Tuesday, January 31, 2006
Fooser & Pals update
I've been in Fooser's new room for a few weeks now and I've learned far more than I would have anywhere else in such a short amount of time. It has been worth all the $50 a week and more! No complaints. I was in the process of writing a trading plan and trying to analyze and put down his method into writing as well as some of my own but he goes and puts together the his whole plan and sends it out to everyone in the room! It was awesome. I was mostly write about his techniques but it was great to just have it in print. If you really want to learn in the fastest way possible and put yourself way up on that learning curve quickly then you must join his room. Highly recommended. I won't post his setups here so don't even ask. He requested that they be for Fooser Elite room member only and not only respect that I agree with it. I will continue to talk about it in general terms.
One of the things I plan on doing soon is a plan (will post it here) on one of my other trades that I've learned from another trade but adapted it to make it better. It's my Tick entry trade. I will do that this week.
Options. I printed last Friday's closing prices but haven't had a chance to write it up. I will do that soon.
Trader X
One of the things I plan on doing soon is a plan (will post it here) on one of my other trades that I've learned from another trade but adapted it to make it better. It's my Tick entry trade. I will do that this week.
Options. I printed last Friday's closing prices but haven't had a chance to write it up. I will do that soon.
Trader X
1/31/06 last day of month
Today will be interesting for 2 reason. One, it's the last day of the month and the markets usually positive. Two, it's a new Fed meeting with the new guy which means uncertainty. Yesterday we saw the beginnings of uncertaintly... market was very tight range and coiling up like a snake. I had no setups and no trades. Today it's off a little before the open but I wonder if will be the same until after the 1/4 point increase... a mistake by the way. Economy is already weaker but they will do it anyway.
I probably won't trade until after the Fed announcement.
Trader X
I probably won't trade until after the Fed announcement.
Trader X
Someone from the emini's named Bob posted this and I thought it was relavant. It seems that there are a lot of trading quotes (although not this one below) that are posted from http://tradingquotes.blogspot.com/ I should check out that blog more.
In "Barbarians at the Gate" that was referred to as a 'BGO' or Blinding Glimpse of the Obvious. I know I'm in the minority on this, which is fine with me, but in my view trading psychology books and all of the emphasis placed on this aspect of trading does far more harm than good. It also extends the learning process and the cost of it by a significant amount (just like squiggly lines and other toys). Whenever you watch someone who is truly good at what they do you'll notice that they've broken things down to their simplest components, and that they have a mastery of those components. They also look for ways to win instead of excuses for why they can't. When we first get involved in trading we believe it's a complex game that's easy to play well (if I could only find the right entry technique) and adopt a strategy based on that false premise. However, in reality it's a very simple game that's extraordinarily hard to play well, and at some point we have to drastically change that strategy if we want to succeed (mastery of the simple things). Unfortunately the cost to come to this realization is usually quite high and most are unwilling or unable to make the change if they even make it that far. But if you do you'll then understand that the "HOW" of trading (methods) is unbelievably simple while the trade management side is the real challenge (Oh sh-t, now what do I do!!!). Granted this part is mostly psyche, but in the end this too boils down to a few simple things: how bad you want it, venturing outside of your comfort zones (change), and a desire to win that's greater than your need to be right because you will be frequently be trading against your opinion (if you're trading properly). You can over-analyze this if you wish but you won't be doing yourself any favors.
Trader X
In "Barbarians at the Gate" that was referred to as a 'BGO' or Blinding Glimpse of the Obvious. I know I'm in the minority on this, which is fine with me, but in my view trading psychology books and all of the emphasis placed on this aspect of trading does far more harm than good. It also extends the learning process and the cost of it by a significant amount (just like squiggly lines and other toys). Whenever you watch someone who is truly good at what they do you'll notice that they've broken things down to their simplest components, and that they have a mastery of those components. They also look for ways to win instead of excuses for why they can't. When we first get involved in trading we believe it's a complex game that's easy to play well (if I could only find the right entry technique) and adopt a strategy based on that false premise. However, in reality it's a very simple game that's extraordinarily hard to play well, and at some point we have to drastically change that strategy if we want to succeed (mastery of the simple things). Unfortunately the cost to come to this realization is usually quite high and most are unwilling or unable to make the change if they even make it that far. But if you do you'll then understand that the "HOW" of trading (methods) is unbelievably simple while the trade management side is the real challenge (Oh sh-t, now what do I do!!!). Granted this part is mostly psyche, but in the end this too boils down to a few simple things: how bad you want it, venturing outside of your comfort zones (change), and a desire to win that's greater than your need to be right because you will be frequently be trading against your opinion (if you're trading properly). You can over-analyze this if you wish but you won't be doing yourself any favors.
Trader X
Tuesday, January 24, 2006
Option Analysis
This will be the final part of this. We concluded the last option post with the puts and what happened after the crash of last Friday. The only fault that I can really find is that I used credit spreads that were worth too little in value and I was a little aggressive on the debit spreads. That's OK. I might go back and change the credit spreads to make them more realistic. Regardless, we will finish this until maybe this Friday. I will try to keep tabs on some options trades but I will only do it once a week unless something really moves. For the most part trading option is like watching paint dry or like watching a block of ice melt... like time decay.
I will look at the combined credit spreads first. The Call credit spread we sold for 85 dropped to 35. A net gain of 50.
The put credit spread that we sold for 80 went to 180. Net loss of 100 but it wouldn't have hit my stop. I usually put a stop on the short position for 6 times what I sold it for.
The net between the 2 credit spreads was a loss of 50. Really not bad but you can see the benefits of trading spreads... they will limit your loss over just naked positions.
On to the Debit spreads. The debit call spread cost us 610 and after Friday it was worth only 415. A loss of 195.
The debit put spread we paid 670 for went to 790. A gain of 220. Take into account the loss of 195 and you have a net gain of 25. Not much but again you can see the benefit of trading spreads.
I want to take a quick look at these trades as if we had just sold the naked options.
If we only sold the Mar 1375 call for 110 and it dropped to 55 we would have gained 55. If we had only sold the Mar 1125 for 120 and watched to rise to 280, we would have had a loss of 160. Net the 160 loss on the puts against the 55 gain on the calls and you can see the total loss was 105. Twice what the spread lost.
Let's do the same with the debit spread. If we had sold the Feb 1310 for 740 and let it go to 255 we would have gained 485. Not bad for 3 days work... but wait. We also sold the Feb 1270 for 950 and it went to 1930! Opps A loss of 980 and even after the call gain of 485 you still lost 495! That is pretty serious! We gained money from the spread but lost money if we had sold the shorts naked. A lot of money. The reason? The long increased in value faster as the options went into the money.
If this example doesn't tell you why you only want to trade spreads then I don't know what will!
Maybe we will talk about diagonal spreads next week?
Trader X.
I will look at the combined credit spreads first. The Call credit spread we sold for 85 dropped to 35. A net gain of 50.
The put credit spread that we sold for 80 went to 180. Net loss of 100 but it wouldn't have hit my stop. I usually put a stop on the short position for 6 times what I sold it for.
The net between the 2 credit spreads was a loss of 50. Really not bad but you can see the benefits of trading spreads... they will limit your loss over just naked positions.
On to the Debit spreads. The debit call spread cost us 610 and after Friday it was worth only 415. A loss of 195.
The debit put spread we paid 670 for went to 790. A gain of 220. Take into account the loss of 195 and you have a net gain of 25. Not much but again you can see the benefit of trading spreads.
I want to take a quick look at these trades as if we had just sold the naked options.
