Archives of “trade management” tag

rss

Given, No-Hype Options Trading

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Options trading can be daunting, in large measure because “the risk-adjusted return of any options strategy will tend toward zero over time.” (p. 16) It doesn’t matter whether a person engages in high-probability or low-probability trading, whether the spread of choice is an iron condor or an out-of-the-money vertical spread. Without robust risk management the options trader will over time end up with a huge goose egg in his account for all his efforts.

The author focuses on calendars, double diagonals, butterflies, and condors. His analyses don’t follow a standard pattern, but generally speaking he discusses trade structures, the rationale for various positions, and ways to enter and manage trades, including adjustments. At the conclusion of each chapter is a set of exercises to test the reader’s understanding of the material. Answers are provided at the end of the book.

Here I’ll sample his chapter on butterflies. The first important distinction is between at-the-money and out-of-the-money butterflies. An ATM butterfly, especially on a broad market index, is “a delta-neutral income generation trade.” An OTM butterfly is normally a speculative directional trade; it is an inexpensive, low-probability, high-risk trade. But an OTM butterfly can also be used as a “what if I’m wrong” trade. Let’s say the trader expects a stock to trade higher and has opened an appropriate bull call spread. But, in case the stock doesn’t trade as expected, an OTM put butterfly below the stock’s current price can serve as an inexpensive hedge.

The author outlines two ways to manage an ATM butterfly, a simple and a more advanced. The simple technique has eight steps. Here are a few of them. Sell the ATM options and buy one option at one standard deviation OTM and one option at one standard deviation ITM. Buy extra calls and/or puts on the wings to get as close to a delta neutral position as possible. Close the trade when you are down 20%. Close half of the contracts and take your profit if you are up 25% or more. Close the trade on the Friday before expiration week. (pp. 103-105)

No-Hype Options Trading is a practical book for the trader who has a modicum of knowledge about options but needs help with delta-neutral strategies. Whether this book will enable him (with lots of practice) to generate steady monthly income, the alleged goal of non-directional trading, is another matter. Markets don’t always accommodate the delta-neutral trader. Strongly trending markets present significant challenges and highly volatile markets are “the worst-case scenario.” (p. 153) by Kerry W. Given, aka Dr. Duke (Wiley, 2011) might be just the ticket. The book (for those who care about the sometimes dueling camps in the options world) reflects some of the techniques taught by Dan Sheridan, who was one of the author’s mentors.No-Hype Options Trading: Myths, Realities, and Strategies that Really WorkFor the options spread trader, especially the non-directional trader, who is looking for strategies and trade management ideas

10 Trading Lessons

  
  Education
#  #  #  #  #  #  #  #
  1. Trading affects psychology as much as psychology affects trading.
  2. Emotional disruption is present even among the most successful traders.
  3. Winning disrupts the trader’s emotions as much as losing.
  4. Size kills.
  5. Training is the path to expertise.
  6. Successful traders possess rich mental maps.
  7. Markets change.
  8. Even the best traders have periods of drawdown.
  9. The market you’re in counts as much toward performance as your trading method.
  10. Execution and trade management count.

My Trading Lessons for Traders

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Read….When ever you are Free.

  • Prepare, be confident & be decisive

  • Follow my trading rules without exception

  • Plan every trade with profit exit, stop exit and risk/reward ranking

  • Trade only when you have time AND you have an edge

  • Formulate and write down a trading/investing plan

  • Exit a position at my stops and not “hope” it will recover tomorrow

  • Trade the market I actually see, not the one I think I will see

  • Focus more on what’s actually happening rather than what I wish would happen

  • Learn to prevent my skepticism and opinion over the economy from keeping me from making good trades

  • Have a plan every day to trade the market and to not let my opinions of the market interfere with my trading

  • Concentrate on rule based trade management and not the outcome of the specific trade

  • Follow price action as opposed to listening to the fundamental “experts”

  • Listen to the market signal rather than market noise

  • Don’t be afraid of making mistakes

  • To pay more attention to technical signals to determine purchase/sell points rather than emotion & personal reasoning

  • Have more confidence in my trade ideas and believe in myself more often

  • Do not have a bias but instead let the charts be the guide

  • Have the discipline and fortitude to stick to my trade plans

  • To improve my organization of stock lists and automation of stock alerts

  • Do not over-leverage

  • Select only the most favorable setups

  • Try not to over analyze every potential trade

  • Lose less when I am wrong

  • Spend less time reading words and more time reading charts

  • Stick with winners and sell the losers

  • Allocate 2-3 hours each day & 5 hours every weekend to finding attractive setups

