This seems like an appropriate point to review the progress to date in the journal, as well as what is, and isn't, working in terms of strategies. Here are the big-picture numbers as of Friday's close:
Starting date: Aug 15
Starting equity: $6,020
Current net liq: $5,190 (inc. commissions and data/news fees)
Max drawdown: ongoing
Trades: 26
Half of my losses came on one impulsive ES futures trade, which speaks to my need to stay away from trading that underlying for now.
Much more interesting, I think, is the following quick-and-dirty analysis. I broke the trades down into two very crude categories, recognizing that there is some overlap: volatility (inc. butterflies, calendars, and ICs) and directional (DITM calls/puts and verticals). (I excluded the one non-options trade for this analysis). The differences are pretty stark:
Volatility trades: 19
Journal return b/f commissions: $268
Journal win/loss/scratch: 11/5/3
Journal average holding time: 2.3 days
If held to expiration(or MTM for those that have not yet expired): $3,561 return before commissions
Expiration/MTM win/loss/scratch: 14/5/0 (much larger average win and average loss)
Average time to expiration: 11.4 days
Directional trades: 6
Journal return b/f commissions: -$218
Journal win/loss/scratch: 2/2/2
Journal average holding time: 1.3 days
Expiration return b/f commissions: -$1,720
Expiration win/loss/scratch: 1/5/0
Average time to expiration: 6.5 days
Key caveats here are that this is a small-n sample, and it was done in a fairly rangebound market over the last few weeks. But with that said:
* The most obvious takeaway I think is that I need to stay away from directional trades for now. Clearly my directional trading ability is not as advanced (to put it mildly) as that for volatility trading, and the directional trades are causing a significant drag on my account.
* The second critical takeaway is that it seems that I may not be holding my volatility trades long enough. I put a tremendous amount of time and energy into developing and entering each vol trade, but as evidenced by the journal return vs. potential return at expiration, I need to have more patience to wait out the market gyrations so that the trades can mature and actually make money. I should only exit when the market has definitely disproven my thesis for entering the trade. Until my experience level increases, I may need to use a more mechanical stop for my vol trades to prevent me from hurting myself by exiting early. I am thinking that one such method might be to use two criteria and exit when either is satisfied: 1) the initial position theta is halved; or 2) there is a clear reversal signal on the daily chart away from neutrality. I am not sure why I am struggling so much with my exits but I need to get better here.
I am confident that I can turn around the initial performance going forward. The first step now will be to get back "in the green." Thanks for joining me on this journey.
Finally, for the week ahead, I think that there is a lot of potential opportunity in the VIX. The market in my opinion has not yet priced in any real chance of a continuing deadlock on the government shutdown and debt ceiling situation, and the cash/ futs inversion on the VIX last week may be the beginning of more to come if the situation is not resolved. I plan to focus nearly all my energy on VIX options, and potentially some futures spreads, this coming week. To keep from cluttering the journal, I may post at the end of each day with the results of that day's VIX trading as I may continue to work on legging into flies on VIX volatility. I currently have Oct flies on up and down the vol line from 13 to 30, so I believe that I have a nice "cushion" to begin getting a little more aggressive in that regard.