If we only sold the Mar 1375 call for 110 and it dropped to 55 we would have gained 55. If we had only sold the Mar 1125 for 120 and watched to rise to 280, we would have had a loss of 160. Net the 160 loss on the puts against the 55 gain on the calls and you can see the total loss was 105. Twice what the spread lost.
Let's do the same with the debit spread. If we had sold the Feb 1310 for 740 and let it go to 255 we would have gained 485. Not bad for 3 days work... but wait. We also sold the Feb 1270 for 950 and it went to 1930! Opps A loss of 980 and even after the call gain of 485 you still lost 495! That is pretty serious! We gained money from the spread but lost money if we had sold the shorts naked. A lot of money. The reason? The long increased in value faster as the options went into the money.
If this example doesn't tell you why you only want to trade spreads then I don't know what will!
Maybe we will talk about diagonal spreads next week?
Trader X.
1/24/06 .... pretty boring days
It's seem that the market has been in consolidation mode since last Friday's crash and just hasn't really made up it's mind about what it's going to do. The trend is slightly up and I do mean slightly. done a few Fooser trades but nothing to speak of since all we do is bang off of support and resistance levels. Hopefully tomorrow this thing will take off one way or the other so we can make some money!
Trader X
I will get back to the option thing soon.
Trader X
I will get back to the option thing soon.
Sunday, January 22, 2006
Option analysis.....
It's getting late but and I've been watching a discovery show on hunting Nazis and the Kennedy assassination... that should tell you something right there. Needless to say I may have easily gotten something wrong to so I will double check all my math and prices. Don't take this literally and don't make these trades or any trades that I might use for analysis! Trading is very risky and can and will cause losses!
Trader X
Trader X
Puts... after the crash!
Now it's time for the good, the bad, and the ugly! HA! OK, here we go.....Credit spreads
We bot the Feb 1125's for .40 and sold the Mar's 1125 for 1.20 for a total spread of .80 and a hopeful profit of .40. The current prices are:
Feb 1125's are 1.00 and the Mar 1125's are 2.80. The spread is now 1.80. We have an immediate loss of 1.00 (180-.80). This isn't good! Before we make a conclusion on this if we look at the calls we sold we made .50 on the call spreads so our real loss is only .50.
Let's take a look at the Debit Spread:
We sold Feb 1270's for 9.50 and bot Mar 1270's for 16.20. We paid 6.70 for this spread and hope to make 2.80 on this... In a perfect world.
It's now currently trading for....
Feb 1270 for 19.30 and the Mar 1270 for 27.20. Oh man, this could hurt. The net spread is now 7.90. Hmmm, that really isn't that bad? We only paid 6.70 for it and now it's worth 7.90? Hey that isn't bad is it???? Or is it? We made a potential 2.20 in 3 days but we had better look at the calls before we call it a victory. We lost 1.95 on the calls debit spreads... but wait. I'm getting ahead of myself. I'm saving that for the next post.
Now that I have you salivating, I'm getting too tired to finish this! I will have a summary post soon and in fact maybe I will tract these trades every Friday until I would close them.
Trader X
We bot the Feb 1125's for .40 and sold the Mar's 1125 for 1.20 for a total spread of .80 and a hopeful profit of .40. The current prices are:
Feb 1125's are 1.00 and the Mar 1125's are 2.80. The spread is now 1.80. We have an immediate loss of 1.00 (180-.80). This isn't good! Before we make a conclusion on this if we look at the calls we sold we made .50 on the call spreads so our real loss is only .50.
Let's take a look at the Debit Spread:
We sold Feb 1270's for 9.50 and bot Mar 1270's for 16.20. We paid 6.70 for this spread and hope to make 2.80 on this... In a perfect world.
It's now currently trading for....
Feb 1270 for 19.30 and the Mar 1270 for 27.20. Oh man, this could hurt. The net spread is now 7.90. Hmmm, that really isn't that bad? We only paid 6.70 for it and now it's worth 7.90? Hey that isn't bad is it???? Or is it? We made a potential 2.20 in 3 days but we had better look at the calls before we call it a victory. We lost 1.95 on the calls debit spreads... but wait. I'm getting ahead of myself. I'm saving that for the next post.
Now that I have you salivating, I'm getting too tired to finish this! I will have a summary post soon and in fact maybe I will tract these trades every Friday until I would close them.
Trader X
Puts... the other half of these trades.
I may have to break this up into 2 different post because it's getting late but I think we can at least create the positions that we would have taken back on the 17th. Now let's get on with it! We will start with a credit spread as we did before.
Buy Feb 1125 for .40. Sell Mar 1125 for 1.20. The total credit is for .80. In a perfect world the Feb's would go to 0 and the Mar's would drop to .40 (1.20 - .40 = .80) total possible gain of .40 or $100. If this doesn't makes sense to you then review the past entries to check my calcs. If they still don't make sense to you then I've had too much wine with my dinner!
OK, on with the debit spread:
Let's sell a Feb 1270 for 9.50 and buy a Mar 1270 for 16.20. You paid 6.70 for this trade but you hope to make 2.80 on this trade (9.50 goes to 0 and the 16.20 goes to 9.50 in a perfect world remember? Total difference is gain of 9.50 - loss of 6.70 (16.20-9.50)= 2.80.). As before the debit seems to make more than the credit off the bat.
Let's see what the numbers are after the 2% drop, give or take, on the S&P, last Friday.
That will be the next post.
Trader X
PS, it's getting late and I may need to do some re-editing to these. If they don't makes sense number wise to you it may be because I'm getting tired.
Buy Feb 1125 for .40. Sell Mar 1125 for 1.20. The total credit is for .80. In a perfect world the Feb's would go to 0 and the Mar's would drop to .40 (1.20 - .40 = .80) total possible gain of .40 or $100. If this doesn't makes sense to you then review the past entries to check my calcs. If they still don't make sense to you then I've had too much wine with my dinner!
OK, on with the debit spread:
Let's sell a Feb 1270 for 9.50 and buy a Mar 1270 for 16.20. You paid 6.70 for this trade but you hope to make 2.80 on this trade (9.50 goes to 0 and the 16.20 goes to 9.50 in a perfect world remember? Total difference is gain of 9.50 - loss of 6.70 (16.20-9.50)= 2.80.). As before the debit seems to make more than the credit off the bat.
Let's see what the numbers are after the 2% drop, give or take, on the S&P, last Friday.
That will be the next post.
Trader X
PS, it's getting late and I may need to do some re-editing to these. If they don't makes sense number wise to you it may be because I'm getting tired.
Call options trades.....
OK, we are going to go over the call options that we talked about earlier in the week. I'm going to simply compare the prices of where they where to where they are. Simple right? Well, actually yes. It should be. Here we go!
On the 17th we sold a call credit and debit spread, right?... let's keep our order correct and we will do credit spread first. Here are the prices we sold it for on the 17th.
Bot, Feb 1375 for .25. Sold Mar 1375 for 1.10. Our total spread was a credit of .85 and a hopeful net profit of .60 or (.60 * 250 or $150).
after about a 2 percent correction in 3 days on the S&P 500 what do we have here? I will look it up!
Feb 1375 call for .20 and the Mar 1375 for .55. Well, that isn't half bad! Our short went down by .55 (1.10-.55=.55) and our long dropped to .20 (just wait till we talk about spreads to see how relevant this number really is!).
Total spread was .85 (1.10-.25) and it is now .35 (.55-.20). Total gain is .50 or $125 (.50 *$250). My advise is to take the profits and run!
On to the Debit spread.
We Sold Feb 1310 for 7.40 and Bot Mar 1310 for 13.50 for a total debit spread of 6.10.
