My trades

[jeffalvinson]

Closing Micro Trend Chart for Friday July 20, 2018.
After 11 consecutive days above the rising 400ma micro uptrend, today closed below the 400ma.
"Is it possible the Bulls are tired and are going give the Bears a chance to come out and play for a few days?"
(Chart: SP500, 10 days, 5 minute candles, 400ma, Pivot Points)

--------------------------------------------------------------------------------------------------------

From a daily candle standpoint, the July 19th bear candle closing below the July 18th bull candle (after a long run up) triggers a classic sell signal (Pristine 101). Today's July 20th candle shows follow through to July 19th's bear candle.
Is it possible the SP500 may take a brief pause?
(Chart: SP500, 1 month, daily candles.)

 

[optionsinvestor]

It sure does feel like that. I was looking at how IBM and MSFT would affect the market. IBM is big enough that it usually has a big affect on the DOW, but I didn't see it flinch at all on Thursday. It can only suggest that the market does need a breather. We're going into large cap techs and even more DOW components this coming week. We'll know for sure if earnings are moving the market by the end of this week. I'm still playing this market as if it's in a rally, but playing very short term positions only.

 

[MidwesternTrader]

I average down a lot because I learned a while back that I suck at picking a bottom and it feeds my impulse. So every time I'm about to jump into a trade, I'll start with a small position and then average in as I see it well below my initial entry. That's just one of the thing I've learned while reviewing my trades. I've noticed that every time I enter a position, I'm always in at a much higher price.

And just like that I averaged down again on some of those positions especially AMZN and MSFT calls. I believe the SP500 stayed no more than +/-5pts from breakeven all day.

I like you approach to average down on your option plays. Averaging down on options is much different than averaging down on a directional stock or futures trade as the limited option risk is reduced so long as the average down is with the same strike and expiration. Whereas a continued averaging down approach in stock or futures trades could blow up an account.

Good journal here from you OI and nice contributions from Jeff. Both of you provide good discussion of ideas and actionable trades.

 

[ironchef]

I like you approach to average down on your option plays. Averaging down on options is much different than averaging down on a directional stock or futures trade as the limited option risk is reduced so long as the average down is with the same strike and expiration. Whereas a continued averaging down approach in stock or futures trades could blow up an account.

Good journal here from you OI and nice contributions from Jeff. Both of you provide good discussion of ideas and actionable trades.

It all depends on whether your opinion is correct. OI's opinions are correct the majority of the time so it is a great strategy. Average down on options do give you better return due to leverage and convexity. If your opinion is incorrect most of the time, like most/many of us, average down will lose you money faster in options, due to leverage.

But I am just stating the obvious as the math is very simple to perform. Professional traders though, told me they never average down, no matter what.

 

[MidwesternTrader]

OI -

Do you use past earnings price action history as an indicator for your picks? For instance, looking at the price performance after the last 4 earnings announcements.

 

[jeffalvinson]

I average down a lot because I learned a while back that I suck at picking a bottom and it feeds my impulse. So every time I'm about to jump into a trade, I'll start with a small position and then average in as I see it well below my initial entry. That's just one of the thing I've learned while reviewing my trades. I've noticed that every time I enter a position, I'm always in at a much higher price.

And just like that I averaged down again on some of those positions especially AMZN and MSFT calls. I believe the SP500 stayed no more than +/-5pts from breakeven all day.

OI, I totally agree with your averaging down. I have averaging options down for 2 decades.
My historical studies of the trades that I have averaging down shows that it saves 62% of my losing trades.
Here is my math based formula method for averaging down:
The output of my math based computer program every evening almost always
produces B1 (Buy # 1) and B2 (Buy # 2).
B2 is formula based and usually looks like this:

Typical "Example of B1 & B2 entries" based on an average trade in the medium VIX range:
B1 Buy Limit: 1.70
B1 Sell Limit: 2.40 +40%
(Important Note: Profit Level varies because it is "VIX" range dependent, see below.)
If the option goes the wrong direction and tanks to 1.35, then
B2: 1.35 (-20% under Buy # 1)
If B2 fills, the New Sell Limit for both B1 and B2: +40% above B2 = 1.90 (+40%)
B1 (+12%) + B2 (+40%)

Profit Potential Total: +52%
-------------------------
Stop: -.20 under B2=1.35
Stop: 1.15
B1 Loss: -32%
B2 Loss: -15%

Total Potential Loss: -47%

Reward to Risk: 1.0 to .90
After commissions roughly 1/1.


Profit, VIX, & Misc. Notes:
(1) When the math program outputs a new Micro Trend direction, the possibility of a much higher profit than +40% exists. I let a new direction micro trend's first trade signal run up as follows:
Low Vix ( < 15%) = 60%
Medium VIX (15% to 19%) 100%
High VIX (20% to 29%) close trade end of the first day 100% or >.
Extreme VIX ( 30% and > ) close first 3 trades in new direction end of day 100% or >.

(2) Also, for "High and Extreme" VIX, the Stop is increased to -40% below B1 (Buy 1).

(3) "The option movement is "so large" in High and Extreme VIX markets, that it is unnecessary to enter a Buy 2, even if it was available."

(4) 4 day maximum time limit per trade.

 

[optionsinvestor]

OI -

Do you use past earnings price action history as an indicator for your picks? For instance, looking at the price performance after the last 4 earnings announcements.

I do use the average past earnings price action as an indicator. I'll look at the previous 4 reports, and look at the past 3-4 reports of the same quarter, because at times certain stocks seem to always have something going well for them 1 quarter a year. I add chart patterns to this to see if a break out pattern is in play leading to earnings. I'll also look at data like the stock's short interest just to see if a short rally can also be in play.

And even all of that's not going to get you a 100% win record. So risk management is most important. My goal in this area is to get a win ratio around 55-60% and let the risk ratio do the rest.

 

[optionsinvestor]

As for averaging down, I only do it because I know where I stand when entering a new position. I'm not good and waiting and picking bottoms intraday on new positions, instead I'll average down as long as I still believe in the research I've done. The key to averaging down is to not jump into the entire position on the first trade. Right now, I'm looking at full position to be in the 6-8 contracts (for the $200-$500 per contract price range). I always start off around 1-2 and sometimes 3 contracts, then I'll wait it out and let the position play out through the day. If it's much lower, then I'll add another 1-2. And for positions I want to hold for a longer period, if it drops again the following day, then I'll add another 1-2 calls.

I think what most professional traders meant when they say they don't average down is when they have a full position in play already. At that point, the risk becomes even greater to average down. That's something I've only done once or twice this year, and I believe I came out even on those two trades.

 

[optionsinvestor]

Well, lots of stuff moving around this morning. I had set my stop on my AMZN options to $29, and that was stopped out quick on that dip this morning, so I reviewed and jumped back in a couple points below the stop. I still like the position with AMZN reporting on Thursday. I closed out NFLX on the dip. I was looking for $355 on NFLX to exit, and NFLX gave me a bit more down to $353. I added to my MSFT calls this morning (averaging down). With the wild swings lower this morning, I was surprised to find MSFT green. I also altered my GOOGL 1200 call, selling the 1220 calls and creating a debit spread for GOOGL. I have decided to play this through earnings, so I limited my risk with the spread position.

 

[jeffalvinson]

Where as before the SP500 would be above the rising 400ma(blue line) and pull back to it for support,
its now below the 400ma and its attempting to rally into the 400ma above it.
Can the SP500 move back above the 400ma (blue line) and continue its bull run?

[SP500, 2 days, 5 minute candles, 400ma, Pivot Points.]