  • Increase position size and be in the market more (more…)

    • 13 Trading Rules

      
      Education
    #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

    • Let winners run. While momentum is in phase, the market can run much further than might be expected.
    • Corollary to that rule: Do not exit winners without reason!
    • Be quick to admit when wrong and get flat.
    • Sometimes a time stop is the right solution. If a position is entered, but the anticipated scenario does not develop then get out.
    • Remember: if one thing isn’t happening the other thing probably is. Historically, this has never been good for me…
    • Be careful of correlations. Several positions can often equal one large position bearing unacceptable risk. Please think.
    • I am responsible for risk management, money management, trade management, doing the analytical work and putting on every trade that comes.
    • I am not responsible for the outcome of any one trade. Markets are highly random. I do not have a crystal ball. I am not as smart as I think I am.
    • Risk management is the first and last responsibility. I can make almost any mistake and be ok as long as I do not violate my risk management parameters.
    • Opportunity comes every day. Do not neglect the work. Must do analysis every day.
    • Opportunity comes every day. Get out of poor positions. Move on.
    • I am a better countertrend trader than a trend trader. Sometimes the crowd is right, and they will run me over at those times if I’m not quick to admit I’m wrong.
    • If you’re going to do something stupid, at least do it on smaller size.

    What's the difference between winning traders and losing traders?

      
      Education
    #  #  #  #  #  #  #  #  #  #  #  #  #

    Well, first, there are a few similarities. Both are completely consumed by the idea of trading. The winners as well as losers have committed to doing this, and have no intention of ‘going back’. This same black-and-white mentality was evident in their personal lives too. But what about the differences? Here’s what Williams observed:

    The losing traders have unrealistic expectations about the kind of profits they can make, typically shooting too high. They also debate with themselves before taking a trade, and even dwell on a trade well after it’s closed out. But the one big thing Williams noticed about this group was that they paid little attention to money management (i.e. defense).And the winners? This group has an intense focus on money management, and will voluntarily exit a trade if it’s not moving – even if it’s not losing money at that time! There is also very little internal dialogue about trade selection and trade management; this group just takes action instead of suffering analysis paralysis. Finally, the winning traders focused their attention on a small niche in the market or a few techniques, rather than trying to be able to do everything. Hopefully the second description fits you a little better, but if the first one seems a little too familiar, you now at least know how to start getting past that barrier.

    What's the difference between winning traders and losing traders?

      
      Education
    #  #  #  #  #  #  #  #  #  #  #  #  #

    Well, first, there are a few similarities. Both are completely consumed by the idea of trading. The winners as well as losers have committed to doing this, and have no intention of ‘going back’. This same black-and-white mentality was evident in their personal lives too. But what about the differences? Here’s what Williams observed:

    The losing traders have unrealistic expectations about the kind of profits they can make, typically shooting too high. They also debate with themselves before taking a trade, and even dwell on a trade well after it’s closed out. But the one big thing Williams noticed about this group was that they paid little attention to money management (i.e. defense).And the winners? This group has an intense focus on money management, and will voluntarily exit a trade if it’s not moving – even if it’s not losing money at that time! There is also very little internal dialogue about trade selection and trade management; this group just takes action instead of suffering analysis paralysis. Finally, the winning traders focused their attention on a small niche in the market or a few techniques, rather than trying to be able to do everything. Hopefully the second description fits you a little better, but if the first one seems a little too familiar, you now at least know how to start getting past that barrier.

    Five Market Scenarios

      
      Education
    #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #
    1. Bad Markets – A good pattern won’t bail you out of a bad market, so move to the sidelines when conflict and indecision take hold of the tape. Your long-term survival depends on effective trade management. The bottom line: don’t trade when you can’t measure your risk, and stand aside when you can’t find your edge.
    2. Bad Timing – It’s easy to be right but still lose money. Financial instruments are forced to negotiate a minefield of conflicting trends, each dependent on different time frames. Your positions need to align with the majority of these cycles in order to capture the profits visualized in your trade analysis.
    3. Bad Trades – There are a lot of stinkers out there, vying for your attention, so look for perfect convergence before risking capital on a questionable play, and then get out at the first sign of danger. It’s easy to go brain dead and step into a weak-handed position that makes absolutely no sense, whether it moves in your favor or not. The bottom line: it’s never too late to get out of a stupid trade.
    4. Bad Stops – Poor stops will shake you out of good positions. Stops do their best work when placed outside the market noise, while keeping risk to a minimum. Many traders believe professionals hit their stops because they have inside knowledge, but the truth is less mysterious. Most of us stick them in the same old places.
    5. Bad Action – Modern markets try to burn everyone before they launch definable trends. These shakeouts occur because most traders play popular strategies that have been deconstructed by market professionals. In a sense, the buy and sell signals found in TA books are turned against the naïve folks using them.

