contd from tnsn2345
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Yes, the first trade was profitable (but not from the beginning), infact at the day open till 1 hour it was negative to almost 26 points, but since the holding time for this trade was till Tuesday EOD and review time was EOD today this much volalitliy has to be figured in. But in the end the trade was much positive with 46 points. But is this the point....NO....
Ok, the second trade, was quite simple and though you have tried analysing it for holding peirod till expiry, if you relook I had mentioned that it was an intraday trade with closing by EOD today are review period of 1300, 1400 hrs and EOD. This trade focused only on time decay which would have been of max. around 9-10 points at the EOD, had the IV remained constant.
This trade as correctly mentioned was almost in the positive territory since beginning and maginally negative occasionally, ranging from -2 points to + 7 points. Then we had a downside post 1330 hrs and if the trade was held till EOD would have resulted in loss. But is this the point... NO ...
So what is it that I want to demonstrate here. Even for non-options traders this applies. Once I explain the motive to demonstrate these two trades, need be I will demonstarte live equity/stock trade next week, so it may be clear for non-options traders.
He just mentioned about neutral strategies, didn't he. Well it may look like that initially but they are not, infact both are not. Why because when I initiated a setup I had some 'idea' about to movement of the UL (let us say bearish in the first case) as per my decision making system, but I could be wrong, could I be. Yes, we all do make wrong entry decisions, but then how do I ensure that my decision (say bearish) in this case is correct and I am not caught in a wrong move upside. What is an upside move happens, 1) Immediately 2) In the interim period of my holding period??????????
How do than I cut my loss making trade? How? How? How much loss should I take? etc etc (We will talk about portfolio mangement and RM later), so I thought why not take only the correct trades (you think I am insane to make such statement) Well I also thought so initially, but then I thought that I need to develop something which will help me always to get into a right trade..what is it I am talking about? No I am not talking about my decision making system, that is my system, yours could be different. I may, if I think appropriate, may write on it maybe later, or maybe not.
How to then convert your loss making trade at initiation into profit???
What do you think, do I have any such method to take just the right trades or convert a loss making trade into a winning trade, what is your opinion....
if it is difficult for you to guess, then kindly refer to my earlier two example trades, which appeared to be market Neutral at initiation with my view also mentioning something like that, but I had very specific view on the direction of the market, which was not disclosed...now you would say both the position were good the first resulted in a good profit at the end of the day and the second was good till half time of the day...
In both the cases, what do you think would I have done with the entire setup, would I have kept my longs/ short (of respecitve trades) open through out....????
I have already given some hints, and now if someone could either point out what I want to disclose further would really earn brownie points. I repeat I had a specific view (but maybe since I could be wrong in my view) I had.....and then mid way I .... so ended in substaintail gains at the end of the day more than the respective setups could have given because.........
Options trading (covered, open, writing, options strategies) is itself a vast subject and I guess it may not practically be possible to teach A to Z on this subject on such forums or atleast I am not capable of expressing myself in this forum as there are a lot of things you keep checking different numbers, graphs and not just the graph / price of the UL. It is like flying an jet watching all those funny meters, which can't be done on paper.
Also not many may be interested in Options trading at this point of time as the basic prerequiste for trading them IMO is to have a consistently successful or large stock trading background.
Like any trader, you have a view on the UL, bearish, bullish, sideways and in stock you can make money either in bullish or bearish movements (sideways is for Options...so we will not talk about it here).
So there are only two views to profit, bullish or bearish (we are not talking about the speed of change). It is just a plain view of the UL reaching a particular price up in case of bullish view and a particular price down in case of bearish view and by a 'specific time'. For every system of ours, this is important that the view has to be till a specific time, either 10 mins, 30 mins, till EOD, for 3 days, a week, a month etc.
But since we are no God, can we exactly define the end of the 'specific time' or can we define that our entry is just the right time and move will happen exactly after we have taken a position. Am I talking about catching the bottom or tops to take the best entry position - which by inate human desire we all want, yes...to a large extent, but then we need a confirmation too that we have indeed caught the best entry position and that too WITHOUT incurring loss..so the question is how do we do it, eating the cake and keeping it too...
When we arrive at a decision point (and say our view is bullish) we generally enter long, we generally enter at a point where the bears have just climaxed but are the bulls ready to charge....generally no. Though ideally we should have entered after a pause to let the climaxed bears, breathe easy and cool down and just as the bulls show signs of charging. But most of the traders are not so paitent to do so, and since we always want to be in the market, we take long position just when the bears have climaxed and then hold on our position till the bulls start charging....this waiting period of waiting and hoping that our position will flourish is the culprit and lot of things keep running in our minds during this time. We consider the time invested is too long and hence even when there is small up move, we tend to exit as we are restless, since we were kept waiting for so long for the bulls to charge. Alternatively if the bears decide to march further down south, there are high chances that the position is held on, since you are married to the position as you have been holding it for so long long time and the long holding period does not allow you to exit even when you know that the movement is not in your desired direction.
So though the best thing is to enter just when the bulls are ready to charge (in case of bullish view) or just when bears are ready to attack (in case of bearish view), we can succumb to our urge to enter the market and 'Get into the Action' and 'Get the first hand feel' by ENTERING NEUTRAL POSITIONS. Yes ENTER NEUTRAL.
So in the above example in both the position I have initiated the trades in Neutral Gear that means that the ignition of my car is ON and I am standby in a Netural Gear.
I had a view, in both the trades I mentioned - and that was bearish, but since I did not for sure knew when that would likely be triggered, I entered Neutral - so I am in the market and already in the action..till the time the market were moving in a limited range, my setups were not in much loss nor in much profit. As the time passed, and your conviction as per your system, charts and price action suggest that the desired movement has started, which can be anytime from the initiation time to the intermidiate time, I CLOSE THE LOSS MAKING POSITION from the NEUTRAL POSTION that I had at initiation. And than now I have a directional position, as per the trend in the market.
