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Some
thoughts to Trade by Options
must be a crucial part of your trading plan. Nothing can control
risk or manage risk better than options. You can use options to
define your risk exposure at any moment in time. I
will be adding some options lessons at a later time. For now thought
to get you started. There
are many great sites that have great educational material on options &
everything in trading. CBOE, Options Clearing Corp, TOS & so on
& so on & its all FREE. Don't waste money.
I have started working again on
my book & so on again. So maybe by next year I will have it all done
& available. Thanks for Ur
understanding. For now U
should look at all the free material out there from http://www.optionsclearing.com
or www.thinkorswim.com or www.cboe.com
~ all free & great places to start with some great options educational
material.
Trading
thoughts ~
The
trading business is not about the 1 or 2 trades, not even the day or week.
It’s about the year or even longer. Everything is a trade
off in trading.
What
I believe is the common denominator in successful people is ~ simply the ~
Discipline to perfectly execute a sound plan with good money management.
The
trading business is the ultimate head game… and
If you are
not happy with who you are and what you have, then ~
You will
never be happy with what you get or who you become.
It’s the
decisions of every minute of everyday of every week of every month…
That adds
up to where you are and what you have.
Success
starts within you right here, right now…
Success
is a journey not a destination. Every time you execute a step in your plan
timely and correctly you become more successful. Every time you go against
that plan it also counts and works against you completing that journey.
You make the decisions that make certain things happen or not happen due
to action or a lack of action. Everything is linked to what you have done
or have not done to get you to where you are right now. It’s a summation
of all the decisions that you have made of every minute of every hour of
every day of every week of every month for the last so many years that
brings you to your current level of existence.
Trading
fits into this equation. Every time you execute an entry on a setup and
exit correctly in your plan you are taking the steps that make you more
successful. When you stray from your plan for whatever excuse you can
dream up, you are leaving the path of success and traveling unknown
territory. It might occasionally be more immediately rewarding but in the
long run it will take you further from the road of success.
Another
thing we need to deal with is the left, right, front, back, top and bottom
brains which create a brain box effect. You can be left bouncing around in
this box because you are not completely on the same page. The left brain
is analyzing what is happening in a trade while the right brain is trying
to execute the trade. The other brains are just plain fed up with the
conflict and you miss trades, delay taking trades or staying in trades too
long and don’t exit on time.
Conflict
occurs when there has not been enough testing or perfect practice of the
execution of the setups. There needs to be enough testing to create a
consensus that this is a viable plan and a well defined path. Some don’t
have a trading plan where all the details are spelled out from what kind
of trades will be acceptable, to the markets, to the time frame, to money
management and so on.
Second
guessing is of no value that I have seen. It only goes to undermine your
self-esteem. Timely evaluation is important but not the barge of self
doubt about every decision is only destructive. These are all indications
that there are things missing from your business plan. Some people tend to
abuse themselves too much when things are in a drawdown & don’t give
themselves enough credit when things are going well. This is the
“can’t be perfect image” that is unattainable nor sustainable. In
this business it can get out of control to the point where you do nothing
right. If you win, you didn’t have enough contracts on & if you
lose, you had too many contracts on. Then there are the people that accept
no blame for anything & find fault with everything else around them or
the Mr. Magoo effect. Both types are destructive and need to be guarded
against.
Good
setups are a dime a dozen but ~
The
People who can trade them profitably are priceless!
One
setup that has positive expectation & executed to near perfection in
the right market can make you a great living. Ten setups executed poorly
will surely put you out of business in any market.
It’s
easy to diversify yourself into extinction.
If
one setup is good then 10 setups must be better or even 10 x better.
The
learning curve increases when you diversify yourself too much
It
also diversifies your resources as well ~ time / energy / money /
proficiency /
So
stick to 1 market & 1 time frame to get started
Why
is it some people can take a number of setups & be profitable while
others can’t take any setups & make them profitable.
What
I believe is the common denominator in successful people is ~ simply the ~
Discipline to perfectly execute a sound plan with good money management.
