, and close. That’s a different tool, and a more advanced one. We’ll get to it down the road if it earns its place. For now, when I say pivot, I mean the plain thing your eyes can see. A peak or a valley where price turned.

Draw a zone, not a wire

Now the question every beginner asks the first time they pick up the line tool. Do I draw it at the wicks, or at the bodies of the candles?

Both. Here’s the way to think about it.

Support and resistance was never a single price. It’s a neighborhood, not a single address. So a thin little line was always going to be wrong. What you want is a band.

Remember last week. The wick is the thin line showing how far price stretched before snapping back. The body is the thick part, from the open to the close, and the close is the most important price on the candle. The two pieces tell you two different things.

The wicks mark the extreme. The furthest price was willing to go in a moment of panic or greed before getting rejected. That’s the outer edge.

The bodies mark the agreement. A cluster of opens and closes stalling in the same area is where the real decision got made. That’s the inner edge.

Put them together and you get a band. Draw your zone from where the bodies cluster out to where the wicks reach. Bodies give you the inner edge. Wicks give you the outer edge.

Why this matters. Price will often stab a wick clean through your level and still respect it. Draw one hairline at the wick tips and you’ll call that a break when it was just noise. Draw it right at the bodies and you’ll think the level failed every time a wick pokes past. The band catches both. It gives the level the room the crowd actually uses.

My own way, for what it’s worth. I anchor the band where the most bodies and closes stack up, because the close carries the weight. Then I stretch it out to the wicks so I’ve got a zone instead of a wire. When in doubt, favor the bodies for the inner edge, and let the wicks tell you how much wiggle room to give it.

Here’s the practical tip that trips people up. On TradingView, the easy way to draw a band like this is the parallel channel tool, not the single horizontal line. Drop it on the chart, keep it flat, and drag the two lines so the band covers from the bodies out to the wicks. It shades the zone in for you, so you see the whole neighborhood at a glance instead of one thin line. That’s exactly how I draw the levels on my own charts.

What price action does at these levels

This is the meat of the week. Knowing where the floors and ceilings are is half of it. Knowing what price tends to do when it gets there is the other half.

There are three things price can do at a level. Just three. Bounce, break, or retest.

The bounce. Price comes down to support, buyers step in, and it turns back up. Or price runs up to resistance, sellers step in, and it turns back down. The level holds. This is the most common thing that happens, and it’s where last week’s candles come back into the picture. When price hits support and you see a hammer form right there, that’s the crowd trying to go lower and getting rejected. That’s a bounce you can see happening.

The break. Sometimes the floor gives way. Price comes down to support, and instead of bouncing, it slices right through and keeps falling. The level broke. Same thing in reverse at a ceiling, price pushes through resistance and keeps climbing. A break tells you the crowd’s memory just changed. The buyers who used to defend that floor gave up. That’s important information, not a disaster. It just means the map got redrawn.

The retest. This is the one that separates folks who’ve done their homework from folks who haven’t. When a level breaks, it often flips. The old floor becomes the new ceiling. The old ceiling becomes the new floor. Price will break through a level, then come back to it, touch it from the other side, and turn away. That come-back-and-touch is called a retest. And the flip itself, where support becomes resistance or the other way around, has a name. Role reversal.

Why does role reversal happen? Same reason as everything else this week. People. Once price breaks above a ceiling, the folks who were selling there are gone, they already sold. Now the folks who missed the move are waiting to buy on a pullback. So when price comes back to that old line, buyers show up where sellers used to be. The memory flipped. The line stayed.

Putting it together with the trend

Now connect it to last week.

In an uptrend, price makes higher highs and higher lows. Those higher lows? Those are support levels holding, one after another. In a downtrend, price makes lower highs and lower lows. Those lower highs are resistance turning price away again and again.

Support and resistance isn’t separate from the trend. It’s the skeleton the trend is built on. The trend is the story. The levels are the spots where the story keeps pausing to decide what happens next.

You don’t trade against this stuff. You wait for it. We’ll get into actual entries in the weeks ahead. Every one of them is going to start with a level on the chart and a candle telling you what the crowd decided when price got there.

This week’s homework

One stock. One chart. Two lines.

Go to TradingView. Pull up any stock you’ve heard of, the same one from last week is fine. Set it to the daily time frame and pull the chart back to show the last year.

Now find the parallel channel tool in the toolbar on the left side. It’s the one that draws two parallel lines with shading between them. That’s the tool we use to draw a zone.

Draw one support zone. Find a price the stock dropped to and bounced off of more than once. Drop the channel there, keep it flat, and stretch the band so it covers from the bodies down to the wicks of those lows.

Draw one resistance zone the same way up top. Find a price the stock ran up to and turned away from more than once, and lay a flat band across it.

Then, in your notebook, right under last week’s work, write down the answer to one question. Look at where price is sitting right now. Is it closer to your support zone or your resistance zone? One sentence.

That’s it. No trades. No predictions. Just drawing the floors and ceilings that were there the whole time, and noticing where price sits between them.

When you’re done, hit reply and tell me what stock you drew and where price is sitting. I read every one.

[Common beginner mistake (the one I want you to avoid)

Buying the instant price touches support, before the bounce confirms.

Here’s how it gets people. A beginner learns support, sees price drop to a level, and thinks “support, that’s my buy signal,” and slams the button the second price touches the line.

Sometimes it bounces and they look like a genius. Plenty of times the level breaks, price keeps falling, and they’re sitting in a loser wondering why support “didn’t work.”

Support didn’t fail them. The thinking did. Touching a level is not the same as holding it. A level is only support until the day it isn’t.

What to do instead. Wait for the level to actually do something. Let last week’s candles do the talking. Price hits support and a hammer forms, buyers showed up, that’s a held level. Price hits support and slices through on a big black candle, that’s a break, stand aside. The level plus the candle plus the trend, read together, that’s the skill. The line by itself is just a line. We’re going to keep stacking the context, piece by piece, in the weeks ahead.

The bottom line

Price has memory. Support and resistance is the map of that memory.

Support is a floor where buyers keep stepping in. Resistance is a ceiling where sellers keep stepping in. The more times a level gets touched and respected, the stronger it is. And they’re zones, not exact prices, so give them room.

At any level, price does one of three things. It bounces, it breaks, or it breaks and retests. When a level breaks and flips, old floor to new ceiling or the other way around, that’s role reversal, and it happens because the people changed their minds, not because the line is magic.

Don’t buy just because price touched a level. Wait for the candle to tell you the crowd held it. The line plus the candle plus the trend, that’s where we’re headed.

Pull up TradingView. Draw your two lines. See the floors and ceilings that were there all along.

See you next week.

Kevin | Five Stone Investments and Trading

One more honest note before you close this out.

I’ll say it again because it matters. I’m not a financial advisor, a broker, an accountant, or an attorney. I’m a trader and an investor sharing what I do with my own money, the way I’d share it with my kids or with the folks at church. Nothing in this letter is advice for your specific situation. It’s one man’s experience and the lessons he’s picked up. Take what’s useful and leave the rest.

Trading and investing carry real risk. You can lose money. You can lose all of it. I won’t dance around that. If you’re putting real dollars in the market, do your own work before you make a decision that matters to your family. Your money is yours. Your decisions are yours. I’m just here to teach what I know.

Five Stone Investments and Trading is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

What a Chart Is Actually Showing You

Candles, sentiment, and the trend. By the end of this letter, you can pull up any chart and know what the market is telling you.

Your First Real Tool

Week 2 of the Beginner Trading Series. Last week was about your “why.” This week we put the first real tool in your hand.

A word before we start.

Five Stone Investments and Trading is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

I’m not a licensed financial advisor. I’m not selling you a course. I’m a trader and investor sharing what I’ve learned with the same front porch talk I’d use with my kids or with the folks at church. Take everything I write as one trader’s perspective. Not as advice. Your money is yours. Your decisions are yours. I’m just here to teach.

Where we are on the ladder

Last week we talked about why you want to do this in the first place. If you wrote your sentence in the notebook, you’re set up for this one. If you didn’t, go back and do it. The whole series sits on top of that one page.

Today is the first real lesson. By the end of this letter, you’ll be able to pull up any stock chart, anywhere, and know three things you didn’t know yesterday.

What every candle on the chart is actually showing you.

What the crowd was feeling during that candle.

Which way the whole thing is heading. The trend.

That’s the lesson for the week.

Who this is for

If you’ve stared at a stock chart and thought “what am I even looking at,” you’re in the right place.

If you’ve heard the word “candlestick” and nodded without knowing what it meant, you’re in the right room.

If you’ve ever opened a charting site and closed it five minutes later because it looked like a Christmas tree threw up, you’re in the right room.

Many traders use lots of indicators. Honestly , there are some indicators I use too. But they are often too heavily relied on or keep you from taking a trade when you should be in. When used wisely they can be helpful but they are still just tools in your belt. Truthfully, Simple is usually better.

Why we’re starting with candles, not indicators

Before we look at anything, you need to know why this works at all.

A chart is a picture of what the crowd did. A candle is one frame of that picture. Read one candle and you can read a chart. Read a chart and you can see the crowd’s mood without anybody having to tell you. That’s most of the game.