The current prices are:
Feb 1310 is 2.55, and the Mar 1310 is 6.70. Our total spread is now worth 4.15. Hmmm... We paid money for this one and it is worth less than what we bought it for? Well, yes it is but just wait until we calc what a threoretical put position would have been worth in the next post before you call it quits!
The Credit spread made you a little money and the Debit spread lost a wee bit more as the Scottish would say. This is only really 1/2 the story. The other half are the corresponding put spreads that you would have most likely sold.. I know I would have...
Trader X
On the 17th we sold a call credit and debit spread, right?... let's keep our order correct and we will do credit spread first. Here are the prices we sold it for on the 17th.
Bot, Feb 1375 for .25. Sold Mar 1375 for 1.10. Our total spread was a credit of .85 and a hopeful net profit of .60 or (.60 * 250 or $150).
after about a 2 percent correction in 3 days on the S&P 500 what do we have here? I will look it up!
Feb 1375 call for .20 and the Mar 1375 for .55. Well, that isn't half bad! Our short went down by .55 (1.10-.55=.55) and our long dropped to .20 (just wait till we talk about spreads to see how relevant this number really is!).
Total spread was .85 (1.10-.25) and it is now .35 (.55-.20). Total gain is .50 or $125 (.50 *$250). My advise is to take the profits and run!
On to the Debit spread.
We Sold Feb 1310 for 7.40 and Bot Mar 1310 for 13.50 for a total debit spread of 6.10.
The current prices are:
Feb 1310 is 2.55, and the Mar 1310 is 6.70. Our total spread is now worth 4.15. Hmmm... We paid money for this one and it is worth less than what we bought it for? Well, yes it is but just wait until we calc what a threoretical put position would have been worth in the next post before you call it quits!
The Credit spread made you a little money and the Debit spread lost a wee bit more as the Scottish would say. This is only really 1/2 the story. The other half are the corresponding put spreads that you would have most likely sold.. I know I would have...
Trader X
So, you want to be an options trader part 2!
2 fortuitous things happened this week. One, when I wrote the first part of this I didn't know the options expiration Friday was going to be a blowout day and two, I for some reason that escapes me, saved my 15 page printout of the option prices from the cme that I used to create examples of the trades. What does that mean? It means we can go back and recreate several good examples of trades you could have placed before a 23.5 point drop in the S&P and then we can look at the effects of a High Vol (volatility or Vega for you newbies) market dump and puke (as us daytraders call em!) and a Vix spike. These should be good examples of some of the risk involved in trading, which is why I'm going to do this for you. This way you might be able to avoid one of these in real life!
OK, lets start with the prices. I saved the pit-trades prices as of 1/17/06 as off 3:30 ct. Closing prices, or settlement. I also printed out the closing prices from Friday, 1/20/06. This will be a good example of price action with very little time decay involved since it was only 3 days difference. Remember the concept of holding all things equal? Well, were going to show just how dangerous the other stuff is! It can be very dangerous.
I've suddenly realized that this is going to be a really long post so I'm going to break this up into segments, which will make it easier to write and for you to printout and study, one block at a time. I'm going to stop here for this one and write one post on calls, on on puts, and then a summary post if you want to look at them in pairs (call spread with a put spread, some people call then condors, iron condors, etc... which are really just made up of the subcomponents of straddles, strangles, bull spreads, bear spreads, cow spreads, cow pies, cow patties, etc... some of these are real names but it gets to the point of being ridiculous because no one calls any of this stuff the same thing. Don't get caught up in the names!).
OK, lets start with the prices. I saved the pit-trades prices as of 1/17/06 as off 3:30 ct. Closing prices, or settlement. I also printed out the closing prices from Friday, 1/20/06. This will be a good example of price action with very little time decay involved since it was only 3 days difference. Remember the concept of holding all things equal? Well, were going to show just how dangerous the other stuff is! It can be very dangerous.
I've suddenly realized that this is going to be a really long post so I'm going to break this up into segments, which will make it easier to write and for you to printout and study, one block at a time. I'm going to stop here for this one and write one post on calls, on on puts, and then a summary post if you want to look at them in pairs (call spread with a put spread, some people call then condors, iron condors, etc... which are really just made up of the subcomponents of straddles, strangles, bull spreads, bear spreads, cow spreads, cow pies, cow patties, etc... some of these are real names but it gets to the point of being ridiculous because no one calls any of this stuff the same thing. Don't get caught up in the names!).
Thursday, January 19, 2006
Gap numbers
This is the chart I keep by my desk. This came from a study. Not sure who did the study but I got it from Hubert at Tradethemarkets.com in a free cbot seminar he did. He is a great trader. Here goes
% odds of a close for each day:
Monday 65
Tuesday 77
Wednesday 79
Thursday 82
Friday 78
% by the S&P point gap
1 93
2 90
3 82
4 86
5 60
6 77
7 71
After 7 points the odds quickly drop below 50% so I would take them.
Trader X
% odds of a close for each day:
Monday 65
Tuesday 77
Wednesday 79
Thursday 82
Friday 78
% by the S&P point gap
1 93
2 90
3 82
4 86
5 60
6 77
7 71
After 7 points the odds quickly drop below 50% so I would take them.
Trader X
1/19/06 Today Enrico and I cleaned up!
And we got paid to clean and got paid well! It was one of those day when you just knew it was going to go up. And I knew it. We entered long from what looked like a little dip just before the market opened around 8650. We were long and the market was falling from the open. Enrico took his off at 8450 but I just knew it was going to turn but where? then I checked the Gap from yesterday. The 3:00 gap was 8250 and the 3:15 gap was 8350. I looked at a table I keep near my desk and realized that the gap was going to close and at this point I was about a point away from the 8350 so I just decided to stick it out. Enrico did the smart thing by taking his first trade off and then putting in an order at 8350 to reenter. Now as a matter of convention I use the 3:15 ct close but I'm not really sure which close most people use. The cash market close or the futures market close. If you have an idea on this please comment.
The market closed the gap and Enrico and I are both long.... and it didn't take long for this thing to start back up. It took 2 hours to close and then it had 11 green candles on the 15 min chart all the way to 1:00 and 9275! Man oh Man! We were loving it! We were PPing (taking partial profits) all the way up and just moving our stops just like the Foos does and by the time it hit 92 plus our stops were at 91. Market finally retraced and stopped us both out with grins on our faces!!!! Happy traders today!
Points to remember:
Gaps are often pivot points.
Bottoms and tops are often at hour or 1/2 hour marks (plus or minus a few minutes).
Trade management is key and we are both getting pretty darn good at it.
I'm starting to be able to look at the market depth and see where it might go. Good stuff!
Trader X
The market closed the gap and Enrico and I are both long.... and it didn't take long for this thing to start back up. It took 2 hours to close and then it had 11 green candles on the 15 min chart all the way to 1:00 and 9275! Man oh Man! We were loving it! We were PPing (taking partial profits) all the way up and just moving our stops just like the Foos does and by the time it hit 92 plus our stops were at 91. Market finally retraced and stopped us both out with grins on our faces!!!! Happy traders today!
Points to remember:
Gaps are often pivot points.
Bottoms and tops are often at hour or 1/2 hour marks (plus or minus a few minutes).
Trade management is key and we are both getting pretty darn good at it.
I'm starting to be able to look at the market depth and see where it might go. Good stuff!
Trader X
1/18/06 Funny thing happened at lunch...
