follow existing trend or pick reversal
- Thread starter misterkel
- Start date
Its ideal to do both. Pick the right reversal and you're early into a trend. But even if you miss the reversal, its never too late to join a trend: you just have to maximise your exposure when you're winning.
As far as entry signals for reversals or joining trends are concerned, I don't think they're the issue. Any signal will do. The issue is risk management.
As far as entry signals for reversals or joining trends are concerned, I don't think they're the issue. Any signal will do. The issue is risk management.
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Amen, both,MRk el, in that order. Really?? Yes + in that order; most buy tech stocks OCT-APR/May.REVERSALS-counter-trends are fun but almost always not as profitable, but i study them anyway. WHY??. NOT because they make money faster-they lose it faster,2. Because that means the trend is sideways or stopped; stopped or chopped slopped.....
1) Trend-following and Reversal-picking are, neither one, optional.
2) FWIW, a look at volatility might be helpful. The graph below depicts the S&P500 since Jan02. While it doesn't show the uncommonly-low volatility throughout 2017, it does show the sudden climb for calendar-2018. But notice in particular on that lower graph: the as-received, actualized, backward-looking HV (purple-blue) is well above the forward-looking, expectational, IV (in light blue).
In words, then: the market going forward does not expect as much volatility as it's currently receiving. The market thinks things will be more predictable than they have actually been. That makes this period (i.e., the past 5 weeks) rather tough to predict, to forecast, and (unless driven by fundamentals) to trade. There has been no period like this (of magnitude or duration) in the last 6 years that I checked. If selling options is the 'picking up [of] change in front of the steam roller' then this graph shows the steam roller moving faster than the change is discovered.
Yowza.
2) FWIW, a look at volatility might be helpful. The graph below depicts the S&P500 since Jan02. While it doesn't show the uncommonly-low volatility throughout 2017, it does show the sudden climb for calendar-2018. But notice in particular on that lower graph: the as-received, actualized, backward-looking HV (purple-blue) is well above the forward-looking, expectational, IV (in light blue).
In words, then: the market going forward does not expect as much volatility as it's currently receiving. The market thinks things will be more predictable than they have actually been. That makes this period (i.e., the past 5 weeks) rather tough to predict, to forecast, and (unless driven by fundamentals) to trade. There has been no period like this (of magnitude or duration) in the last 6 years that I checked. If selling options is the 'picking up [of] change in front of the steam roller' then this graph shows the steam roller moving faster than the change is discovered.
Yowza.
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I agree. I will add this with regard to entries. Whichever entry you choose you should consider two things. One, does this entry provide me with enough room for potential price movement to make the risk worthwhile? Two, if you are wrong about the trade can you identify exactly what criteria will be required for you to realize that you were wrong and exit with minimum loss?
Yeah - exits are my Achilles body part.
Not because I don't get R/R ratios and stops just below key S/R, but because I like to use options for their lower entry cost and lower risk profile. Unfortunately, it's really tricky to set stops on options, even if they're totally liquid. If not, forget about it. A B/A spread of more than 5% and it's gotta be manual. But I don't want to porn-off on charts all day. Gots things to do, man!
I guess I should just trade stocks and pick ones with lower cost or stick to short-term ITM's to keep delta around 1, then it works like a stock.
This options trend following has been my main trading labor, and I've pretty much given up on it as being too difficult. But it's the only trading where I've made money. And I'm too dumb or old to learn how to program.
Cheers Traderjohnsblog - I have Liked your post as I agree with the comment on exits. But as for entries I am happy to admit I ignore support levels when joining a downtrend and resistance levels when joining an uptrend. Maybe that's aggressive, maybe its high risk, but in those cases where I get the direction wrong, price doesn't fail at the s/r levels ahead of the entry, it fails way before them at uncorrelated prices.
All that is important is that it works for you my friend.
Well maybe. I traded options before getting into futures. Mostly on ETF s. There many correct ways to do it but here is one suggestion. Look at the monthly/daily charts once or twice a day. Look for either a reversal or a retracement in a trend. Enter with an options position there. As far as exits go either exit if your wrong or when technicals indicate the end of a trend. I never really used stops with options since I traded vertical spreads.