    11 Steps for Successful Trading

      
      Education
    #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

     

    1. You must have a Mission Statement.  What’s your real motivation behind your trading?
    2. You must spell out your trading/investing Goals and Objectives.  You cannot get from A to Bvery easily unless you truly know where B is.
    3.  You must spell out your Trading/Investing Beliefs and Market Beliefs.  Please remember this very important statement, “You cannot trade the market.  You can only trade your beliefs about the market.”  Therefore, it’s a very good idea to identify your beliefs about the market first. 
    4.  Spell out your exact Trading Strategies.  How do you go about analyzing the market and what are the key things you look at in your market analysis?  What trade set-ups do you use before entry? What are your timing signals for market entry?  What is your catastrophe stop loss?  Where and when will you take profits?  Will you use a trailing stop?  Will you scale into the market?  What exactly is your trade management system once you’re into the trade?    
    5.  What are your Position Sizing Strategies?  This is part of money management and is very important in reaching your trading goals and objectives in terms of profitability. 
    6. What are your typical Psychological Problems in following your trading plan?  What is your plan for psychological management for dealing with these problems?
    7. What are your Daily Trading Procedures?  What should you be doing on a daily basis, not only to become organized, but to become methodical in everything you do as a trader, on a day-to-day basis.
    8. Do you have an Education Plan to Help Improve Yourself on a continuing basis?  If not, you should have one.  Like anything else in life, you need to be continually working on yourself to become better and better.
    9. What is your Disaster Plan?  What can go wrong, and how will you deal with each item?
    10. What is your Planned Income and Budget for Trading Expenses?  This is pretty simple and straightforward; write down everything you can think of and try to be as realistic as possible.
    11.  How do you Prevent Trading Mistakes and Avoid Repeating Them… if they occur?  Really sit back and think about this and write down any and all mistakes that you might make during your trading.  Once you do that, come up with a solution to each potential mistake that you might make so you don’t allow that to happen.

    Mark Douglas Trading Discipline Exercise

      
      Education
    #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

    Nothing revolutionary about it, but a lot of common sense.

    Here’s the exercise with some of my personal observations added:

    Pick ONE trading signal. It doesn’t matter, what signal exactly, but it’s important that it should be one you consider reliable and really intend to start your career as a consistently profitable trader with trading this signal (I will explain in some of further posts, why it is so important to start trading with minimal number of different signals). (more…)

    Time to Read :Trading Rules !

      
      Education
    #  #  #  #  #  #  #  #  #  #  #  #  #

    To me, it’s useful to re-read things like this sometimes, just to remind myself of the obvious.  I hope you find them useful.  (The last rule alone has saved me a lot of money over the years…)

    Trade Management

    • Let winners run. While momentum is in phase, the market can run much further than might be expected.
    • Do not exit winners without reason!
    • Be quick to admit when wrong and get flat.
    • Sometimes a time stop is the right solution. If a position is entered, but the anticipated scenario does not develop then get out.
    • Remember: if one thing isn’t happening the other thing probably is. Historically, this has never been good for me…
    • Be careful of correlations. Several positions can often equal one large position bearing unacceptable risk. Please think.

    Other thoughts

    • I am responsible for risk management, money management, trade management, doing the analytical work and putting on every trade that comes.
    • I am not responsible for the outcome of any one trade. Markets are highly random. I do not have a crystal ball. I am not as smart as I think I am.
    • Risk management is the first and last responsibility. I can [mess]anything else up and be ok as long as I do not violate my risk management parameters.
    • Opportunity comes every day. Do not neglect the work. Must do analysis every day.
    • Opportunity comes every day. Get out of [crappy] positions. Move on.
    • I am a better countertrend trader than a trend trader. Sometimes the crowd is right, and they will run me over at those times if I’m not quick to admit I’m wrong.
    • If you’re going to do something stupid, at least do it on smaller size.
    Go to top