I don't remember much about the morning session but I know that the market was kicking my butt all over the place. Foos was in early and I was trying to catch up but by the time I finally got in the trade he was taking profits and I was booking losses! It was killing me. Then whatever I was doing the market was doing the opposite. I was getting hungry and pissed and we all know what happens then. Before I could do anymore damage to myself and long before I started revenge trading I had to go to Quizno's for some lunch. On the way back from lunch a couple of stop loss orders I had in the market from earlier but forgot to close out executed... I got back from lunch and the market was up significantly. Of course those orders were sells right? Wrong... by the grace of the markets they were both buys and I was up 4 and 5 points on these suckers. Needless to say I didn't look the gift horse in the mouth... I double checked my numbers to make sure of what had happened just to make sure the cars (contracts) were mine and then I started working out of them as the market continued to rise. Sweet! Turned what was a crappy day in to a great one. The market giveth, the market taketh away.... in this case it was a giveme. I almost always check my balance and open orders but somehow missed this one. I will be more diligent from now one.
Trader X
Trader X
Tuesday, January 17, 2006
So, you want to be an options trader?????
Do you really? Well, OK. I'm going to show how I do some very simple analysis of what I buy and sell. I'm going to assume that you have some basic options knowledge already... if you don't then start reading books... and I do mean a lot of them. I'm not actually taking any of these trades and I'm doing this only for demonstration purposes. Don't do these trades... just learn from this. I'm using extreme examples to make a point. I repeat, do not do these trades.
All of the prices I use are current prices but in the real world there are spreads to consider and commissions so you won't actually be able to trade at these prices. Also, all of these example are making several assumptions. The largest of which is that all else remains the same! Does this ever happen? NO! Of course not. That's why these are just examples and I wouldn't trade them. Prices change, volitilty changes and so do other things that are more complicated for these examples such as Delta, Theta, and Gamma. If you don't know these start reading. I'm not going to get into this here.
Nuff said? OK. The prices I'm using are from the cme.com site. On the right side under the current quotes hit "view all delayed quotes". On the left hit "cme equities", then "cme s&p 500" look to the right and select "pit traded options". They are sorted by calls, then puts by month.
First I'm going to show you the difference between and verticle spread and a calendar spread. Verticle spreads are using two different options strikes that are in the same month. My favorite is the Verticle Credit spreads. An example is Sell the Feb, 1325 for 3.50 and buy a Feb 1400 for .10. Its a credit because you take in more than you spend.. therefore you have a credit or you get paid at the start. Doesn't mean you keep it all but it's a nice idea. In this example if the market doesn't go to 1325 by the 3rd Friday of the month then you collect the difference between the two, which is 3.40. On the big S&P contracts the prices are multiplied by $250 to get the actual dollars involved. In this case it's 3.40*250= $850. Verticle spreads. Got it. Good cause we are moving on.
Horizontal spreads also know as Calendar spreads. Why... because you use the same strike price but you position them in different months. Example of a Horizontal Credit spread (what we sell is worth more than we buy so we get a credit) would be:
Buy an Feb 1375 call for .25 and sell a Mar 1375 call for 1.10.
Ok, we all want to know how much we make right? Let's figure it out. Just subtract the two like before and we have out profit right? WRONG! It's a little more complicated than this. Here's what you do. In theory your Feb 1375 goes to 0. Congratulations, you just had your first trading loss of .25 (in real dollars it's $62.50 right). Well it gets better. Your March contract also loses value... but how much. We are making the assumption that you will hold this position for a month. How much is it going to be worth in a month? I have no idea and neither do you but you can make a wild guess for this example. Where do we start? Well take a look at the Feb 1375 price of .25... it's the same strike price but only one month closer to expiration right? In a perfect world couldn't we assume that the March contract would be worth what the Feb contract is worth right now? Making the assumptions (remember what I said about assumptions... they are never correct) that all else remains equal we will assume that one month from now the March 1375 will be worth .25. Where does this leave us. We sold it for 1.10 and it's worth a month from now .25 so we made .85 (or $212.50). But remember that we lost .25 from the Feb option expiring worthless so our net profit would hopefully be .60 or $150.
I am rambling and not really checking my math so hopefully I will get this all right.
Now, lets get on with another type of Calender spread called the Debit calendar or horizontal spread. It's the same thing but you switch the buy and sell. Simple right? Here we go.
Sell the Feb 1310 call for 7.40 and buy the Mar 1310 call for 13.50.
How much do we make if the market stays below 1310. The Feb option would go to 0 and the Mar call would drop to 7.40 from 13.50. That's a loss of 6.10 and a gain of 7.40 for a net gain of 1.3 or $325. This a Debit spread because you have to pay money for it. I used an example very close to the market for demo purposes. I would never even think of trading something this close. Suicide! Don't do it.
OK, so now your asking what's the difference between the two. Well if you noticed the debit spreads can make you more but you are much closer to the market. The other advantage the debit spread will have is that you only have to pay for it. No margin required. That's in the cash market but I'm going to have to check the span margins for one of these because I've never done one in the futures market. I will do that soon just to make sure. The other thing you should consider is that the optimum market to do one of these in is one with little expected volitility. You don't want this thing to go up like crazy past your strike or it's going to hurt. I theory you would want these to go right up to your strike and expire there on the short leg expiration day. In theory.... we all know how often that happens.... never!
The Credit spreads may not make as much money but they are further from the market so a little safer. The do require margin but much less (usually only 1/3 of a verticle credit spread). How much depends on how close to the market you are. The closer you are to the market the higher the margin will be because you have more risk.
Rest assured... you can lose money on both of these trades. You will if you do it long enough, but you wanted to be an options trader didn't you????
The other thing to consider is that it is rare that I just do a call spread without a put spread at the same time since I strive to be Delta neutral as much as possible... don't always get there but I am usually working toward it. That way if the market is rallying and you have a call spread in trouble your put spread is most likely doing well, that is unless Vega (Volitility) is getting a little out of hand. That's a whole other story. Take it from me. I traded through Oct 87 and 9/11 and lived to tell about it. Not much fun!
Trader X
All of the prices I use are current prices but in the real world there are spreads to consider and commissions so you won't actually be able to trade at these prices. Also, all of these example are making several assumptions. The largest of which is that all else remains the same! Does this ever happen? NO! Of course not. That's why these are just examples and I wouldn't trade them. Prices change, volitilty changes and so do other things that are more complicated for these examples such as Delta, Theta, and Gamma. If you don't know these start reading. I'm not going to get into this here.
Nuff said? OK. The prices I'm using are from the cme.com site. On the right side under the current quotes hit "view all delayed quotes". On the left hit "cme equities", then "cme s&p 500" look to the right and select "pit traded options". They are sorted by calls, then puts by month.
First I'm going to show you the difference between and verticle spread and a calendar spread. Verticle spreads are using two different options strikes that are in the same month. My favorite is the Verticle Credit spreads. An example is Sell the Feb, 1325 for 3.50 and buy a Feb 1400 for .10. Its a credit because you take in more than you spend.. therefore you have a credit or you get paid at the start. Doesn't mean you keep it all but it's a nice idea. In this example if the market doesn't go to 1325 by the 3rd Friday of the month then you collect the difference between the two, which is 3.40. On the big S&P contracts the prices are multiplied by $250 to get the actual dollars involved. In this case it's 3.40*250= $850. Verticle spreads. Got it. Good cause we are moving on.
Horizontal spreads also know as Calendar spreads. Why... because you use the same strike price but you position them in different months. Example of a Horizontal Credit spread (what we sell is worth more than we buy so we get a credit) would be:
Buy an Feb 1375 call for .25 and sell a Mar 1375 call for 1.10.