The folks selling you indicators don’t want you to know how simple this part is. They want you to need their tool. You don’t. The math is the math, and the candle is the candle. Once you can read one cold, most of the noise on the screen disappears.

A word about where to look at charts

You can pull up a chart anywhere. Your brokerage app, Yahoo Finance, Google. They all work for the basics.

But the one I use, and the one I’m going to point you to all the way through this series, is TradingView. It’s free at the level you need. The charts are clean. The candles are easy to read. It’ll do everything we cover in the next eleven weeks without you ever paying a dime.

Go to tradingview.com, make a free account, type in a stock symbol, and you’re in business. That’s where we’re going to live.

The anatomy of one candle

Let’s slow down and define this from scratch. Even if you’ve seen one before. Especially if you’ve seen one before.

A candle is one period of time on a chart. That period can be one minute, one hour, one day, one week, whatever the chart is set to. Each candle is one chunk of time. Every chunk has the same four pieces of information.

The open. The price when the period started.

The close. The price when the period ended.

The high. The highest price reached during the period.

The low. The lowest price reached during the period.

That’s it. Four numbers. Every candle on every chart, anywhere in the world, is showing you those four numbers and nothing else.

The body of the candle is the thick rectangle in the middle. It runs from the open price to the close price.

The wicks (also called shadows, same thing) are the thin lines sticking out the top and the bottom. They show how far the price stretched during the period before settling back down to the close.

The color tells you who won the period.

A white candle means the close was higher than the open. Buyers were in control. The crowd was bullish for that chunk of time.

A Black ( means the close was lower than the open. Sellers were in control. The crowd was bearish for that chunk of time.

Some charts use Green and Red, or blue and orange. Doesn’t matter. The rule is the same. Light color means up, dark color means down. If your platform is set to something else, switch it to White and Black if you want to set up your charts like mine.. Your eyes will thank you.

That’s a whole candle. Four numbers, a body, two wicks, a color. Plain as I can say it.

What a candle is telling you about sentiment

Here’s where it stops being mechanical and starts being useful.

Every candle is a fight between buyers and sellers over a chunk of time. The shape tells you who won, and how badly. There are five shapes you need to know to start. Just five.

Big white body, tiny wicks. Buyers showed up early, took control, and never gave it back. Strong bullish sentiment. The crowd was in a good mood and stayed in a good mood the whole period.

Big Black body, tiny wicks. Sellers walked in, took control, and held it down. Strong bearish sentiment. The crowd was in a bad mood and nobody talked them out of it.

Tiny body, long wicks on both sides. This is called a doji. A doji is a candle where the open and close are basically the same price. It looks like a cross, or a plus sign. The price ran around all over the place during the period, but at the closing bell nobody really won. This is indecision. The crowd couldn’t make up its mind. Dojis often show up at turning points, when the trend that was running is about to take a breath or roll over.

Small body up top, long wick down below. This is called a hammer. It looks like a hammer, head up, handle down. What happened is sellers pushed the price way down during the period, but buyers stepped in hard and shoved it back up by the close. The crowd tried to be bearish and got rejected. Hammers are bullish, especially when they show up after a stretch of red candles. They’re the market saying, we tried to go lower, and we couldn’t.

Small body down low, long wick up top. This is called a shooting star. Same idea, flipped upside down. Buyers tried to push the price way up during the period, but sellers came in and crushed it back down by the close. The crowd tried to be bullish and got rejected. Shooting stars are bearish, especially when they show up after a stretch of green candles. The market saying, we tried to go higher, and we couldn’t.

Here is one of my own AAPL charts from earlier this week, marked up the same way you will be marking up yours soon enough. A hammer candle sitting right at a price level the chart kept finding, and a doji a few sessions earlier showing indecision. The horizontal line through the chart is a price level the crowd kept bouncing off . We will talk about lines like that, called support and resistance, in a couple of weeks. For now, just learn to spot the shapes.

Notice AAPL daily on TradingView. A hammer at support and a doji showing indecision. This is the kind of annotation you will be doing on your own charts by the end of the series.

From one candle to a whole chartOne candle tells you what happened in one period. A chart is the whole story, made of all the candles stacked together. The direction of that story is what we call the trend.

There are three trends. Only three. Don’t let anybody complicate this.

An uptrend is a chart making higher highs and higher lows. Each peak is a little higher than the last peak. Each dip is a little higher than the last dip. The crowd is getting more bullish over time.

A downtrend is a chart making lower highs and lower lows. Each peak is lower than the last peak. Each dip is lower than the last dip. The crowd is getting more bearish over time.

A sideways chart is bouncing between a ceiling and a floor, with no clear direction. Buyers and sellers are roughly balanced. The crowd is undecided. Some people call this a range, or a consolidation. Same thing. Sideways is sideways.

How to spot the trend in five seconds. Look at the chart from a step back. Squint if you have to. Is the line generally going up, going down, or flat? That’s the trend.

Here’s a useful trick. Your eyes already know. If you have to talk yourself into “well, it’s kind of going up, but…”, it’s probably sideways. The real ones don’t need a long explanation.

Why this changes everything

Here’s the part most people teaching this stuff skip.

You don’t need an indicator to tell you the trend. You don’t need a moving average. You don’t need an oscillator. You don’t need a paid tool. Your eyes work. The trend is right there on the screen if you’ll just look.

The whole game in technical analysis, from the simplest setup to the most complicated, starts with one question. Which way is the crowd moving. Trade with it instead of against it. We’ll get into specific setups and entries in the weeks ahead. Every one of them starts with the question you can now answer.

What’s the trend?

Answer that, and you’re already ahead of most of the people clicking buy buttons.

This week’s homework

One stock. One chart. Three things to find.

Go to TradingView. Make a free account if you don’t have one. Pick any stock you’ve heard of. Apple, Tesla, your employer, the company that makes your favorite truck. Doesn’t matter. Set the chart to the daily time frame, which means each candle represents one full trading day. Pull the chart back to show the last six months.

Then find three things and write them down in your notebook, right under your “why” from last week.

First, find one strong white candle. A big white body, small wicks. Identify the open, the close, the high, and the low. See if you can guess why buyers showed up that strong.

Second, find one candle with a long lower wick. A hammer, or something close to it. What was happening that day? Was the stock in a downtrend going into it? Did it turn around afterward, or keep falling?

Third, what’s the trend? Look at the whole six-month chart. Uptrend, downtrend, or sideways. Write it down in one word.

That’s it. No predictions. No trades. Just looking. Reading the language for the first time.

When you’re done, reply back to me and tell me what stock you picked and what trend you found. I read every one of those. It’s how I know what’s landing and what isn’t.

Common beginner mistake (the one I want you to avoid)

Trying to trade off a single candle.

A beginner reads one chapter of a book on candles, sees a hammer or a doji on a chart, and slams the buy button. Sometimes it works. Most times it doesn’t. They lose money and blame the candle.

The candle isn’t wrong. The thinking is.

A single candle is a snapshot of one chunk of time. By itself, it’s a clue. Maybe a strong one, maybe a weak one. It has to be read in the context of the chart around it. Where is it sitting? What’s the trend? What just happened before it? What’s going on around it?

What to do instead. This week, don’t trade anything. Just look. Notice that the same hammer shape means very different things at the bottom of a downtrend versus the middle of a sideways range versus the top of an uptrend. The candle plus the context, that’s the skill. Anybody can spot a hammer on a chart. Knowing what it means takes practice.

We’re going to build that context piece by piece over the next ten weeks. For now, just look. Read the language. Get your eyes used to what these things look like in the wild.

The bottom line

A chart is a picture of what the crowd did. A candle is one frame of that picture.

Every candle has four numbers. Open, close, high, low. Green means buyers won the period. Red means sellers won. The wicks tell you how hard each side fought before the bell.

Five shapes carry most of what you need to know to start. Big green body, big red body, doji, hammer, shooting star. Learn those and you can read most of what’s worth reading.

Stack the candles together and you get a story. The direction of that story is the trend. There are three of them. Uptrend, downtrend, sideways. Your eyes know which one you’re looking at before your brain catches up. Trust them.

Pull up TradingView. Find the three things in the homework. Read the language for the first time.

See you next week.

Kevin | Five Stone Investments and Trading

One more honest note before you close this out.

I’ll say it again because it matters. I’m not a financial advisor, a broker, an accountant, or an attorney. I’m a trader and an investor sharing what I do with my own money, the way I’d share it with my kids or with the folks at church. Nothing in this letter is advice for your specific situation. It’s one man’s experience and the lessons he’s picked up. Take what’s useful and leave the rest.

Trading and investing carry real risk. You can lose money. You can lose all of it. I won’t dance around that. If you’re putting real dollars in the market, do your own work before you make a decision that matters to your family. Your money is yours. Your decisions are yours. I’m just here to teach what I know.

Five Stone Investments and Trading is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Why We’re Starting Here (Before the Charts, Before the Tickers)

Week 1 of the Beginner Trading Series. Straight talk about your money. No jargon. No agenda.

A word before we start.

I’m not a licensed financial advisor. I’m not selling you a course. I’m a trader and investor sharing what I’ve learned with the same front-porch talk I’d use with my kids or with the folks at church on a Sunday morning. Take everything I write as one trader’s perspective. Not as advice. Your money is yours. Your decisions are yours. I’m just here to teach.

