10 pips

C

Cris76

Hello,

I hope some of the trader can help me.

I am developing a strategy based on breakout that is successful 80% of the time and could give an average of 10 pip per trade.

My only problem is that if I use it in spread betting the SL is killing me so I thought that option trading could be a solution.

Basically I can predict with good probability that the price of the current daily candle will move for at least 10 pips once and if it breaks a certain price level.

Can you suggest me how I can use this advantage with options?

I am not sure if it can be translated into profit if there are cost fees to be considered or perhaps the move is too small.

Your advices are much appreciate

Thank you

Cris
 
Cris76 said:
Can you suggest me how I can use this advantage
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Excuse a very basic question, but what makes you so sure it's an "advantage"?

It's pretty unusual for methods with an 80% win-rate to have an edge, because the stop-loss problem typically predicates that the 20% of losses add up to more than the 80% of wins.

Before starting to think about how to capitalize on this system, I think you need to be very sure that it does have a genuine edge. Please excuse my cautionary tone, but it's going to take an awful lot of research and proof to substantiate that, and to put it mildly it's far from a prima facie presumption that it actually does. I'm not trying to sound disillusioning about it for the sake of it, but it really is very easy to come up with 80%-win-rate methods that lose money overall, you know? It's expectancy that matters, not win-rates alone. As so many trading textbook authors explain, discuss and exemplify at such length, there are a lot of reasons why methods with much lower win-rates than this are actually intrinsically more likely to be profitable, overall.

I see plenty of backtesting and research in your future, with this one, Cris ...
 
Hi Xela,

Thank you for your reply.

I have studied FX for few years and agree with you that what counts is the profit not the win/loss ratio.

I have traded briefly Options years ago and my understanding is that there is not Stop Loss, only an expiration date where you can lose up to the max of the commissions/fees.

Therefore if my logic is correct, 10 points profit minus the costs of entering and exit the trade x the % wins minus the cost of entering and exit a trade x % losing trade must be profitable.

Perhaps I was not clear that I am looking to trade option...

Please let me know if I am missing something

Many thanks

Cris
 
  • pip?
  • Do you mean tick?

I don't think the term PIP is used outside of FX trading. Since this is the options forum I don't believe PIP is applicable.



:)
 
OptionGuru said:
  • pip?
  • Do you mean tick?
I don't think the term PIP is used outside of FX trading. Since this is the options forum I don't believe PIP is applicable.



:)
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Hi Option Guru,

Of course yes, you are right, ticks.

Any thought?

Thank you

Cris
 
I don't trade options on futures at all so I don't know how much a 10-tick move would affect the options, but my educated guess would be not very much. But a 10 tick move on futures is significant so I would just trade the futures instead of the options.




:)
 
Options are swing trade, trend trades really atleast that's how I traded them, you need a proper futures broker to get your spread down and comms down.

I think it's SPREAD not SL which is causing your issue, too much cost likely 3pips, bringing profit down to +7 and making 10SL cost you 13pips.
 
As has been pointed out it is unlikely that options are the way to go yet a 10 tick move can result in very substantial profit in futures. Do the numbers in the futures market, come up with a stop that makes sense and see if you have a POTENTIAL winner. It only becomes an actual winner if you end up trading it -- with real $$ -- and making money over a statistically relevant sample.
 
Swan Noir said:
As has been pointed out it is unlikely that options are the way to go yet a 10 tick move can result in very substantial profit in futures. Do the numbers in the futures market, come up with a stop that makes sense and see if you have a POTENTIAL winner. It only becomes an actual winner if you end up trading it -- with real $$ -- and making money over a statistically relevant sample.
More...

Thank you, please help me to understand as i never traded future

My strategy is not profitable when used in spread betting as the SL are larger than the TP so the % of winning trade is irrelevant...

Would this not be translated as well when applied to future as the proportion should remain the same?

Apologies if my original question is too naive but i wondered if by using options the SL issue is avoided and a profitable strategy is achieved. It looks however that only if the cost of trading can be kept to a minimum.

I will test in some demo trade and do the math!

Thanks

Cris
 
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