Monday, February 20, 2006

Options continued

OK, Friday was the option expiration for several of our legs on our calendar spreads. Let's look at the calls first.

Call Credit
B Feb 1375 @.25, S Mar 1375 @ 1.10. Net spread we sold for .85
Feb 1375 expired worthless. Mar 1375 @.20. We buy it back for .20. Gain of .65

Call Debit
S Feb 1310 @ 7.40. B Mar 1310 @ 13.50. Cost us 6.10
Feb 1310 expired worthless. Mar 1310 @ 5.20. Sell it back for 5.90. Lost .20

Put Credit
B Feb 1125 @ .40, S Mar 1125 @ 1.20. Net spread sold for .80
Feb 1125 expires worthless, Mar 1125 @.40. We buy it back for .40. Gain of .40

Put Debit
S Feb 1270 @ 9.50. B Mar 1270 @ 16.20. Net spread bot for 6.70.
Feb 1270 expired worthless. Mar 1270 @ 6.90. We sell it for 6.90. Gain of .20

If my math is correct and my prices are accurate (not even including the bid ask spread on the trades) it looks like the Credits beat the Debits in Every example. After that one volitile Friday the Debits were winning but that has changed to where the debits only broke even (hey, break even is better than a sharp poke in the eye!)

You guys are going to be happy to learn that I'm going to get OptionVue software today so I can get some great Greek info on the spreads we talk about in the future.

Trader X.

PS. If you know that my math or prices are not correct then just email me and I will double check and fix my errors.

Friday, February 17, 2006

lesson III

1. Moving averages are a lagging indicator as we all know but they can keep you on the right side of the market. Use relatively fast EMA.. 8/21 or 13/20. Use these to simply stay on the right side of the market. If the fast EMA is above the slow EMA then start looking for longs. The actual EMA's you use are all your personal preference. I have also used the 9/34. 8, 21, 89 period EMA's are all divisors of the Fib ratio
2. Look at these on all time frames to stay on the path of least resistance. Start with the longer time frames Montly, Weekly, Daily, 60min etc... the longer charts carry more weight or significance than the shorter time periods. If the weekly, daily and 60 min are all in the up direction for example, you should ignore the sell signals because they are low probablity at this point and the strongest moves will be to the upside. If they are mixed then that may be a time that you can play both sides.
3. The moving Averages usually act as a filter, not a signal to buy or sell.

Swing trades.
4. Can use EMA's and RSI as divergence indicators. When there is RSI divergence look for the MA's to roll over and cross for longer term swing trades.
5. Use daily & 60 min charts with 8/21 EMA's for setups, 7 period RSI for setups. Use Fib ratios for retrace (50%) usually. These can take weeks or months but can result in powerful moves.

Wednesday, February 15, 2006

Lessons II

The lesson info comes Huber at Trade the Markets.com. He gives several seminars at the exchanges sites.. I believe it was the CBOT but not sure.

Gaps.

1. Best gaps are in opposite directions of previous day's move or prevailing trend.
2. Best gaps are over 2 and under 8 points on ES or S & P 500.
3. Use 3:15 (ct) close
4. Gaps are a self fullfilling prophecy because so many people play them.
5. Gaps are designed to fake you out so you get stopped before they close.
6. Gaps that don't fill are called "Pro Gaps"... too high to buy and market will move without them. Write down those prices because open gaps always fill with 80% in next 5-10 trading days. They act like black holes.

Methods
1. Use pre-market Vol to see how much power behind the move. The less volume the more likely that the gap will fill. If there is a lot of volume then there is a lot of power behind the move. Be careful on high vol days. They may not fill. If they don't then look for future days to return to those levels.
2. If the pre-market vol is really high then look for break away... Don't play gap, play other direction. Then you want to buy the gap.
3. On moderate volume you should still play gap but take 1/2 off at the 50% retrace level and move stop to BE. the idea is that it may not make it all the way there but you are taking partial profits before to protect yourself. Also, on these days you may want to trade fewer contracts since the odds are quite as good.
4. When Vol is very high, then don't trade gap to fill. Trade the continuation of the gap, don't trade the gap to close. Look for entries in direction of gap and for it not to fill.
5. If the gap is less than 4 then use 1.5 to 1. Risk reward ratio. If more than 4 points then us a 1 to 1 risk reward ratio. Use wider stops because it increases your wins to 85%. If you use tighter stop you will change win loss ratio. On those med vol days when you use the 1/2 gap fill trade and set balance to BE you have very low risk.

If you want the actual gap fill data for days of the week and for points just do an internet search for the gap fill study and read it. It's out there somewhere.

Trader X

lessons

1. When you get large ticks (+- 600) that are against your trade I will be getting out sooner and not waiting to hit stops.
2. exit or pp and move stop at +- 1000 ticks
3. maybe add Put call back to chart?
4. Direction of Trin more important than number except at extremes. Extremes are 2 and .5. Extremes are often places for reversals. If you close at the extremes then look for reversals the next day. If not then the market is really in trouble.
5. Maybe add sector list on another page?
6. Concentrate on Banks, Brokers and Semis on sector list
7. We have to learn to read market internals!!! This is the most key thing in trading.....
8. We need to find a way to practice this... I'm open to ideas here. I'm thinking of changing my screens around and putting all my indicators on one page and all price charts on another? Just a thought. Just like radar screen? Thoughts???
9. We get paid to Manage Risk and Recognize Patterns. Put stops on first and then manage trade and targets. Risk first, profit next. Just like a business. This is a business!

Trader X

Monday, February 13, 2006

2/13/06 Good news bad news

Today was a good news bad news kind of day. I always start with the bad news first. Just a habit of mine.

Bad news. I lost money today. I lost money today for the first time in about 3 weeks. To make it even better than that it wasn't all that much money compared to my usual blow out money losing days.

Good news. I am getting better at losing money and not getting pissed of and going into revenge mode. Nope. I just re-evaluated the situation and then changed directions and almost made it back to break even for the day.

Bad news. Even though I'm getting much better at recognizing the dynamics of a change in trend, I still should have been better today at paying attention to the support and resistance levels that were being broken and going against me sooner. I am still having a problem of not pulling off a losing trade sooner. I will continue to work on that, especially when everything tells me that I'm wrong. I'm much better than I used to be but still not perfect! There is room for improvement.

Good news. I was able to figure it out before I blew a whole weeks (or months) worth of earnings on a really bad trade while still fighting the trend.

Today was a challenging day. The trend change in a major way all of 3 times!. Not just a reversal but then a counter reversal! It was just a crazy day. On the longer charts the ES tried to break back to where it was last week and Friday in particular. It didn't go as far down the the the bulls came in and rallied it almost all the way back up to the open in the last hour or so. Wonder if there was any monkey business going on there by the really big boys... Our government wouldn't be doing this would they???

Tomorrow should be a interesting day. I have my support/resistance level already written down and I'm ready for battle!. Enrico and I are going to have better week. We are getting better at the planning process and waiting for confirmation but still need to concentrate on setups and not just trade by the seat of my pants... which I do more then he does. Need to work on that....

Trader X

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