Why this series exists

There’s a good chance I’m describing you. You’re smart. You work hard. You pay attention to the world. You’ve got a 401k you don’t really understand. Maybe a brokerage account with a couple of names in it that a friend mentioned. You want to learn how the market actually works. Not the talking-head stuff on TV. The real thing. But every time you go looking, you run into one of three walls.

The first wall is a guy on YouTube screaming about a stock that’s already up 80% this year, promising it’s going to a thousand.

The second is a website charging $497 for a “trading masterclass” with a guy in a rented Lamborghini in the thumbnail (or as my mentor used to say, “Lamborghini and bikinis”), promising you’ll get exceedingly rich in a very short time.

The third is a textbook written by someone who’s never traded a day in their life, that uses the word “stochastic” on page one and never recovers.

None of those three is going to teach you how to trade.

I know, because I started where you are. I did watch the YouTube videos. But thankfully, I found a mentor that saved me from wasting money on courses that wouldn’t have taught me much of anything. He believed in giving education away instead of selling it. I still learned plenty of it the hard way. The hard way is expensive. It would have been a whole lot worse without him.

This series exists because nobody built the version I wish I’d had. So I’m building it now.

Who this is for

If you’ve never placed a trade in your life, you’re in the right room.

If you’ve placed a few and you’re not sure why some worked and some didn’t, you’re in the right room.

If you grew up the way I did, small town, family that worked hard, nobody at the dinner table talking about stocks unless something dramatic happened, you’re in the right room.

If you’re the person at church asking me about your 401k, this whole series is for you. You’re one of the folks I grew up with. You deserve to be taught this stuff and nobody ever bothered.

Or maybe you’re on the other side of that. Maybe you’ve already built up some money, you love the money game, and you want to learn how to grow it more actively instead of just letting it sit. You’re in the right room too.

If you’re a finance bro looking to argue about Sharpe ratios, this isn’t the series. There’s plenty of internet for that.

One more honest thing

There are plenty of good coaches and mentors out there. I’m not the only one teaching this stuff, and I won’t pretend to be. I might not be the right voice for you. My way of explaining things might not click. That’s ok. Go find the one who does. I’m even willing to recommend a few good ones if you hit reply and ask. The goal is for you to learn it, not for you to learn it from me.

Trading itself isn’t for everyone either. You might give it a real run and figure out you hate it. You might give it a run and decide you’d rather grow your 401k, own a few index funds, and spend your evenings doing anything else. Both of those are perfectly fine answers. The point isn’t to turn you into a trader. The point is to give you a real look at what this is, the way your granddaddy would say it, so you can decide for yourself.

Why “why” comes before everything else

You’d think we’d start with charts. We’re not going to. We’re going to talk about why you want to do this, for one full Sunday, before I show you a single candle.

Here’s why.

Trading is hard. Not “complicated math” hard. The math is the math, and it’s mostly arithmetic. It’s hard in a deeper way. It’s emotionally hard. It will test your patience, your discipline, your ego, and your relationship with being wrong. Most people who try to learn it quit. Not because they’re not smart enough. Because they ran out of reason to keep going.

The people who keep going, the ones who actually become traders, almost always have one thing in common. They know exactly why they’re doing it.

The “why” is what gets you through the part where you lose money on three trades in a row. The “why” is what makes you do your homework on a Saturday morning when nobody’s watching. The “why” is what keeps your hand off the buy button when a stock is ripping and you don’t have a plan for it.

Without a clear “why,” you’ll quit at the first drawdown. With one, you’ll keep showing up. And showing up is most of the game.

What you’re really chasing

Let’s name it.

Here’s my hunch. You’re not actually chasing money. You’re chasing what money buys. And that’s usually one of two things.

Freedom. The ability to do work that doesn’t require a commute, a boss, a uniform, or a clock. The ability to be home when your kids get off the bus. The ability to take care of your parents when they need it. The ability to say no when somebody asks you to do something you don’t want to do.

Optionality. Even if you keep your day job, and most of you should, the option to walk away if it goes sideways. The option to move. The option to make a brave call without panicking about the mortgage.

The money is the tool. The freedom is the point.

Be honest with yourself about which one is yours. Write it down. We’ll come back to it.

The honest reality

Here’s the part most people teaching this stuff skip.

Most people who try to trade lose money. That’s not an opinion. It’s been studied and re-studied, and the answer keeps coming back the same. The number you’ll hear thrown around is that 90% of retail traders lose, and while I won’t swear to that exact figure, the rough shape of it is right. Most lose. Some break even. A smaller group consistently make money.

I’m not telling you this to scare you. I’m telling you because the people who don’t tell you are the same people selling you the $497 masterclass. They want you excited. I want you clear-eyed.

The good news, and this is important, the reasons most people lose aren’t mysterious. They’re not because the market is rigged against the little guy. They’re not because you need an algorithm or a $5,000 charting tool. They’re almost always one of a short list of reasons:

• No plan

• No risk management

• Chasing what’s already running

• Trading too big

• Trading too often

• No patience to wait for the right setup

• Quitting right before they would’ve gotten good

Every one of those is fixable. Not easy. But fixable. And that’s what the next eleven Sundays are going to walk you through, one piece at a time.

What’s different about this series

Three things, plain as I can say them.

First. There’s no upsell at the end. I’m not going to spend twelve weeks teaching you the basics and then tell you the real secrets are behind a $1,997 paywall. The whole thing is here. Your subscription is the whole deal.

Second. We’re going slow on purpose. Twelve weeks for what most courses try to cram into a weekend. Each piece gets room to breathe. You get homework. You get a chance to actually practice each idea before the next one shows up. That’s how this stuff sticks. The folks who try to do it in a weekend are the same folks who quit a month later.

Third. It’s built like a ladder, not a buffet. Each week sits on top of the week before. By Week 9 you’ll have your first real, specific setup. A single chart pattern with strict rules. By Week 12 you’ll have a one-page written trading plan you actually trade from. Not a vague “I’ll figure it out” plan. An actual document. Specific entries, specific stops, specific size.

That’s the deal.

Why this is free (and why that probably bothers you)

Let me get out in front of something.

There’s a voice in the back of your head right now that says: if it’s free, it can’t be that good. If he was serious, he’d be charging. People don’t value what they don’t pay for.

That voice isn’t wrong, exactly. Most people do pay more attention when they’ve paid. There’s perceived value in a price tag that a free thing has to work harder to earn. I won’t pretend that isn’t real.

I wrestled with this. Hard. I sat down more than once and laid out the math on charging for this series. Putting it behind a paywall. Pricing it at a level that “signaled value.” There’s a real business case for it. I’d be lying if I said I never thought about it.

Here’s why I’m not doing it.

When I started out, I was hungry to learn. Skeptical of anybody charging hundreds of dollars for something I figured I could learn from the right teacher without the markup. The $497 masterclass I almost bought wasn’t going to wreck me. It was the principle of the thing. And the folks I’m writing this for might not be in the same situation I was. Maybe you’re working two jobs. Maybe you’re trying to make your savings stretch. Putting a paywall in front of “trading taught from the beginning” feels like building a wall that some folks who’d most benefit from this just can’t climb.

The other part is this. I was hungry enough to learn it that I put in the work even when the education was free. I read the books. I watched the videos. I sat at the kitchen table with charts I didn’t understand and made myself understand them. The “pay attention because you paid” thing applies to people who weren’t going to do the work anyway. If you’re hungry enough to read this letter every Sunday for twelve weeks, you’re going to put in the work whether it costs you $1 or $1,000.

The mentor who saved me from wasting money believed in giving education away. He didn’t charge me what he could have. That changed my life. And the deal I made with myself, quietly, was that someday I’d pay it forward in the same way.

This is me paying it forward.

So yes, it’s free. And yes, that probably triggers something in your subconscious that says it can’t be worth much. I’d ask you to set that voice aside for twelve Sundays and let the work speak for itself.

The 12-week shape (so you know where we’re going)

I won’t list all twelve here. They’ll come one Week at a time. But here’s the rough arc so you have a map.

The first stretch is about how to think. Why the market is what it is. How sentiment moves it. Why people repeat the same emotional mistakes over and over. Why charts even work. And what they actually are.

The middle stretch is about how to read. What a chart is showing you. How to read a single candle. How to find the floors and ceilings on a stock. How to wait for the moment a stock is most likely to bounce. And how to know the difference between a real bounce and a knife falling out of the sky.

The last stretch is about how to act. Your first real setup, with strict rules. How to size a position so a single bad trade can’t blow up your account. How to actually place an order without fat-fingering it. And finally, how to take everything we’ve covered and turn it into your own written plan.

Twelve weeks. One Sunday at a time. By the end of it, you’ll know things most of your neighbors will never learn.

A promise about how I’ll write

Every term gets defined the first time it shows up. No fancy talk. No “let’s just assume you know what a moving average is.” If I forget to define something, hit reply and tell me. I’ll fix it.

No jargon for jargon’s sake. If I have to use a technical word, I’ll translate it in the same sentence.

No hype. No “you won’t believe.” No “this one trick.” No screaming. If a Sunday post sounds like a YouTube thumbnail, I’ve failed.

