So it finally happened.

I have said this before several times, but let me repeat it one more time,
"More than 50% of the battle with options
is having a complete trade management system."
1: No one trade should have the ability to tank your account by more than -2.5%.
That means you would have to have
an almost impossible 40 consecutive losing trades to wipe-out an option trading account.
Example:
Invest 10% of your total account into a trade and use a -25% stop.
That's a potential -2.5% total account drop if you stop is triggered.

2: Two methods for profit:
A: High W/L record (66% to 75%) and modest profit goal.
10 Trade Example of A:
7 wins at +25% = +175%.
3 losers at -25% = - 75%.
Net........................+100% options gains.
Total Account gain.+ 10%.

B: Lower W/L record (40% to 50%) and
High Profit Goal:
10 Trade Example of B:
Four +100% winners = +400%.
Six... - 25% losers.... = - 150%.
Net.............................= +250% option gains.
Total Account Gain......= +25%.


These simple management methods above will provide a balance of frequent
modest profits combined with occasional larger profits, and in turn protect your account during downturns in W/L reliability for a very long time.


Jeff
 
Out of curiosity, do you mind sharing what hammered you? You said you were on an 11 month winning streak, which means you were profitable during a few volatile periods (last Nov, Feb-Mar of this year).
Things haven't really been that crazy recently, so I'm just curious was caused the meltdown.
 
You need to realize that selling premium you are pretty much a one man equity insurance company.

You will have to pay out claims it is part of doing business, you need to take in more premiums than what you pay out in those claims. But never expect to not have to pay out, cause it happens.

The problem is people get upset when they see a trade going against them and are unwilling to take a loss, even if it is a small loss so they just hope that things turn around. And in the end you end up with a huge loss.

Just realize its better to pay out those small claims that try to fight them and court and lose big money. The stock market is the court + jury and you can settle out of court and pay a smaller amount or hope to win the case or lose big time and get wiped out.


I have been doing this forever and I treat is as running an insurance business. You need to hedge, manage risks, manage your assets etc.. Treat it as a proper business with the right mindset,education and you will do fine.
 
Quote from KINGOFSHORTS:

I have been doing this forever and I treat is as running an insurance business. You need to hedge, manage risks, manage your assets etc.. Treat it as a proper business with the right mindset,education and you will do fine.
More...

My sentiments exactly. Mindset being the operative word.
 
Quote from fbirdien:


Would appreciate input/comments on the 7 points that I mentioned to enhance overall process in 2010.
More...

I had a similar day 7 years ago. Like you, I got sucked into selling premium because it had been working. An experienced options broker told me that at some point I'd get wacked because "shit happens". I didn't listen, and got killed.

I give others the same warning. But they don't listen either. That's human nature.

Trading requires constant caution, and constant humility. But you know that now.

Sometimes the tuition in this business is very steep. And the biggest lessons can be very painful, especially when options are involved and a trader gets over-confident and over-leveraged. It's easy to do when things are going your way. So don't feel alone.

Don't get into trying to prove that you can beat that market, because the house has the odds.

That's the thing that concerns me, and should concern you, about your post. You seem ready to jump right back into the same market and "beat it".

You sure you learned your lesson?
 
Quote from jeffalvinson:



These simple management methods above will provide a balance of frequent
modest profits combined with occasional larger profits, and in turn protect your account during downturns in W/L reliability for a very long time.


Jeff
More...

Wise old man finally spoken after about 9 months.
 
Quote from fbirdien:


6. Always, always , always cut loses-
Have read this in every other post on ET and in all the popular books�.MILLION times� but still human nature ..easy said/read than done ..need discipline
More...

Do you type your "Search Phrase" in camel case while searching on google knowing very well that it doesn't matter at all? Are you a perfectionist?

If yes, welcome to the club. Trading is extremely tough for we perfectionists.

Guess taking loss is equivalent to admitting that our entry was wrong - so we always try to manage/repair it.

Adding to looser always works until the day you get margin call (or run out of balance).

I too had a no-loss period that lasted for 3-4 months. My risk to reward ratio was very high, usually 4:1 and sometime even 20:1. So I achieved 100% win-ratio but profits were slim. And one bad day, all was gone in a single trade. Same story - isn't it?

Jeff has already explained it with great example. Watching your risk/reward ratio is the only way to success in trading.
 
Good thread. However to help you and others we still need more details on your trades as others have pointed out here.

firebird,

I think we need to explore this;

"But part of it might be the new instrument that I have adopted since last 3 months.. not sure . I worked through VIX in 50’s and 40’s earlier this year and was up 19% ( compounded) YTD on March 9 when S&P was down 24%."

You were going good for 11 months and then changed something 3 months ago and then booom?

Can you tell us more?
I see winning trading as at least having the following 2 big aspects that must be matched;

1. The underling (vehicle).

2. Trade plan.
 
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