Ok, we all want to know how much we make right? Let's figure it out. Just subtract the two like before and we have out profit right? WRONG! It's a little more complicated than this. Here's what you do. In theory your Feb 1375 goes to 0. Congratulations, you just had your first trading loss of .25 (in real dollars it's $62.50 right). Well it gets better. Your March contract also loses value... but how much. We are making the assumption that you will hold this position for a month. How much is it going to be worth in a month? I have no idea and neither do you but you can make a wild guess for this example. Where do we start? Well take a look at the Feb 1375 price of .25... it's the same strike price but only one month closer to expiration right? In a perfect world couldn't we assume that the March contract would be worth what the Feb contract is worth right now? Making the assumptions (remember what I said about assumptions... they are never correct) that all else remains equal we will assume that one month from now the March 1375 will be worth .25. Where does this leave us. We sold it for 1.10 and it's worth a month from now .25 so we made .85 (or $212.50). But remember that we lost .25 from the Feb option expiring worthless so our net profit would hopefully be .60 or $150.
I am rambling and not really checking my math so hopefully I will get this all right.
Now, lets get on with another type of Calender spread called the Debit calendar or horizontal spread. It's the same thing but you switch the buy and sell. Simple right? Here we go.
Sell the Feb 1310 call for 7.40 and buy the Mar 1310 call for 13.50.
How much do we make if the market stays below 1310. The Feb option would go to 0 and the Mar call would drop to 7.40 from 13.50. That's a loss of 6.10 and a gain of 7.40 for a net gain of 1.3 or $325. This a Debit spread because you have to pay money for it. I used an example very close to the market for demo purposes. I would never even think of trading something this close. Suicide! Don't do it.
OK, so now your asking what's the difference between the two. Well if you noticed the debit spreads can make you more but you are much closer to the market. The other advantage the debit spread will have is that you only have to pay for it. No margin required. That's in the cash market but I'm going to have to check the span margins for one of these because I've never done one in the futures market. I will do that soon just to make sure. The other thing you should consider is that the optimum market to do one of these in is one with little expected volitility. You don't want this thing to go up like crazy past your strike or it's going to hurt. I theory you would want these to go right up to your strike and expire there on the short leg expiration day. In theory.... we all know how often that happens.... never!
The Credit spreads may not make as much money but they are further from the market so a little safer. The do require margin but much less (usually only 1/3 of a verticle credit spread). How much depends on how close to the market you are. The closer you are to the market the higher the margin will be because you have more risk.
Rest assured... you can lose money on both of these trades. You will if you do it long enough, but you wanted to be an options trader didn't you????
The other thing to consider is that it is rare that I just do a call spread without a put spread at the same time since I strive to be Delta neutral as much as possible... don't always get there but I am usually working toward it. That way if the market is rallying and you have a call spread in trouble your put spread is most likely doing well, that is unless Vega (Volitility) is getting a little out of hand. That's a whole other story. Take it from me. I traded through Oct 87 and 9/11 and lived to tell about it. Not much fun!
Trader X
1/17/06 First day of the week to trade
It wasn't a great day but it wasn't a loser either. I only had three trades today. First trade was as short that was profitable, the second was another short and it was stopped out. The last trade was also a short that was 1/4 point from being stopped before the market turned and ended up doing fairly well. I was up just a few bucks but it was enough to pay for the commissions and I didn't started the week in the hole! Fooser had one trade and it was a duesy. A nice long just before a breakout. I didn't take that trade but my last was the short because of the breakout. Enrico and I both made money taking opposites sides of the same movement. Just goes to show you that bears make money, bulls make money, but pigs will get slaughtered. We weren't pigs!
The market tanked after the close because of earning news... Tomorrow will be a trend day I believe. Fooser and Pals will all make money tomorrow!
Trader X
The market tanked after the close because of earning news... Tomorrow will be a trend day I believe. Fooser and Pals will all make money tomorrow!
Trader X
Ryan Jones last step
Review is the last step of 10. OK, it's been about 2 weeks since I've done the core of the homework assignments and so far so good. I've not broken any of my steps. I will continue to review my steps and review that progress is being made and it it isn't then I will modify my action plans accordingly. So far so good.
Trader X
Trader X
Monday, January 16, 2006
1/16/06 another stolen quote...
I saw this one and thought it was worth posting as well. Otherwise know as analysis paralysis.....
"I know it may sound strange to many readers, but there is an inverse relationship between analysis and trading results. More analysis or being able to make distinctions in the market's behavior will not produce better trading results. There are many traders who find themselves caught in this exasperating loop, thinking that more or better analysis is going to give them the confidence they need to do what needs to be done to achieve success. It's what I call a trading paradox that most traders find difficult, if not impossible to reconcile, until they realise you can't use analysis to overcome fear of being wrong or losing money. It just doesn't work!"Mark Douglas, Trading In The Zone http://tradingquotes.blogspot.com/
"I know it may sound strange to many readers, but there is an inverse relationship between analysis and trading results. More analysis or being able to make distinctions in the market's behavior will not produce better trading results. There are many traders who find themselves caught in this exasperating loop, thinking that more or better analysis is going to give them the confidence they need to do what needs to be done to achieve success. It's what I call a trading paradox that most traders find difficult, if not impossible to reconcile, until they realise you can't use analysis to overcome fear of being wrong or losing money. It just doesn't work!"Mark Douglas, Trading In The Zone http://tradingquotes.blogspot.com/
Thursday, January 12, 2006
1/12/06 Jesse Livermore quote
I stole this from an emini group called NQoos@yahoogroups.com. It was posted there by a blogger called http://tradingquotes.blogspot.com/. The reason this hit me as something to post is due to my issues of taking profits too early. I think this quote is very suitable for me. I will read this one often. I need to learn to sit on my ever expanding butt when I'm in a winning trade!
Trader X.
PS. I also learned today that there is another blogger using Trader-X as his name. Hope he doesn't get mad at me. We have lived in harmony for more than a year so I hope he doesn't mind. I should post a link to his!
"It never was my thinking that made big money for me. It was always my sitting. Got that? My sitting tight!"
Jesse Livermore
Trader X.
PS. I also learned today that there is another blogger using Trader-X as his name. Hope he doesn't get mad at me. We have lived in harmony for more than a year so I hope he doesn't mind. I should post a link to his!
"It never was my thinking that made big money for me. It was always my sitting. Got that? My sitting tight!"
Jesse Livermore
1/12/06 Not a bad day...
At least it wasn't a looser! After my last BE (break even) trade, I tried it once again and hit paydirt!
SS @ 129775. Covered at 9750,9725, and 9275. Made my daily min goal and walked away happy. Moral of this story is it's never to late to re-enter if the trend continues (unless it's the last hour because if reversals of course). Not a great day but another one for the plus side.
I also executed my action plan for those that are wondering except for that first lack of PP! Should have taken 1/2 off the table after a point!
Trader X
SS @ 129775. Covered at 9750,9725, and 9275. Made my daily min goal and walked away happy. Moral of this story is it's never to late to re-enter if the trend continues (unless it's the last hour because if reversals of course). Not a great day but another one for the plus side.
I also executed my action plan for those that are wondering except for that first lack of PP! Should have taken 1/2 off the table after a point!
Trader X
1/12/06 stupid mistake
Only opportunity lost here but I wanted to document this.
SS (sold short) @ 9800. IS (initial stop) was 9900. Market tanks and puts in a new low. I didn't take a PP (partial profit). Why? Because I was only short 2 contracts and I felt it was going to go lower! I was being greedy. Lesson reinforced! I was stopped out at a lower stop of 98, so it didn't cost me money... only opportunity. Now I have nothing to show for a good trade gone flat! I think the market will be lower today but we haven't closed the gap today which is about a 80%-90% we will. That is the place to SS.