No fake gains. When I share a real trade, and I will, plenty of times, I’ll tell you the truth. Wins, losses, and the in-between. The losses are the lessons. You’ll see them.

This week’s homework

Get a notebook. Doesn’t have to be fancy. A spiral from the grocery store will do.

On the first page, write down one sentence, just one, that finishes this prompt:

“I want to learn how to trade because ___________.”

That’s it. One sentence. Don’t make it pretty. Make it true.

It might be “I want to build something I can pass down.” It might be “I want to retire my dad.” It might be “I want to know I’m not stuck.” It might just be “I want to understand how this works, because nobody ever taught me.” All of those are good answers. The only bad answer is a fake one.

Date it. Put it on the first page of your notebook. We’re going to come back to it more than once. And on Week 12, when you write your full trading plan, your “why” will be the very first line of it.

Common beginner mistake (the one I want you to avoid)

Chasing trading because you saw somebody’s screenshot.

A friend texts you a screenshot of a 400% gain. An influencer posts a winning trade. You feel like you’re missing something. You sign up for a brokerage account that night and start clicking buttons by Tuesday.

Here’s the truth nobody mentions next to the screenshot. That person almost certainly didn’t show you the three losing trades that came before it. Or the account they blew up the year prior. Or the fact that they’re getting paid to post the screenshot. Or, sometimes, that the screenshot is fake.

The “why” that’s going to keep you in this game can’t be somebody else’s screenshot. It has to be yours. Build it from your own life. Your kids, your freedom, your debt, your goals. Not from somebody else’s highlight reel.

If your reason for being here is somebody else’s win, you’ll be gone the first month you have a loss. Build a better reason.

The bottom line

Before the charts. Before the tickers. Before the order types and the candle patterns and the support levels.

You need a reason.

A real one. A specific one. One you can write down on the first page of a notebook and read again on the day you take your first loss and feel like quitting.

That reason is the most important piece of equipment a trader owns. We’ll spend the next eleven weeks building the rest of the toolkit on top of it. But it all sits on this.

Get the notebook. Write the sentence. Date the page.

See you next Sunday.

Kevin | Five Stone Investments and Trading

One more honest note before you close this out.

I’ll say it again because it matters. I’m not a financial advisor, a broker, an accountant, or an attorney. I’m a trader and an investor sharing what I do with my own money, the way I’d share it with my kids or with the folks at church. Nothing in this letter is advice for your specific situation. It’s one man’s experience and the lessons he’s picked up. Take what’s useful and leave the rest.

Trading and investing carry real risk. You can lose money. You can lose all of it. I won’t dance around that. If you’re putting real dollars in the market, do your own work before you make a decision that matters to your family. Your money is yours. Your decisions are yours. I’m just here to teach what I know.

Happy Mother’s Day to all the moms out there. My mom taught me about trading and didn’t even know it. She taught me patience, discipline, and the ability to focus on the simple pleasures of life. Turns out those three things are about 90% of what makes a good trader. A mentor of mine spells it PAYtience, because patience pays. Mom had that figured out long before I ever placed a trade. Thanks, Mom.

Now, on to this week’s topic.

I bought shares of a stock on Friday that I’ve been watching for a while. Good company, great fundamentals, price finally made sense. But I didn’t stop there. I also sold puts at a lower strike on the same name.

Why? If it pulls back more, I want additional shares at an even better price. And if it doesn’t pull back? I keep the premium and use that cash to buy more shares anyway.

This is part four of my options series. We’ve hit buying puts for protection, selling covered calls for income, and collars for sideways chop. Today I’m walking through something I use all the time: selling cash-secured puts to get into stocks I already want to own.

Here’s How I Think About It

Forget the textbook definition for a second. Selling a put is just getting paid to place a limit order.

You find a stock you want to buy at a lower price. Instead of setting a limit order and sitting there hoping, you sell a put at that price and collect premium while you wait.

Two things can happen. Both are good.

It stays above your strike. Put expires worthless. You keep the cash. Sell another one, or use the premium to buy shares. Either way, you got paid to be patient.

It drops to your strike and you get assigned. You buy 100 shares at a price you already decided was a great entry. And your actual cost basis is even lower because of the premium you collected upfront.

Now, I’m not going to pretend there’s zero risk here. If the stock drops well below your strike before expiration, you’re buying shares at a price that’s now above the market. You’re underwater on day one. That’s real, and you need to be honest with yourself about it.

But here’s why I’m okay with that possibility. If I’ve done the work on valuation, if my strike is sitting on major support and a key moving average, I have conviction that the price I’m paying is a good long-term entry even if it doesn’t feel great in the moment. I’m not selling puts on junk. I’m selling them on businesses I want to own for years. A short-term drawdown on a great company at a great price isn’t the end of the world. It’s just volatility.

That said, this is exactly why the criteria matter. If you’re sloppy about where you sell puts and you’re just chasing premium, a big drop will hit you like a screen door in a hurricane. If you’ve done the work and you have real conviction at that level, a big drop is just an opportunity to be patient.

Where I’m Selling These

I don’t just pick a random strike and hope for the best. I need multiple things lining up at the same level. Here’s what I’m looking for.

Key Moving Averages

I want my strike sitting at or near a major simple moving average on the weekly or monthly timeframe. The weekly 100 SMA is one where institutional money tends to show up on quality names. The weekly 200 SMA is the line in the sand for long-term trends. And when price hits the monthly 100 or 200 SMA on a good business, that’s often a generational entry.

These levels matter because big players use them. When a solid stock pulls back to one of these, real capital steps in. I want to be standing right there with them.

Valuation That Gets Me Excited

The stock needs to be genuinely cheap at my strike, not just at the current price. I’m running the numbers on what I’d actually be paying if I get assigned. P/FCF, EV/EBITDA, whatever metric fits the business. Does it make me want to back up the truck?

If the answer isn’t a clear yes, I’m not selling the put. This isn’t a premium-harvesting game. I’m building positions at prices that give me a real margin of safety.

Major Support on the Weekly and Monthly

I want price levels where buyers have shown up before. Prior swing lows on the weekly. Monthly zones that have held multiple times. Old resistance that flipped to support. The more times a level has bounced, the more confidence I have that it bounces again.

What This Looked Like Last Week

I’ve been watching Progressive (PGR) for months. Great balance sheet, consistent earnings compounder, management that allocates capital well. Price finally got to a level where the valuation made sense, so I bought shares.

But about 8-10% below where I bought, the weekly 100 SMA was sitting right on top of a prior support zone. At that level, the stock would be meaningfully cheap relative to what I think it’s worth.

So I sold puts down there. Collected a few hundred bucks per contract. Now I’m layered in.

Stock keeps going? I own shares, I keep the premium, and I’ll use that cash to add on any future pullback. Stock pulls back to my strike? I get assigned at a price I’d be thrilled to pay, with an even lower cost basis thanks to the premium.

That’s how I build positions. Not all-in at one price. Layered. Own some now, sell puts where I’d happily own more.

My Rules for This

Some rules I don’t break.

Only sell puts on stocks you actually want to own. This is the whole thing. If you wouldn’t happily buy 100 shares at that strike regardless of the premium, don’t sell the put. Premium is the bonus, not the reason. Now, I’ll be honest, I do sell puts on names I don’t necessarily want to own just to collect premium. But I know how to hedge and work out of those positions if they go against me. That’s a different strategy for a different article, and it’s something I work through one-on-one with people I coach. If you’re learning this for the first time, start with stocks you’d be happy to own. The rest comes later.

Cash-secured means cash-secured. I keep the full assignment amount set aside. No margin tricks. If I get put the stock, it’s a non-event. I planned for it.

Pick strikes with conviction, not greed. Don’t chase higher premium by selling at strikes where you’d be uncomfortable getting filled. The point is that assignment is a good outcome.

30-45 days to expiration is my sweet spot. Enough time decay working in my favor, close enough that I’m not locking up capital for months. If I want to be more conservative, I go further OTM and accept less premium.

Putting the Series Together

Think of this as the entry-side complement to covered calls. Calls pay you while you’re holding. Puts pay you while you’re waiting to get in.

With everything we’ve covered so far, you’ve got a real toolkit. Buying puts protect what you own from a crash. Selling covered calls generate income on positions you’re already holding. Collars manage risk in sideways, choppy markets. And selling puts gets you paid to enter at prices you love.

Each one has its spot depending on what the market’s giving you. The common thread is you’re not just buying and hoping. You’re defining risk, generating income, and entering with an edge.

Bottom Line

Selling puts isn’t fancy. It’s just having a plan. You know what you want to buy. You know what price you’d pay. You sell a put there and let the market either come to you or pay you for the privilege of staying away.

Either way, you’re in a good spot. And that’s how I want every position to feel before I put it on.

Next week: combining these strategies and how to think about your options positions as a system, not just isolated trades.

This is not financial advice. I’m sharing what I do and how I think about it. Do your own research and make your own decisions.

1. If y’all have been following along since the beginning, you now know two things most people with brokerage accounts never learn.

You know how to buy a put to protect yourself when things get ugly. And you know how to sell a covered call to collect income on shares you already own. Two separate tools. Both useful on their own.

But what if you used them at the same time?

That’s what a collar is. And I teased this a few weeks ago because I think it might be the most practical options strategy that nobody talks about.