So out of the two sides, say for example, I do not spend my time and energy to keep analysing, which side is right and then move to side, BUT I AM IN THERE sitting on the fence all the times with one leg on each side, and swings my legs merrying in the air. The moment one side shows action, I pull out my leg from the other side, it is very fast and very easy.
How does this help...
- It meets the basic trader's instict of being in the market all the times (and the Netural position help you to be in the market, but without bearing any loss as you are market Neutral)
- As you exit your loss making position because of a movement in your anticipation, you develop habit of exiting trades in early loss - another requirement to be a successful trader.
- It helps to hold your positions for long time, since after an move in your direction, if there is a pause, you can reinitiate the opposite position and then then again get back to the market neutral position, keeping the original position in profit.
- And most importantly when you are having a market Netural position, and the movement subsequently happens in the OPPOSITE direction of your anticipation, you can either exit the entire NEUTRAL position or exit your loss making position (the position which you originally wanted to hold and profit) and continue with you NOW profit making position (originally which you did not anticipate to be in profit). So now you got it how to make your loss making position run into profits. This is despite the movement happening in the opposited direction to your anticipation.
There are a few more ways do this, but won't be stating them here...so other time.....
Hope you have understood what I wanted to convey, the Options trade was just an example, hence in those two trades, I have earned, but the original set up was exited midway and loss making trades where shun out, holding just the directional profit making position and profiting from the momemtum of the fall (in this case) or in some other cases would be a bull run.
To make things simpler for stock traders, it is like, If I am bullish on stock 'A', I go long stock 'A' and at the same time I go short say, stock 'B' (assuming they have be same Beta and are strongly correlated). And then I wait, from my initiation to the intermidate time (almost till half time of my original holding period) and just when the bull run starts during this period and I can see it on charts and price, I cover stock B and let stock A run in the money. And, if the bulls fail to take off till my holding period, i get out of both the stock. And conversley, if bears decide to take control in the interim, I either exit both the positions or cover the long stock A and continue holding short stock B.
Hope this help to convey my motive. Practise it, practise it, you can use it with your existing decision making system. And convert you loss making trades in to winners.
Whenever anyone enters into a trade, be it plain options or spreads, strategies or plain stock and/or futures, 3 things are can happen,
1. The move is in their direction
2. The move is opposite to ones logic for entering the trade
3. There is no move at all (as in it constantly keeps hovering near your levels and keeps fooling)
Now in all the three cases, if before entering any trade one has his mind set as to what he is going to do on all the three occasions(i started by writing it), trades and trading will become more easier.
Only in the case of the no.2 and no.3 is where the max learning takes place.
Cos its really sets one thinking as to what will i do if the trade goes against me. And there come all the trade managing fundas.
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Entering neutral inspite of having a inherent bias is an eye-opener for predominantly futures traders like me with primarily trend or price action following systems.
One immediate question that comes to my mind is another of trader's itches - to do something more about the position before the review time. Your EOD trade for e.g - correctly had review periods at EOD Friday till Tuesday. Would you have tweaked something in the trade had there been a gap down in your favor on Friday morning itself and by noon, the trade was clearly deep in money? Or would the tweaking either because of loss or gain happen only at the review time, given your belief in what your system is telling for that given TF. Or are "level" based reviews better? Like a review at 5600 or at 5450 etc .
................yes if you are targeting Absoulte Alpha Returns, then you need to be constantly in the markets going long, going short quite regularly, if the amount is large then the TF becomes larger, but the position in the market is mostly likely always there, through the above Neutral Entry example you may choose to be in the market all the times, from Netural to Long, to Netural to Short, to Netural to Short and so on. I also term is as a Spiderman trades you are out of one and then into another, just like that swinging spiderman from one building to the another. Would probably write more on spiderman trades later in subsequent topics. Also related to this subject is a 'spy trade' (kindly remind me, incase I miss out to explain you this as we go further)
...............there are other better ideas to make more money and 'with equal amount or lesser risk or without losing money'.
On the first part of this being an eye - opener, I would say that I developed this techinque as I found that once I had developed an opnion (essentially at the resistance or support, I would be keen to take a reversal trade, in many such occasion the trend would continue after some time and then though it seem a sure continuation of trend, since my orginal decision was reversal I would not take a position in continuation of the trend as it was not what I had anticipitated, through this techinque, since I am already in a Netural Trade, I could exit my loss making reversal trade (which was my main position) and continue holding the trend continuing position as it ran into profits.
The above techinques given large room to accomodate, right decision making errors and hence would advise it to starters, till they have developed a good strike rate sytem which gives high probablity of right signals on entry. Even today, I am stuck on lot of occasion when my system though it me some indications and I do not have conviction on that indication, I enter a Netural Trade first only to then release the loss making trade out and continue holding the profit making trade till the end of holding period.
On the second part, of reviewing the position at the end of review period, I can only tell that once you have done your trading portfolio allocation properly, (which is nothing but portfolio managment - we will discuss later) I do not see any reason for me to jump into any intermiate review. If you are thingking that the losses could be large due to gap up / gap down, that such volatility is factors in that time period portfolio and the overall effect on the total portfolio is small, even if that particular trading portfolio postion goes into a deep loss (which generally does not happen - once you have rigid and dynamic decision making trading system / method.
I recollect mentioning somewhere on this forum that I am like a baker, baking breads to cakes, to cookies in different ovens, and for different baking products, you need different temprature and time settings, I just need to open and check those ovens at those set time and not in between. As such when the timer of different oven stops as per what is being baked inside, i.e. end of my holding period, I exit automatically.