Trader X
SS (sold short) @ 9800. IS (initial stop) was 9900. Market tanks and puts in a new low. I didn't take a PP (partial profit). Why? Because I was only short 2 contracts and I felt it was going to go lower! I was being greedy. Lesson reinforced! I was stopped out at a lower stop of 98, so it didn't cost me money... only opportunity. Now I have nothing to show for a good trade gone flat! I think the market will be lower today but we haven't closed the gap today which is about a 80%-90% we will. That is the place to SS.
Trader X
Wednesday, January 11, 2006
1/11/06 Ryan Jones action plan
I have successfully executed my action plan today. That was my homework assignment. Done. I won't post this everyday but I will check everyday on my progress. Maybe once a week I will post my progress even though I will do it daily. That way I can make changes in my plan at that time or add new action plans for new problems that I've committed to changing.
In my next RJ post I will be discussing E, F & G. The three cardinal sins of trading....
EGO
FEAR
GREED
Trader X
In my next RJ post I will be discussing E, F & G. The three cardinal sins of trading....
EGO
FEAR
GREED
Trader X
1/11/06 I stole this from an email to Enrico....
(note: I responded to an email from Enrico about my trading getting better (thanks for noticing Enrico BTW! I know that both of ours has improved much at FU!) and it was too good to not let other see it so here it is. Hope he doesn't mind. Names have been changed to protect the innocent... if there are any of those left?)
Fooser has taught the mechanics that MC never did. The other really big help has been doing the Ryan Jones seminar. What Fooser did for the mechanics, RJ did for my mental hurdles. RJ seminar really peeled the layers of my trading like an onion. I have to admit that it wasn't fun to realize why I had been failing for the last year. But it had to stop. So when I listened to the seminar the first time and he says "This seminar could change your life, but for most of you it won't" I really had to think about that. Did I really want to keep getting the same results. If I didn't change my behavior, I would keep getting the same results. The only way to change my behavior is to set up a plan of behavior modification. RJ does this but not only can this be used for any problems you have but he has geared it specifically for trading issues. Guess what the #1 problem most traders have.....? Overtrading... or my revenge trading! He nails it. It was a huge help to hear him talk about the specific issues that I had.
RJ says that the reason most people fail is because the keep doing the same thing and that most people will never put the effort in to change that. Most people on the seminar never do the homework. That's why the second time around I decided to do the whole thing without fail.
I've now done all 9 steps of the homework but still need to work at the mental discipline everyday. Fooser and you help with that. That's what the steps of my action plan were. To follow Fooser and if I was doing something really stupid then to have you yell at me! I will also post my trades in our IM room so you can see when I'm being an idiot.
Today was interesting because I was seeing things that Foos wasn't. I caught some good trades but still need to work on the mechanics of staying in longer. Foos seem to have jumped the gun a couple of times today. I was trading against him twice but I kept looking at my charts and indicators and they kept telling me I was right so I stayed with it. He sure nailed that one about 9:15! In my action plan it says I have to have a good reason to trade against Foos. I will do it on occasion but I really had to question the trades. That's a good thing. I've gotten so much better at so many things in the last 4 months that it is really scary. It was on those trades that Foos later said that he jumped in without confirmation. I felt vindicated!
I can't wait for FU (Fooser U of course)! Next week it will be balls to the walls learning. Since he will be using voice (never heard him speak), I'm keeping a notebook handy. I will be scribbling, I'm sure. Wish there was an easy way to record the whole session and condense it down, but I think notes will be the best.
Trader X
Fooser has taught the mechanics that MC never did. The other really big help has been doing the Ryan Jones seminar. What Fooser did for the mechanics, RJ did for my mental hurdles. RJ seminar really peeled the layers of my trading like an onion. I have to admit that it wasn't fun to realize why I had been failing for the last year. But it had to stop. So when I listened to the seminar the first time and he says "This seminar could change your life, but for most of you it won't" I really had to think about that. Did I really want to keep getting the same results. If I didn't change my behavior, I would keep getting the same results. The only way to change my behavior is to set up a plan of behavior modification. RJ does this but not only can this be used for any problems you have but he has geared it specifically for trading issues. Guess what the #1 problem most traders have.....? Overtrading... or my revenge trading! He nails it. It was a huge help to hear him talk about the specific issues that I had.
RJ says that the reason most people fail is because the keep doing the same thing and that most people will never put the effort in to change that. Most people on the seminar never do the homework. That's why the second time around I decided to do the whole thing without fail.
I've now done all 9 steps of the homework but still need to work at the mental discipline everyday. Fooser and you help with that. That's what the steps of my action plan were. To follow Fooser and if I was doing something really stupid then to have you yell at me! I will also post my trades in our IM room so you can see when I'm being an idiot.
Today was interesting because I was seeing things that Foos wasn't. I caught some good trades but still need to work on the mechanics of staying in longer. Foos seem to have jumped the gun a couple of times today. I was trading against him twice but I kept looking at my charts and indicators and they kept telling me I was right so I stayed with it. He sure nailed that one about 9:15! In my action plan it says I have to have a good reason to trade against Foos. I will do it on occasion but I really had to question the trades. That's a good thing. I've gotten so much better at so many things in the last 4 months that it is really scary. It was on those trades that Foos later said that he jumped in without confirmation. I felt vindicated!
I can't wait for FU (Fooser U of course)! Next week it will be balls to the walls learning. Since he will be using voice (never heard him speak), I'm keeping a notebook handy. I will be scribbling, I'm sure. Wish there was an easy way to record the whole session and condense it down, but I think notes will be the best.
Trader X
1/11/06. Week getting better
It wasn't a bad Wed after all. Fooser did a trade right about 9:15 to buy at 129550. I think he got in at a better price though. I bot 6 and sold 3 at 9650, then 3 more at my stop of 9575. Good trade to open the day. Then bot 2 at 96, sold them at 94. Back to BE on a pull back. The day still look up to me. There was a huge retrace and I bot 6 at 9450 and sold 4 @ 95, 1 @ 96 and 1 @ 97. Back to positive although this one took a while. Then market rallied up and had another retrace down but not as far as the last time. So I bot again! Bot 4 @9575 (crappy entry) sold 2 @ 97 and 2 @ 98. Put me up +$600 for the day and I watched it go to 1301 and retrace to close just below 1300. Tomorrow should be interesting.
2 things I'm getting much better at in the last couple of weeks. I have been better about leaving runners on longer (although I can go even longer!) but instead of taking them off so soon I have just been moving up the stops and keeping my tgts in place. This was good advice by Enrico! Must thank him for that. Enrico, I thank you!
The other thing I've been getting better at is when I'm in a position I am better at having more patience to wait it out to see where it is going. If I get stopped, I get stopped. I was wrong and that was it. I was wrong. Figure out why I was wrong and fix it and then Go on to the next trade. Today and yesterday were interesting days although today it was much better as the PA and the Trin were in agreement. I was really able to use the tick for my entries much better than usually. In fact I was able to milk a few extra points out of a couple of trades because I was patient enough to wait for a high tick count for an exit. I'm getting more consistent and profitable.
Trader X
2 things I'm getting much better at in the last couple of weeks. I have been better about leaving runners on longer (although I can go even longer!) but instead of taking them off so soon I have just been moving up the stops and keeping my tgts in place. This was good advice by Enrico! Must thank him for that. Enrico, I thank you!