Two Tools, One Setup

Let me break this down real simple. You own shares of a stock. You buy a put below the current price to protect your downside. And you sell a call above the current price to generate income. The premium you collect from selling the call helps pay for the put you’re buying.

That’s the whole thing. You’re putting a floor under your position and a ceiling above it, and the ceiling is helping pay for the floor.

Y’all know I love to fish, so forgive me, but this is like setting the drag on your reel. You know the line’s not going to snap because you’ve set your limit on how much it can pull. And you know the fish can only run so far before it stops. You’re not out there hoping. You’ve set the boundaries, and now you just let it work.

If that sounds like something you’ve heard before, it should. It’s exactly how most people think about insurance in real life. You accept a cap on how much you can gain in exchange for knowing exactly how much you can lose. It’s a trade-off, and it’s one that a lot of smart investors are happy to make.

Okay, Show Me the Numbers

Let’s say you own 100 shares of ABC, and it’s trading at $100 a share. You like this stock long term, but maybe the market’s been choppy, or maybe earnings are coming up, or maybe you just want to sleep a little better at night for the next couple months.

Here’s what you do.

You buy a put with a $90 strike price expiring in 60 days. That costs you $2.50 per share, so $250 for the contract.

At the same time, you sell a call with a $110 strike price, same expiration. That brings in $2.00 per share, so $200 in premium.

Your net cost for the whole setup: $250 minus $200 equals $50. Fifty bucks. That’s it.

Now let’s walk through what can happen.

ABC drops to $75. Without the collar, you’re sitting on a $2,500 loss and probably losing sleep. With the collar, your put kicks in at $90. Your maximum loss is $1,000 (the drop from $100 to $90) plus the $50 net cost of the collar. So $1,050 total. That’s a big difference from $2,500. You knew this number before you ever put the trade on. No surprises. No panic math at midnight.

ABC stays between $90 and $110. Both options expire worthless. You still own your shares, you’re out the $50 net cost, and life goes on. You can put another collar on next month if you want.

ABC rockets to $130. Here’s where the ceiling comes in. Your call gets exercised, and you sell your shares at $110. You made $10 per share ($1,000) minus the $50 net cost, so $950 in profit. That’s a great outcome. But you did miss the move from $110 to $130. That’s the trade-off. You gave up the moonshot in exchange for the safety net.

Why I Think About It Like a Seatbelt

The way I think about it is simple.

When you buckle your seatbelt, you’re not saying “I think I’m going to crash today.” You’re saying “I don’t know what’s going to happen, and I want to be fine either way.” You accept a tiny bit of restriction, the belt across your chest, in exchange for massive protection if something goes wrong. And you don’t think twice about it.

A collar works the same way. You accept a cap on your upside (the covered call) in exchange for a floor on your downside (the put). The cost is minimal, sometimes even zero. And you get to stay in the position without white-knuckling it through every headline.

Nobody ever regretted wearing a seatbelt after a fender bender. And I’ve never regretted having a collar on when the market decided to throw a tantrum.

When Does a Collar Make Sense?

Not every position needs one. I’ve put collars on trades that didn’t need them and ended up capping gains I should’ve let ride. That stings, and I’ll be honest about it. But there are situations where I think it’s the smartest move you can make.

You’ve got a big unrealized gain and you don’t want to sell. Maybe it’s in a taxable account and selling would trigger a capital gains hit. A collar lets you protect that gain without closing the position.

Earnings are coming up and you’re nervous. You like the stock long term, but you know earnings can go either way. A collar lets you hold through the event without betting the house.

The market feels fragile. You don’t want to sell everything and go to cash, but you’d feel better knowing your downside is defined. A collar gives you that peace of mind while keeping you invested.

You’re going on vacation. I’m serious. If you’re going to be away from your screens for two weeks and you don’t want to worry about your portfolio, a collar is a beautiful thing.

The Trade-Off, Honestly

Now before y’all go thinking this is some kind of cheat code, let me sit you back down. There’s no such thing as a free lunch in the markets, and the collar is no exception.

The ceiling is real. If the stock breaks out and runs way past your call strike, you’re going to feel it. You’ll make money, sure, but you’ll watch the stock keep going without you. If you’re in a name because you think it’s about to make a huge move, don’t collar it. Let it run.

You might not get a perfect match on premium. In the example above, the call premium almost covered the put cost. That won’t always happen. Sometimes you’ll pay a little more out of pocket. Sometimes, if you bring the strikes closer together, you can actually set it up for zero cost. It depends on the stock, the volatility, and the expiration you choose.

It requires 100 shares. Just like covered calls, you need to own at least 100 shares to put on a collar. If you’re working with smaller positions, this strategy might not be available to you yet. That’s okay. The puts we talked about earlier still work on their own.

So How Do I Pick My Strikes?

This is the same thinking from the last two articles, just combined.

For the put (your floor), pick a strike price that represents the maximum loss you’re willing to take. Think of it like your deductible from the insurance analogy. How much of a drop can you stomach before you need the safety net to kick in? That’s your put strike.

For the call (your ceiling), pick a price you’d genuinely be happy selling at. Don’t pick a strike that’s going to make you sick if the stock gets there and your shares get called away. That’s a personal call, and it’s worth sitting with for a minute. If you’d high-five somebody for a 10% gain, then a strike 10% above the current price is a reasonable starting point.

For the expiration, I like 45 to 90 days on collars. Long enough that you’re getting meaningful protection, short enough that the premiums are reasonable and you’re not locking yourself in for half a year.

Where This Fits in Everything We’ve Covered

If y’all have been reading since Issue #1, here’s where you are now.

You know how to buy puts to protect a position or profit from a decline. You know how to sell covered calls to generate income on shares you hold. And now you know how to combine them into a collar that protects your downside while generating income to pay for that protection.

These aren’t separate, disconnected ideas. They’re building blocks. And the more comfortable you get with each one, the more flexible you become as an investor. You stop being the person who can only buy and hope. You become someone who can manage risk, generate income, and stay in the game no matter what the market throws at you.

That’s the whole point of everything I’ve been writing.

The Quick Version

A collar means you own shares, buy a put below, and sell a call above. The call premium helps pay for the put. You define your maximum loss and your maximum gain before you ever enter the trade. It’s the seatbelt of options strategies. Simple, effective, and it lets you stay invested without losing sleep.

If you’ve been reading these articles and you haven’t touched options yet, that’s completely fine. Keep learning. Reread the earlier issues. Let it sink in. And when you’re ready, start small. One contract on a position you already feel good about. See how it feels. There’s no rush.

And if you know somebody who’s been too nervous to stay invested because they’re afraid of the next big drop, maybe send them this one. The tools exist. They just need to know about them.

See y’all next week.

— Kevin | Five Stone Investments

Five Stone Weekly is published every weekend. I’m a self-taught and professionally coached trader and investor sharing what I’ve learned, what I own, and how I think about the markets — not telling anyone what to do. Nothing in this letter is investment advice, and I’m not recommending that you buy, sell, or trade anything. I am not a licensed financial advisor. Everybody’s situation is different, and what I do with my money might not make sense for yours. If options or investing are new to you, please take the time to educate yourself and talk to a qualified financial professional before making decisions with your hard-earned money.

A Simple guide to covered calls

If you’ve been following along, the last three posts walked through buying puts, a way to protect yourself when you think a stock is heading lower. Today we’re flipping to the other side of the options world and talking about a strategy that lets you earn income on shares you already own.

It’s called a covered call, and I think it’s one of the coolest strategies in all of options trading.

What is a Covered Call:

A covered call simply means you own at least 100 shares of a stock and you sell someone else the right , but not the obligation to buy those shares from you at a specific price, by a specific date. In exchange, they pay you cash upfront.

That’s it. You’re renting out the upside on shares you already hold, and collecting a premium for doing it.

How it looks in real life:

Say you own 100 shares of a company ( we’ll call it ABC) trading at $50 a share. You like the stock long term, but you don’t think it’s going to rocket higher in the next month or two. It’s just kind of... sitting there.

You could sell a covered call with a $55 strike price that expires in 30 days. A buyer pays you, say, $1.50 per share for that contract. Since each options contract covers 100 shares, that’s $150 in your pocket… immediately.

Now there are only two things that can happen at expiration:

1. ABC stays below $55. The option expires worthless (for the buyer), you keep your shares, and you keep the $150. You can turn around and sell another call next month. Rinse, repeat.

2. ABC goes above $55. The buyer exercises their right to purchase your shares at $55. You sell at $55, plus you still keep the $150 premium. Your total effective sale price is $56.50 — a nice gain from your $50 starting point.

In either scenario, you got paid. If you sell a covered call at a price higher than you bought it, it is technically an unloseable trade…but there can be a “down side” If ABC suddenly jumps to $70, you still sell at $55. You captured the premium and a solid gain, but you missed the moonshot.

I sell covered calls a lot? Why?

I really like selling them on long term stocks I’m already profitable on.

First, I like income generation. If you’re holding shares in a retirement account or a long-term portfolio and the stock isn’t moving much, covered calls let you generate cash flow while you wait. Think of it as collecting rent on a property you already own.