Everyone
hopes to make a great living in trading, however ,
Before
U can make a great living trading U have to make a good living trading
Before
U can make a good living trading U have to make a living trading
Before
U can make a living trading U have to break even in trading
Before
U can break even U have to lose less in trading
Before
U can lose less U have to tweak your plan
Before
U can tweak your plan U have to have tested a plan
Before
U can test a plan U have to write a plan that fits U
Before
U can write a plan that fits U, U need to get honest with yourself
Focus
on your strengths & weaknesses & capitalize on both.
So
success is a process, not a destination, U can just jump to it.
How
many steps have you skipped or brushed thru?
Trading
momentum is like going with the flow, much like the road of success. It
maybe slow, but you are going the right way. Salmon swim up stream &
then they die so let that be a lesson to us to go with the flow. Don’t
be a fish.
Setups
are a dime a dozen but the people who trade them profitably are priceless!
Wasting
money & SCAMS ~
Don’t
waste money on people selling stuff out there. If it works, they will use
it to make the money. If it doesn’t work, they will sell it to make the
money.
In
fact these days the more you pay, the less you get. Everything is out
there on the Internet free. What they are selling has been out there &
they are just changing names & reselling the same old stuff. There is
a lot of information, support and help for free and it works. So
buyers beware.
Great
sites like CBOE, Options Clearing Corp, TOS & so much more & its
all FREE.
Candles
are another hot button of mine. People pay good money to these crooks that
sell this fantasy that candles give you this big advantage. They give them
neat names & creative stories to sell the idea to the mathematically
& chart challenged traders desperate for an edge. There is not one
additional bit of information over the bar charts. I use them ONLY because
it’s easier to see because the body is colored in. It still is only the
open, high, low, & close that creates the candle just like the bar
chart.
BE
the market >>> for only $995 you too grasshopper can be the
market. LOL. Where do these guys come from? And people give them money…
I just wonder how these people ever got the money in the first place.
Everyone
is looking for the Holy Grail.
I
see all setups work some of the time but no setup works all the time.
Maybe
we should focus our time in finding the right time to use various setups.
Hence
my no gos. I have defined the times that are less rewarding for my setups
& the times I want to avoid being in the market.
News
~ people want to avoid news; but they want the market to move. News moves
the market. Did U test your setup by checking & avoiding news? How do
you know if news will make you profitable or less profitable? U can’t
know what happens over the news period without actually checking the
numbers with the news excluded?
Trading
with discipline & follow the Plan!
I
grade the trade or the day by how close to perfect I executed my plan, not
by how much money was made or lost. By focusing on the execution details,
I know that the big picture will take care of itself. If you reverse the
process & just focus on the end goal you will miss perfectly executing
the details & the big picture will just be a dream.
Trading
in the rear view mirror ~
If
you are dwelling on the last trade you will probably mess up the trades
coming up. So the need for you to remain focused and in control of your
discipline is paramount to executing your plan to near perfection.
By
focusing on your plan that you believe in & ignoring all else ~ you
avoid
revenge
trades ~ brain locks ~ panics ~ made up trades
Because
this business is a numbers business there is no room for emotions.
Too
many get hung up on all their intelligence, all
their degrees & all their success & all their egos & all the
news that they have at hand & all their calculations ~
They
can’t believe that a simple plan can out perform all their
resources and that you can simply click for ticks and it can work.
People like to complicate things ~ we think that it makes things better…
People like to build a rocket to light a fire when a match will do…
Usually the simpler is just better.
Using a tighter stop or trading with less cars or getting away from your
plan are all indications that maybe you don’t have the confidence in the
trade. It is also an excellent indication that you should pass on the
trade and wait until there is a trade where you don’t have to
compromise.
Don’t waste ticks. If you waste 2 ticks here & 2 ticks there it adds
up. If you drop 2 ticks in the morning & 2 ticks in the afternoon,
that’s 20 ticks per week. That adds up to 1000 ticks per year times how
many contracts you traded. This can add up well into the 6 figures. You
must overcome this just to get to the break even point. Wasting ticks will
put you out of business. You delete this playing with the houses money
mentality. Once you have earned that money it is yours & you need to
treat it the same way as the rest of your money.