The other thing I've been getting better at is when I'm in a position I am better at having more patience to wait it out to see where it is going. If I get stopped, I get stopped. I was wrong and that was it. I was wrong. Figure out why I was wrong and fix it and then Go on to the next trade. Today and yesterday were interesting days although today it was much better as the PA and the Trin were in agreement. I was really able to use the tick for my entries much better than usually. In fact I was able to milk a few extra points out of a couple of trades because I was patient enough to wait for a high tick count for an exit. I'm getting more consistent and profitable.
Trader X
Tuesday, January 10, 2006
Fooser University will open next week!
Fooser is trying to save Enrico and I a whole lot of trouble. He has announced that he is going to open a new room for teaching only. He will give his calls but also his reason for the calls. This will bring us up the learning curve much faster on the Fooser Style. I was thinking of just calling this Fooser U, or FU for short but I'm not sure he would appreciate that? I will have to bring it up when the room opens. He is charging $50 per week which is a pittance considering how much money I've made with him already. Of course I suspect it will only take a month or so of direct learning to really get the grasp on what he does and meld it into my style as well. I will be a much better contributor to the room after that. Next Tuesday it should be up and operational.
Thank you Fooser! We appreciate it!
Trader X.
Thank you Fooser! We appreciate it!
Trader X.
1/10/06 first trades of this week
It wasn't a bad day but a day that I think should be discussed. It was as weird day because it was sluggish all day. The PA was to the upside but the Trin was about 120-130 all most of the day. You could tell that the market was having trouble moving any direction but the thing to note was that PA eventually won out... as it always does because Price is KING!
I only did 2 trades today and both were uneventful. ended up down 2 points for the day. First trade I shorted at 9075 and covered at 92. Then I went long at 9150 and 9025 and sold at 9100. This the trade I should have kept the runner on for because we rallied to 96 then back to 91ish and then back to 96. I could have played that 3 times today but didn't because the PA and trin were acting so weird. I just stepped aside so I could trade another day!
Fooser did a little better but he also said it was a hard day to trade.
I only did 2 trades today and both were uneventful. ended up down 2 points for the day. First trade I shorted at 9075 and covered at 92. Then I went long at 9150 and 9025 and sold at 9100. This the trade I should have kept the runner on for because we rallied to 96 then back to 91ish and then back to 96. I could have played that 3 times today but didn't because the PA and trin were acting so weird. I just stepped aside so I could trade another day!
Fooser did a little better but he also said it was a hard day to trade.
1/6/06 Not bad for a Friday
I'm a little late in this entry but here were my trades for Friday.
Started buying early from 8375, 8300,8200, and 8200 again. I was buying the weakness of the gap trade but If I had been smart I would have just sold and covered at 8125, the gap close. The reason I didn't was because the gap trade was against the trend. The market continued the uptrend after closing the gap and I sold at 84, 85, 86, and 8625. I only traded until lunch and took the rest of the day off. The market continued to rally big time after I left. It was a record breaking week for me. I have The Great Fooser to thank for an awesome week!
Trader X.
Started buying early from 8375, 8300,8200, and 8200 again. I was buying the weakness of the gap trade but If I had been smart I would have just sold and covered at 8125, the gap close. The reason I didn't was because the gap trade was against the trend. The market continued the uptrend after closing the gap and I sold at 84, 85, 86, and 8625. I only traded until lunch and took the rest of the day off. The market continued to rally big time after I left. It was a record breaking week for me. I have The Great Fooser to thank for an awesome week!
Trader X.
Thursday, January 05, 2006
1/5/06 I can't complain...
Only had one trade with 2 contracts for a total gain of $75. I was a high tick trade. Today was consolidation day much like yesterday but even more so. Means market might be trending tomorrow... just not sure which direction.
Hey, I'm not complaining because before Fooser I wouldn't have recognized this for what it was and I would have traded every breakout thinking the market was getting ready to roll. I would have been creamed on a day like today... instead I paid my cable bill! HA!
We had some Joker called the Ted the Idiot trader or something like that cause quite a disruption in the room today. Not even worth repeating but after watching several rooms explode and fail it seems that others are jealous of our great room and our success! Good luck taking us down.... never gonna happen!
Tomorrow I will only be working 1/2 day and I'm going to put behind me the best week ever of trading. Thank you Foos! I understand my Fooser secret is out. Hope I don't put anyone's panties in a wade for writing about The Great Fooser in my Blog. If so just let me know and I will stop. Enrico and I can keep a secret if we have to. We can talk in code as well. My favorite code word is $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
I have a lot of homework to do this weekend. Steps 8 and 9 on Ryan Jones. After listening to disc 4 I realized that I have to revise my steps because I left out the most important thing... some sort of checks and balances to make sure I follow what I wrote. I will be revising earlier homework hopefully this weekend.
Trader X.
Hey, I'm not complaining because before Fooser I wouldn't have recognized this for what it was and I would have traded every breakout thinking the market was getting ready to roll. I would have been creamed on a day like today... instead I paid my cable bill! HA!
We had some Joker called the Ted the Idiot trader or something like that cause quite a disruption in the room today. Not even worth repeating but after watching several rooms explode and fail it seems that others are jealous of our great room and our success! Good luck taking us down.... never gonna happen!
Tomorrow I will only be working 1/2 day and I'm going to put behind me the best week ever of trading. Thank you Foos! I understand my Fooser secret is out. Hope I don't put anyone's panties in a wade for writing about The Great Fooser in my Blog. If so just let me know and I will stop. Enrico and I can keep a secret if we have to. We can talk in code as well. My favorite code word is $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
I have a lot of homework to do this weekend. Steps 8 and 9 on Ryan Jones. After listening to disc 4 I realized that I have to revise my steps because I left out the most important thing... some sort of checks and balances to make sure I follow what I wrote. I will be revising earlier homework hopefully this weekend.
Trader X.
Wednesday, January 04, 2006
1/4/06 Ryan Jones Lesson 3 step # 7
I know, your thinking that I skipped a step or two? No I didn't. I was referring to the lessons which are the 1 hour lessons he gives. I am really on step 7 which is part of lesson 3. Let's see if I can remember all the steps.
1. Admit that there needs to be change.
2. Commit to making a change.
3. To Achieve change you must be held accountable to someone.
4. List items that need to be changed. What I listed were mostly symptoms of my greater problem of not trend trading.
5. List how you would like to be remembered at your funeral. Gives you a list to strive to achieve after changes are made. Also made me realize that my biggest problem was not trend trading and then not cutting down size when I have a loss.
6. List things that need to be changed in order or importance or priority. Trend trading.
7. List steps to making changes. A short road map if you will
On to Seven then. I'm going to talk about trend trading and then revenge mode trading.
Trend trading. On of my biggest issues with this is that I feel that the train has already left the station and that it is too late to get on board. So instead of waiting patiently for an entry I will often just fight the trend and try to fade it. Of course that doesn't work. I don't always have to be right because when it comes to trading I'm usually not! I have noticed that on the days that I will make myself just jump in the trend are just as a huge breakout has occurred... right at the worse time. Then the market will pull back and I will usually be stopped out. Sometimes when I get smart, even after a bad entry, I will wait and will add more contracts on a pullback. On those days I can generally do alright... even with crappy entry I will make money... because I am trading with the trend, not against it. On day when that breakout spike is a reversal then I am just sunk... big time. So, it's either crappy entry or I will fight it instead. OK, how to solve. Here is my solution.