Lowering my cost basis. Every dollar of premium collected effectively reduces what was paid for the stock. If I buy at $50 and collect $1.50 a month in premiums for a few months, my effective cost starts dropping — $48.50, $47, $45.50. That gives you a bigger cushion if the stock ever pulls back.

A disciplined exit. In our example I were planning to sell at $55 anyway, a covered call pays me extra to do what I what i was already going to do.

It can’t be that simple?

As my dad likes to say “the only free cheese is in a mouse trap” , so let me be as real as I can. There have been times I have regretted selling Cover Calls. I made money, but once in a while a stock sky rockets passed your strike.

This is the big one. If the stock rips higher, you’re locked into selling at your strike price. You still profit, but you leave the extra gains on the table. If you’re in a stock because you think it’s about to break out, a covered call is the wrong move.

You still own the stock. The call premium gives you a small buffer, but if the stock drops hard — say from $50 to $35 — that $1.50 in premium doesn’t come close to covering the loss. A covered call is not a hedge. (If you want downside protection, that’s where the long puts we talked about in previous articles come in.)

Opportunity cost. If your shares get called away and the stock keeps climbing, you’ll need to buy back in at a higher price or move on. That can sting psychologically even if you made money on the trade.

Picking the right strike and expiration

This is where the art comes in. There’s no single “correct” answer, but here’s how I like to think about it:

Strike price - The further above the current price (further “out of the money”), the less premium you’ll collect, but the more room the stock has to run before your shares get called away. Closer strikes pay more but cap your upside sooner. A good starting point for most people: pick a strike price you’d genuinely be happy selling at.

Expiration date — Options that expire in 30-45 days tend to hit a sweet spot. They offer a decent premium while giving time decay (the natural erosion of an option’s value as it approaches expiration) a chance to work in your favor. Shorter timeframes mean less premium per trade; longer ones tie up your shares.

How this connects to long puts

If you’ve read the last three articles, you now have two tools in the belt:

• Long puts (protective puts) protect you when you think a stock might fall, or let you profit from a decline.

• Covered calls generate income when you think a stock will trade sideways or drift modestly higher.

Some investors even combine them. Owning shares, selling a call above, and buying a put below creates what’s known as a “collar” — but that’s a topic for another day.

The bottom line

A covered call is one of the most straightforward options strategies out there. You own shares, you sell a call, you collect a premium. If the stock stays put, you keep everything. If it goes up past your strike, you sell at a profit plus the premium.

It’s not risky in the way people imagine options to be, and it’s a legitimate tool for generating income on a portfolio you’re already holding. It won’t make you rich overnight, but done consistently, it can meaningfully boost your returns over time.

Next time, we’ll look at how to put covered calls and long puts together — and why combining them might be the smartest move a stock owner can make.

Disclaimer: This is educational content, not financial advice. Options involve risk and aren’t suitable for everyone. Do your own research before trading.

In Issue #1, I told you that put options are basically insurance for your portfolio. In Issue #2, I showed you what it feels like to actually have that insurance when the world gets loud. This week I want to answer the question a few of you sent me after those first two articles:

How much protection do I actually buy? And how do I pick which contract?

Knowing that puts exist is step one. Knowing how to size them so you’re not overpaying or under protected … that’s where it gets practical.

Strike Price = Where Your Insurance Kicks In

You know how car insurance has a deductible? If you pick a $1,000 deductible, that means you’re on the hook for the first $1,000 of damage. After that, insurance takes over. A higher deductible means a cheaper monthly payment. A lower deductible means you pay more each month, but you’re covered sooner.

The strike price on a put option is your deductible. It’s the price where your protection kicks in.

Say SPY is at $637. You buy a put with a $600 strike. That means the market can drop all the way from $637 to $600 and you’re eating that loss on your own. But the moment it falls below $600, your put starts paying you. The further it drops past $600, the more it pays. That’s a big deductible — and the premium is cheaper because of it.

Now say you pick a $620 strike instead. The market only has to drop from $637 to $620 before you’re covered. Smaller deductible. But you’ll pay more for that put upfront.

Neither choice is wrong. It just depends on how big a drop you can handle before you need the safety net. That’s a personal call.

How Many Contracts? Keep the Math Simple.

This trips people up, but it doesn’t have to. One SPY put contract covers 100 shares of SPY. At roughly $637 a share, that’s about $63,700 of exposure per contract.

So if you’ve got a $100,000 portfolio that roughly tracks the S&P 500, you’d need about one and a half contracts to fully hedge it. You cant buy a half a contact, most people would just buy one or two and accept that they’re partially covered if they only bought one . And that’s completely fine. You don’t insure your house for tornado damage and flood damage and earthquake damage all at once. You pick the risk that scares you most and you cover that one.

Partial protection is still protection. If you’ve got one SPY put and the market drops 10%, that put isn’t going to make you whole but it’s going to help ease the pain enough that you’re not panic-selling your entire 401k on a Tuesday morning. That’s the point.

Expiration = How Long Your Policy Lasts

Every put option has an expiration date. That’s the day your insurance policy runs out. After that date, it’s gone — whether you used it or not. Just like your car insurance renewing every six months, except with options, you pick exactly how long you want the coverage to last.

Here’s the tradeoff. A put that expires in 30 days is cheap. But it’s only protecting you for one month. If the market doesn’t drop during those 30 days, your insurance expires and you’ve got nothing. A put that expires in 6 months costs more upfront, but you’re covered for half a year. You don’t have to be right about when the drop happens — you just have to be right that it happens sometime in the next six months.

Think about it this way. Would you rather buy a week’s worth of car insurance at a time, or pay for six months and not have to think about it? The weekly plan is technically cheaper each time, but if you’re buying it over and over, you end up spending more and stressing about it more. I’d rather pay once, know I’m covered, and move on with my life. When i buy a put for a hedge I buy them for at least three months.

This is about spending a small, known amount of money to avoid a large, unknown loss. That’s the entire game. If my puts expire worthless, I’m happy because that means my portfolio went up and I didn’t need the insurance. The premium was the cost of sleeping well.

The Quick Version

Pick a strike price like you’d pick a deductible — how big a drop can you handle before you need help? Size your contracts based on how much of your portfolio you want to cover full or partial, both are valid. Buy enough time on the expiration so the clock isn’t working against you . I like 3–6 months minimum. And remember: the goal isn’t to profit from chaos. The goal is to stay in the game long enough to benefit from the recovery.

If you know somebody who’s been staring at their account all week wondering if they should just sell everything, send them this. It might save them from making the most expensive decision of their life.

See you next Sunday.

— Kevin | Five Stone Investments

Five Stone Weekly is published every Sunday evening. I’m a self-taught and professionally coached trader and investor sharing what I’ve learned, what I own, and how I think about the markets — not telling anyone what to do. Nothing in this letter is investment advice, and I’m not recommending that you buy, sell, or trade anything. I am not a licensed financial advisor. Everybody’s situation is different, and what I do with my money might not make sense for yours. If options or investing are new to you, please take the time to educate yourself and talk to a qualified financial professional before making decisions with your hard-earned money.

I sat down to write this on Friday afternoon. Markets were closed for Good Friday, which was probably a mercy for a lot of people. It’s been one of those weeks where you check your phone too many times and every headline makes you feel a little worse about opening your brokerage app.

War with Iran. Oil through the roof. Gas prices climbing every day. Your coworker’s talking about how his brother-in-law moved everything to cash. The guy at the barbershop has an opinion on crude oil futures all of a sudden.

If you’ve got money in the market, even if it’s just sitting in a retirement account you set up five years ago and haven’t thought about much since, this is the week that tests you.

And I think there’s something worth talking about in that.

I told y’all last week that I own SPY puts. That hasn’t changed. They’re still working, still doing their job. If you read Issue #1 and understood the concept, you already know more than most people sitting in their cubicle staring at a red screen right now. You’ve got context they don’t have. That matters more than you think.

But today I don’t want to re-explain the mechanics. You’ve got that. What I want to talk about is what you actually do when the moment arrives. Because knowing about a tool and knowing how to handle yourself when things get real are two very different things.

What’s Going On Right Now

I’ll keep this part short because I know you’re getting plenty of news everywhere else.

The Strait of Hormuz, that narrow stretch of water where about 20% of the world’s oil supply passes through, is basically closed. Has been since early March. That’s 12 million barrels a day that aren’t flowing. The International Energy Agency came out this week and said April is going to be worse than March on the supply side. The tankers that were already in transit before the conflict have all arrived. There’s nothing behind them.

Oil hit $126 a barrel last month. Gas just crossed $4 nationally. That touches everything. Groceries, shipping, airline tickets, the cost of running a business. It’s not just a number on a screen. People feel it.

At the same time, and this is important, the March jobs report came in at 178,000 new jobs. Economists expected maybe 60,000. Unemployment actually went down to 4.3%. The S&P was up 3.4% this week. The Nasdaq ripped 4.4%.

So you’ve got a market that’s rallying and an energy crisis that’s deepening at the same time. Those two things are going to have to reconcile at some point. I don’t know when. Nobody does.

The Feeling Is the Danger

Here’s what I really want to get into.

I’ve been in this game long enough to know that the moment you’re in right now, the uncertainty, the noise, the knot in your stomach, that’s when most of the damage gets done. Not by the market. By you.