Money Management ~
Over trading with too many trades as well as taking too much risk at any
one time could be detrimental to your business. Just as we have discussed,
this is a long term business. Any time you are faced with the prospect
that 1 or 2 or a few trades can determine the future of your business you
are over trading. The trading business is not about the 1 or 2 trades, not
even the day or week. It’s about the quarter or the year or even longer.
This is like any other business in that it needs capital to run & at
some point U need to pull money out to exist. This needs to be planned
ahead. You don’t want to starve nor do U want your business to starve.
How much will U leave in to grow the business to new highs? How high do U
intend to grow & more importantly, how fast & at what risk level?
You may think that at first when the business is getting started &
there is less to lose, U may be willing to take a higher degree of risk.
After U have made a certain amount of money you don’t want to give it
back. At that point U may elect to reduce your risk exposure rather than
going for higher gains. This would help in the event of worsening market
conditions or a larger draw down than previously encountered.
Poor money management, poor budget planning or poor risk management will
put U out of business faster than anything. Attitude is important. Trading
too many lots or holding on to loss too long or straying from your plan
are all warning signs for disaster. I have never seen a big loss that
didn’t start out as a small loss. How big it gets is up to U. U can
always take a loss or there are ways of hedging or mitigating the loss if
U are locked in. So the total impact any loss has is all up to U. Are you
in control of your future or are U just hoping, wishing and praying for a
future?
I don’t want to get into the business of deciding how far the market
will go. I prefer to let the market be the market and I try to focus on
the probabilities and percentages. Where is the best percentage chance of
a positive trade? I don’t want to do the markets work for it. I don’t
tell the market that it didn’t do what it was supposed to do because the
market is always right. You can’t take from the market, what the market
won’t give you. You can only take what the market gives up. Markets are
constantly changing. You only need to look from year to year to see that a
market will do what it wants to do. If you are not flexible to adapt to
the market changes, you will pay the price.
Let the market be the market Let the plan monitor the market
All that
leaves for us to do is react to our plan for entry and exits
Testing is essential to establish potential expected risk & reward
numbers. It also serves as ground work for development of the eye, brain
& hand coordination as well as screen time. It also gives you the
opportunity to practice the perfect execution of the trade. Practice does
not make perfect. Only perfect practice makes perfect. So let’s see your
numbers.
I am an All In All Out trader but I use to scale in & out. I noticed
that my numbers were not warranting all the extra effort, added stress,
increased opportunity to make mistakes on the front end or additional
workload for no real appreciable gain. Let’s say you win 55% of the
time, lose 40% of the time, push 5% & have a 2-1 RR average on your
trades. So over 100 trades we can calculate that we should win 55 * 2 or
+110 and lose 40 * 1 or -40 for a net of +70 ticks. Even at RR of 1-1,
it’s still 55 – 40 for a net of +15 for less work, less stress, less
chance of mistakes. Why would I create or execute a plan that focuses on
any fundamental weakness? The idea of writing a plan is to make sure that
we are focusing on strengths & minimizing weaknesses.
less hassles and
work
less micro management
less chances of making a mistake
less stress
more rewards
more money
more macro management
In addition, as the market moves in our direction the last cars that are
added make the least amount of ticks. However, if the market reverses on
you, you now are losing at a greater rate than the rate you were winning
at. Also this puts us in the position of guessing how far the market will
continue to go. I prefer to let the market be the market & let my
plan decide how much I can get out of it & just react to my planned
exit as All In All Out. Basically if it is good enough to get in then get
in, if it’s not good enough to trade then stay out.
I don’t think or even expect that you will agree with everything, in
fact ~
If 2 people agree on everything ~ one is useless
If 2 people disagree on everything ~ both are useless
So if we can agree on 70% of things & work to improve on the 30%,
we can advance our ideas forward based on facts & better results.
This creates progress.
If you have other ideas ~ ok
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