1. If there is a trend evident (HH and HL or opposite), then wait for a pull back or at least a flat spot before the next impulse wave. Fooser is very good about this. Follow him on entries. Use 50% retrace as rough rule or S/R lines for entry points. May be more or less but it will protect us even if it is a reversal.
2. When entering a trend, start with 1 or 2 contracts. I can always add more later. There will be a later. Let it prove itself first.
3. Don't ever try to fight it. Use the 10 period EMA on all charts as fooser does to ID the trend in the first place. Don't trade against it on the longer charts. 60min, 30min, 15min. Trade the majority. The only exception to this might be a Gap trade.
4. Use Trin, put call for direction and tick for entry. This has worked very well for me in the past couple months.
5. If no trend evident and indicators are in conflict then just use the Daily and 60 min S/R lines for entry and exit. Must wait for extremes. Tick is one to use on these days.
6. (This has been added to this original post later. After reviewing disc 4 I've come to realize that I left things out of these steps. I need to have a set of checks and balances to make sure I do indeed follow the steps. Step 6. Check and review progress daily! This will also apply to the last step of Revenge trading listed below.)
Revenge trading steps below:
1. After first loss then stop trading to see what has changed in the market. Something has changed or I would have made money.
2. If I'm not sure what has changed with the market then don't trade! Simple. If no setup then don't force it.
3. After first loss cut down size. As MC says... it's never too late to get smaller! If trading 6 then progression should look like this. 6:4:3:2:1. Every 2 trades will cut size in 1/2 or more.
4. Never add size until after a win!!!!!!
5. Never add size. If I'm in a trade currently that is losing even if I haven't taken the loss yet, don't try to average down, unless I have a REALLY GOOD REASON!!!!! There aren't many.
I would like to condense these down so they are subject to change.
Trader X
1. Admit that there needs to be change.
2. Commit to making a change.
3. To Achieve change you must be held accountable to someone.
4. List items that need to be changed. What I listed were mostly symptoms of my greater problem of not trend trading.
5. List how you would like to be remembered at your funeral. Gives you a list to strive to achieve after changes are made. Also made me realize that my biggest problem was not trend trading and then not cutting down size when I have a loss.
6. List things that need to be changed in order or importance or priority. Trend trading.
7. List steps to making changes. A short road map if you will
On to Seven then. I'm going to talk about trend trading and then revenge mode trading.
Trend trading. On of my biggest issues with this is that I feel that the train has already left the station and that it is too late to get on board. So instead of waiting patiently for an entry I will often just fight the trend and try to fade it. Of course that doesn't work. I don't always have to be right because when it comes to trading I'm usually not! I have noticed that on the days that I will make myself just jump in the trend are just as a huge breakout has occurred... right at the worse time. Then the market will pull back and I will usually be stopped out. Sometimes when I get smart, even after a bad entry, I will wait and will add more contracts on a pullback. On those days I can generally do alright... even with crappy entry I will make money... because I am trading with the trend, not against it. On day when that breakout spike is a reversal then I am just sunk... big time. So, it's either crappy entry or I will fight it instead. OK, how to solve. Here is my solution.
1. If there is a trend evident (HH and HL or opposite), then wait for a pull back or at least a flat spot before the next impulse wave. Fooser is very good about this. Follow him on entries. Use 50% retrace as rough rule or S/R lines for entry points. May be more or less but it will protect us even if it is a reversal.
2. When entering a trend, start with 1 or 2 contracts. I can always add more later. There will be a later. Let it prove itself first.
3. Don't ever try to fight it. Use the 10 period EMA on all charts as fooser does to ID the trend in the first place. Don't trade against it on the longer charts. 60min, 30min, 15min. Trade the majority. The only exception to this might be a Gap trade.
4. Use Trin, put call for direction and tick for entry. This has worked very well for me in the past couple months.
5. If no trend evident and indicators are in conflict then just use the Daily and 60 min S/R lines for entry and exit. Must wait for extremes. Tick is one to use on these days.
6. (This has been added to this original post later. After reviewing disc 4 I've come to realize that I left things out of these steps. I need to have a set of checks and balances to make sure I do indeed follow the steps. Step 6. Check and review progress daily! This will also apply to the last step of Revenge trading listed below.)
Revenge trading steps below:
1. After first loss then stop trading to see what has changed in the market. Something has changed or I would have made money.
2. If I'm not sure what has changed with the market then don't trade! Simple. If no setup then don't force it.
3. After first loss cut down size. As MC says... it's never too late to get smaller! If trading 6 then progression should look like this. 6:4:3:2:1. Every 2 trades will cut size in 1/2 or more.
4. Never add size until after a win!!!!!!
5. Never add size. If I'm in a trade currently that is losing even if I haven't taken the loss yet, don't try to average down, unless I have a REALLY GOOD REASON!!!!! There aren't many.
I would like to condense these down so they are subject to change.
Trader X
1/4/06 Day two
Number 2 for the year and up $1387 today. Long at 7475, 77, 7757, 7925 and not in that order. Market rallied to 82 and I didn't take anything off like I should have. Market tanks to 7425 (yesterday close give or take, and a big support line for me) I went long another 6 at 7525. Then I scaled out at 78, 79, and 81.
I should have scaled out the first time and then added on the pull back instead of holding all the way through. Could have been a bad day... I got lucky!
I think the market will hit 85 at some point tomorrow but not sure about after that. Foos thinks it will go down to 72-70 by the end of the week.
Trader X.
I should have scaled out the first time and then added on the pull back instead of holding all the way through. Could have been a bad day... I got lucky!
I think the market will hit 85 at some point tomorrow but not sure about after that. Foos thinks it will go down to 72-70 by the end of the week.
Trader X.
Tuesday, January 03, 2006
1/3/06 Happy New Years!!!!
Wow, what a day. Right off the bat I thought the market was going to go down for a gap fill but I didn't short because of the Pirate first day of the month trade (buy at open and sell on close). I decided to wait to buy until the gap had been filled. Sure enough it filled and then I went long 6 contracts at an average of 5375. Sold 2 @ 56. 2 more @ 5725. Last 2 at 5675. Nice trade. I should have left a runner thought because after I came back from lunch the market was trading at 6775. Bot 1 @ 6775. Held almost to close. Sold at 7425. Awesome day.
Trader X
Trader X
Monday, January 02, 2006
1/2/06 Size adjustment
I'm only on step 5-6 of Ryan Jones but it has already got me to thinking about a little change in my trading pattern that I can make now to improve my bad days. I adjust my size to my wins and losses. Let's say that I start with 6 cars (contracts) and I lose. I will then drop to 4 and if I lose again then I will drop to 3. Another loss and I'm down to 2 and then 1. This way after 2 back to back losses I will be down to 1/2 my Fooser trade size. 2 more after that and I will be at one contract. I will reverse the order if winning while getting no larger than 6 on a fooser trade.
Another thing I wanted to put in here was the first day of the month trade. There is a very profitable trade made on the first day of the month. It's very simple. Buy the open and sell the close on every first day of the month. Rocky and I are going to log this trade every month this year. I still have a lot of work to do that I didn't get done over the holidays but I will try to catch up this week. I also have some option updates this week. I will be selling some calendar spreads. Buy Jan and Sell Feb or March. Have to look at prices.
Trader X
Another thing I wanted to put in here was the first day of the month trade. There is a very profitable trade made on the first day of the month. It's very simple. Buy the open and sell the close on every first day of the month. Rocky and I are going to log this trade every month this year. I still have a lot of work to do that I didn't get done over the holidays but I will try to catch up this week. I also have some option updates this week. I will be selling some calendar spreads. Buy Jan and Sell Feb or March. Have to look at prices.
Trader X