People don’t lose big money because the market dropped. People lose big money because the market dropped and they panicked. They sold everything on a Tuesday morning because they couldn’t take it anymore, and then the market bounced 4% by Thursday and they were sitting in cash watching it happen. Too proud or too scared to get back in. I’ve seen it over and over. I’ve done it myself.

The financial media doesn’t help. I’m not trying to bash anybody. Some of those folks are sharp and they mean well. But their job is to keep you watching. And the easiest way to keep you watching is to make everything feel urgent. Breaking news. Red banners. “Markets in turmoil.” When every segment sounds like the world is ending, your brain starts believing it.

Your brain is built to survive, not to invest. When it senses danger, it wants to run. That’s great if there’s a bear in your campsite. It’s terrible if you’re looking at a 401k balance.

What I Actually Do During Weeks Like This

I’m going to share my process. Not because it’s the only way, but because it helps me stay level, and maybe something in here helps you too.

First thing. I already have a plan. I talked about this last week. Before I put any money to work, I know why I’m getting in, what tells me I’m wrong, and what would make me get out. When a week like this hits, I’m not scrambling to figure out what to do. I go back to the plan. Has anything about my thesis actually changed? Or is the market just being the market?

Second. I separate what I know from what I feel. I feel like things are bad. I know the jobs number was strong. I feel like oil is going to keep climbing forever. I know that every energy crisis in history eventually ended. Feelings aren’t useless. They tell you something. But they make lousy investment decisions.

Third, and this goes back to what we covered last week, I’ve got protection in place. My puts are doing what they’re supposed to do. That means I don’t have to make any decisions right now. I’ve got time. And time, when the market is volatile, is the most valuable thing you can have. The people who are in trouble right now aren’t the ones who are down 5%. They’re the ones who are down 5% with no plan and no protection, making decisions with their gut at 10 PM while doomscrolling the news.

Where I Stand, Honestly

I’ll share my lean because I think you deserve that from me. But I want to say something first. I am not in the prediction business. I’ve been wrong plenty of times. Anybody who tells you they know exactly where the market’s headed is either lying or trying to sell you something. Probably both.

That said, I’m being careful right now. The rally this week was nice, and the jobs data is legitimately encouraging. If this conflict resolves and the Strait reopens, we could be looking at a snapback rally that makes everybody feel silly for worrying. That’s a real possibility and I don’t dismiss it.

But the energy situation is serious. The supply disruption is the largest in the history of the global oil market, according to the IEA. Those aren’t my words. That’s their data. And the longer the Strait stays closed, the deeper the damage goes. Higher gas prices mean less money in people’s pockets. Companies that rely on fuel, your airlines, your trucking companies, your shipping businesses, they’re getting squeezed. And if oil stays elevated into summer, we’re going to start seeing inflation numbers that make the Fed’s job a whole lot harder.

Now I want to be clear about something, because I think it matters for context. I wear a few different hats. On the investment side, my long-term accounts, I’m being patient. I’m holding my positions. I’m holding my puts. I’m not adding aggressively right now, but I’m also not selling into fear. If you gave me a word for it, I’d say I’m respectfully cautious. I’ll get more aggressive when I see the energy picture start to clear up. Until then, patience costs me nothing.

But I also day trade and swing trade for cash flow. That’s a whole different side of what I do. And on that side, weeks like this are actually full of opportunity. Volatility creates movement, and movement is where short-term traders make their money. I can go long, I can sell short, I can trade around the chaos instead of just sitting in it. It doesn’t mean it’s easy. But it means I’m not just watching the screen and hoping. I’m working.

I bring that up because I want y’all to understand how I think about the markets. Investing and trading are two different disciplines. My investments are built for years. My trades are built for days, sometimes hours. What I do with my retirement accounts during a week like this is completely different from what I do in my trading account. And both are valid. Most people only ever hear about the “buy and hold” side. There’s a whole other world out there, and it’s how I generate income regardless of whether the market is going up or down.

What You Can Do This Weekend

If you’re sitting there thinking “okay Kevin, but I don’t have puts and I don’t know what to do,” let me leave you with something practical.

Go look at what you own. I mean actually look. A lot of folks have no idea what’s inside their 401k or their Fidelity account. They picked some funds three years ago and never looked again. That’s fine in a bull market. In a market like this, it’s worth 20 minutes of your time to understand where your money actually is.

Ask yourself this. If the market dropped another 10% from here, how would I feel? Would I lose sleep? Would I sell? If the answer is yes, that’s telling you something about your risk. Not about the market. About your comfort level with what you’re carrying. And that’s okay. There’s no shame in it. Better to know that now than to find out at 2 AM on a bad Wednesday.

And if you read last week’s article about puts and it clicked for you, do some more homework. Don’t rush. Don’t go buy something Monday morning because you’re nervous. Learn first. Get comfortable with how it works. There’s no hurry. The market will still be there when you’re ready, and there will always be another opportunity to protect yourself. The worst thing you can do is act out of fear, whether that’s panic selling or panic buying protection you don’t fully understand.

One More Thing

I got a few messages after last week’s article from people who said something along the lines of “I’ve had a brokerage account for years and I never knew any of this existed.”

That’s exactly why I’m writing this.

I don’t have all the answers. I’m still learning every day. But if I can take something I spent years figuring out, sometimes the hard way, sometimes the expensive way, and explain it in a way that helps even one person feel a little less lost when weeks like this happen, then this whole thing is worth it.

We’re going to keep building on this. Every week, a little more. Some weeks I’ll share what I’m buying or selling. Some weeks I’ll break down a concept. Some weeks I’ll probably just vent about something that’s bugging me. But the goal stays the same: make the markets a little less intimidating for people who were never taught this stuff.

Including me, once upon a time.

Markets reopen Monday. Take a breath. Don’t make any big moves based on how you feel right now. And if somebody you know is stressing about their portfolio this weekend, maybe send them this.

It’s Easter. For me and my family, this is the most important day of the year. Whatever this weekend means to you, I hope you get to spend it with people you love and step away from the noise for a little while. The market will be there Monday. It always is.

As always, if any of this sparks questions or you want to go deeper on something I mentioned, just reply to this email. I read every single one. I love talking about this stuff and I’m always happy to help where I can.

See you next Sunday.

— Kevin | Five Stone Investments

Issue #1 — March 30, 2026

Straight talk about your money. No jargon. No agenda.

Before we get into it — I want to be clear about something. I’m not a financial advisor. I don’t have a finance degree. I’m a small-town kid who got obsessed with the markets, spent years studying the greatest investors who ever lived, and was fortunate enough to be coached by some of the best in the business along the way. Eventually I started managing my own money full-time. Everything in this letter is just me sharing what I’ve learned and what I’m doing with my own money. I’m not telling you what to do with yours. Your situation is different from mine. Before making any financial decisions, do your own research or talk to a licensed professional.

Why It’s Called Five Stone

Before I talk about the markets, I want to tell you why I’m writing this in the first place.

I have five boys. Our last name is Stone. That’s where Five Stone comes from. It’s not some clever branding exercise. It’s not named after a hedge fund on Wall Street. It’s named after my kids — because they’re the reason I sit down at the screens every day. They’re the reason I study this stuff like my life depends on it. In a lot of ways, it does. Theirs too.

I grew up in a small town. Nobody in my family talked about the stock market. Nobody explained how money worked beyond “go to work, get a paycheck, pay your bills.” If you had a 401k, you picked whatever your company offered and hoped for the best. That was the whole strategy.

When I started digging into the markets on my own — reading everything I could, finding mentors who’d done this at the highest level, studying the people who actually built wealth — I kept running into things that made me think, why doesn’t anybody teach this to regular people?

Not the complicated stuff. Not the stuff that only matters if you’re managing a billion dollars. The simple, practical stuff that could help a regular family protect what they’ve worked their whole life to save.

That’s what this letter is. I’m not writing it for Wall Street. I’m writing it for the people I grew up with. The people at church who ask me about their 401k. The folks who only know the economy is bad because gas is $4 a gallon. You deserve someone who’ll tell you the truth in plain English — and that’s what I’m going to do every Sunday night.

You Can Insure Your Portfolio. Most People Don’t Know That.

You insure your house. You insure your car. You insure your health. You probably even insure your phone.

But when it comes to the biggest pool of money most families have outside of their home — their investment portfolio — almost nobody carries insurance. Not because it doesn’t exist. It does. Most people just don’t know about it.

That’s what I want to talk about today.

What Portfolio Insurance Actually Is

In the stock market, there’s a tool called a “put option.” I know — the word option already sounds like Wall Street talk that’s designed to keep normal people out. It kept me out for a long time too. But stick with me, because the concept is dead simple once you strip away the fancy language.

A put option is a contract that goes up in value when a stock or index goes down. That’s it. You pay a premium upfront — just like an insurance premium — and if the market drops, that contract pays you.

Think about your car insurance. You pay maybe $150 a month. If nothing happens, that money is gone — you’ll never see it again. But if you get in a wreck, the insurance pays out way more than you ever paid in. You don’t consider that $150 a waste. You consider it the cost of not getting wiped out.

Put options work the exact same way.

You buy a put on SPY — that’s the ETF that tracks the S&P 500, basically the entire U.S. stock market in one ticker. You pay a premium. If the market stays flat or goes up, that premium is gone. Cost of doing business. But if the market drops 7%, 10%, 15% — that put pays off, and it can pay off big.

That’s portfolio insurance. That’s all it is.

My 14-year-old son Brady understands this. I sat down and explained it to him the same way I just explained it to you. If a teenager from North Carolina can get it, you can too. This isn’t over your head. It’s just been kept from you.

Why I’m Telling You This Right Now

Because I own them. And they’re working.

Months before the Iran war started, I bought puts on SPY. Not because I’m some genius who saw it coming — I’m not, and I didn’t. Nobody knew it would be Iran. But I’ve spent years studying market cycles — reading everything I could get my hands on, and learning from people who’ve been doing this at the highest level for decades. That combination taught me to recognize the conditions when they’re building. The economy was late in its cycle. There was too much debt in the system. Geopolitical tensions were rising. Commodities were too cheap for too long. History tells you that when enough of those ingredients come together, something breaks. You don’t need to know what. You just need to be ready.

So I paid the premium. Bought the insurance. Same way I’d pay for homeowner’s insurance when I see storm clouds building — I don’t know if the tornado is going to hit my house specifically, but I know it’s tornado season.

The S&P 500 has now fallen for five straight weeks. It’s down about 7% from its January high. My SPY puts are deep in the money — meaning they’re worth significantly more than what I paid for them. While the rest of the portfolio takes hits from the broad market selloff, those positions are absorbing the blow. They’re doing exactly what insurance is supposed to do.

I’m not telling you this to brag. I’m telling you because if I had this conversation with most of the people who ask me about their money — family, friends, people at church — they’d say the same thing: “I didn’t even know you could do that.”

You can. And I think it’s worth understanding how it works, even if you never use it.

A Lesson I Learned the Hard Way

I want to be honest about something. I haven’t always gotten this right.

Earlier in my trading career, I made a mistake that cost me real money. I’m not going to get into all the details, but the lesson it taught me is one I’ll never forget: have a plan before you enter.

I went into a trade without knowing exactly why I was getting in, what would tell me I was wrong, and when I would get out. I was winging it. And the market taught me what it teaches everyone who wings it — a very expensive lesson.

That mistake changed everything about how I approach the markets. Now I don’t put a single dollar at risk without a plan. Why am I entering? Where is my stop? What’s my target? What’s the thesis, and what would break it? If I can’t answer all of those before I click the button, I don’t click the button.

That’s true for the SPY puts I’m holding right now. I had a plan before the war started. I knew why I was buying them, what conditions I was hedging against, and what would tell me to take them off. When Iran happened, I didn’t have to scramble. The plan was already in place.

I tell you this because if you’re someone who dabbles in a brokerage account — picks up a stock here and there because you saw it on TV or somebody at work mentioned it — I’ve been where you are. And the single most important thing I ever learned is that the trade starts before you buy. If you don’t have a plan going in, you’re gambling. And there’s no shame in that — I did it too. But once you know better, you can do better.

How It Actually Works — Plain English, I Promise

Let me walk through a simple example.

Say you have $100,000 in a portfolio that mostly tracks the S&P 500 — maybe through index funds in your 401k or a few ETFs in a brokerage account. The S&P is trading around 6,370 right now (that’s where SPY roughly sits in dollar terms — around $637 per share).

You’re nervous. The news is bad. Oil is spiking. The market keeps dropping. But you don’t want to sell everything because you know that locking in losses is the worst thing you can do long-term.

This is where a put option comes in. Here’s how it works in plain terms:

You pick a “strike price.” This is the level where your insurance kicks in. Think of it like a deductible on your car insurance. If you buy a put with a strike price of $600, you’re saying: “If SPY drops below $600, I want to be protected.” The further below $600 it goes, the more your put pays.

You pick an expiration date. Options don’t last forever — they expire. You might buy one that lasts 3 months, 6 months, or even a year. Longer protection costs more, just like a longer insurance policy.

You pay the premium. This is your cost. It might be $1,500 to $3,000 for a single contract protecting roughly $63,700 worth of stock (one SPY option contract covers 100 shares). That’s roughly 2-5% of the value you’re protecting. Compare that to what you’d lose in an unprotected 15% crash — about $9,500 on that same amount.

If the market drops hard, your put goes up. If SPY falls from $637 to $570 — about a 10% crash — a put with a $600 strike that you paid maybe $2,000 for could now be worth $5,000-$8,000 or more, depending on timing. That gain offsets the losses in the rest of your portfolio. The insurance paid out.

If the market goes up or stays flat, the put expires worthless. You lost the premium. Just like car insurance when you don’t get in a wreck. The money is gone. But you slept well at night, and you didn’t have to panic-sell during every red day.

Why Almost Nobody Does This

I’ll tell you why, because I lived it. Before I taught myself this stuff, I was in the same boat.

1. Nobody told them. This is the big one. I didn’t learn about put options in school. Nobody at any job I ever had sat me down and explained this. I only learned about it because I went looking for it — and eventually found people in the business who were willing to teach me. The financial industry has done a terrible job of educating regular people about options. They’ve made it sound complicated and risky — and some options strategies are risky. But buying a put to protect a portfolio you already own is actually one of the more conservative uses of options. It’s the same concept as insurance. The industry just doesn’t frame it that way because there’s no fee revenue in educating you about it.

2. It costs money. People don’t like paying for something that might expire worthless. I get it — I didn’t either at first. But those same people pay for car insurance every month and never complain. The mental block is that investment losses feel theoretical until they happen — and then they feel very, very real. Paying 2-3% a year to protect against a 20-30% wipeout is a trade I’ll personally take every single time. That’s my decision for my money — but the math is the math.

3. Their financial advisor never mentioned it. Most financial advisors are trained to say “stay the course” and “think long-term” — which is fine in general. But it’s incomplete. Staying the course is a lot easier when you know you have a floor under you. It might be worth asking your advisor whether put protection makes sense for your situation. If they dismiss it or don’t understand it, that tells you something.

What This Looks Like In Real Life

I’m not going to pretend I’ve got it all figured out. I’m still learning every single day — still talking to the people who taught me, still reading, still making mistakes and learning from them. But here’s my actual situation right now, simplified.

I own a portfolio with energy stocks, gold, consumer staples like Kroger and Pepsi, and various other positions. I built it for the kind of environment where things get expensive and unstable — which is exactly what’s happening right now.

But I also know that when the whole market sells off, even good stocks can get dragged down temporarily. So I carry SPY puts as a hedge. When the S&P falls, the puts rise. The portfolio might be down 5% on the stock side, but the puts give back 3-4% of that. Instead of a gut punch, it’s a shoulder tap.

That’s not some Wall Street secret. That’s just math. And it’s available to anyone with a brokerage account that allows options trading. Schwab, Fidelity, TD Ameritrade — they all offer it. You usually just have to apply for options approval, which takes a few minutes.

I’m not saying go do this Monday morning. I had to learn this stuff over years before I was comfortable doing it with real money. If you’ve never traded an option before, take the time to learn first. Paper trade it. Watch a few YouTube videos from people who aren’t trying to sell you a $997 course. Or find someone you trust who can walk you through it.

But I want you to know it exists. Because the next time the market drops 10% and you’re staring at your account feeling helpless, at least you’ll know there was a tool out there. Whether it’s right for you is a conversation between you and your financial advisor — or something you research on your own. But you deserve to know it’s an option. This kind of knowledge shouldn’t only belong to the people on Wall Street.

The Bottom Line

The market is down. Gas is expensive. The news is scary. And most people are sitting there with no protection on the single largest financial asset they own outside their home.

That never sat right with me. You wouldn’t drive without car insurance. You wouldn’t own a house without homeowner’s insurance. But somehow we’ve all accepted that a retirement portfolio just has to ride naked through every war, recession, and crisis that comes along.

It doesn’t have to. There’s a tool for that. It’s called a put option. It’s been around for decades. And the reason most folks have never heard of it isn’t because it’s too complicated for them — it’s because nobody in the industry makes money by teaching you about it.

I started this letter because I got tired of watching people I care about — family, friends, folks from my hometown — make decisions about their money based on fear, politics, or whatever some talking head on TV said. They deserve better than that. We all do.

I’m just a guy with five boys and a last name that made for a pretty good company name. I went deep on this stuff — taught myself, found mentors who’d been in the trenches for decades, and kept at it until it clicked. I made mistakes along the way — some expensive ones. But every one of them taught me something. And now I want to share what I’ve learned.

If my 14-year-old can understand put options, so can you. That’s not a knock on you — it’s a compliment to how simple this stuff actually is when someone explains it without trying to make themselves sound smart.

Now you know. What you do with it is up to you.

See you next Sunday.

— Kevin | Five Stone Investments

Five Stone Weekly is published every Sunday evening. I’m a self-taught and professionally coached trader and investor sharing what I’ve learned, what I own, and how I think about the markets — not telling anyone what to do. Nothing in this letter is investment advice, and I’m not recommending that you buy, sell, or trade anything. I am not a licensed financial advisor. Everybody’s situation is different, and what I do with my money might not make sense for yours. If options or investing are new to you, please take the time to educate yourself and talk to a qualified financial professional before making decisions with your hard-earned money.