Thnx
define hard delta and soft ?
I use OTM spreads to some degree
Hard deltas - ITM, have intrinsic value mostly, so usually we are looking close to delta 1.
Soft deltas - OTM, have extrinsic or time value only.
The former more closely mimic the underlying, the latter give better percentage returns for a move in the right direction, but will suffer time decay. As a swing trader I look to at least 60 days out to minimise theta.
Thought so, but wanted to be sure.
How do you deal with pumped up Volatility, say you go long ITM and market moves quick up, sure you get paid, market moves up slow you get paid but much less as volatility compresses, or market just comes off slow vol compresses and you lose on premium as well ?
spread ?
Actually IV is a problem you face with OTM. DITM over 90 delta it is almost all intrinsic value, at least with the instruments I've looked at. The component of time premium is very small, but as I said I favour OTM so perhaps Mav can elaborate on DITM.
For OTM I obviously avoid expiries that have pumped up IV. As for IV fluctuations as you mention, the difference they make compared to the percentages you gain as a result of the inherent leverage is quite negligible.
I've explained why I don't trade directional spreads in another thread, but for the benefit of anyone who has not seen that, I'll repeat. When I started with options and read McMillan, (he says if you have directional conviction, just buy vanilla options and forget verticals) I ignored what he said as verticals gave me this false sense of security. Pay less, move more slowly, feels safe. Until I had to wait almost 60 days to collect a third of what I would have gained in 2 weeks, because I had on a vertical rather than just buying the puts. Never traded spreads for direction after that. Now I just model option price over time and price of UL and trade per my risk level. 50% overnight is not something you will get with a vertical spread 3 weeks to expiration, you can get that easily with a 35 delta vanilla put same expiration with a strong move in your favour.
Thanks.
Do you stick with prompt month options, or venture on on curve ?
As a swing trader I expect to hold anything from a day to weeks. Given this, I look to minimise time decay by looking at least 60 days out. If a quick counter trend trade, I might settle for less, otherwise I avoid short expirations.
Thanks. so I suspect with respect to ACD your not looking at OR breakouts etc but rather longer term pivots in conjunction with number lines.
May I ask how is it going, have your tried studied other means to put on take off risk in the futures markets before ?
If you make a close study of the book, you will of course see that there are many ways to use ACD. It is not described as a method to give entry signals, and I don't use it in that way.
I have my own method of getting my entry signals. Nothing special, things that everyone else knows of and can use, but which I have studied and am comfortable with using.
In my personal experience, and the more experienced here may well disagree, number lines are quite useless in describing V shaped turns. They are quite special when it comes to predicting the breakout from a ledge or narrow range, when price has paused to build up a head of steam.
I use the levels in conjunction with my entry signals. For example, if you look back to the 11th and Mav's quiz and my response, rather than a failure I got a confirmed monthly A up on my levels. Now the confirmation was weak, because the daily bar was a doji. Price action was unimpressive the next few days, rising to my Quarterly A up as described in my response, where it failed and price moved down since. That failure coincided with an entry signal for me.
My experience with trading is that anyone can make money. Keeping the money you make and having more and bigger winners than you do losers is what makes the difference. So I have my system that generates entry signals. I then have filters that tell me which signals to take and which to ignore. ACD forms part of that system for me.
You need to work and find a system that works for you, in a time frame that you are comfortable with. It may be day trading, swing trading or even position trading. Your niche could be in directional trading or in spreads.
The best advice I can give you is that if you are new and just learning how to trade, still working on a system you believe in and can trust, DON'T trade futures, unless you are one of those lucky chaps with loads of inherited money or made so much that it is all quite meaningless to you. Trade small, learn cheaply.
Thanks.
I trade some energy commodities just looking for a good means to evaluate risk and take/manage risk. Not sure why you suggest stocks over any commodity Futures ? Have to take and adjust risk best you can in both, maybe people under estimate what a true commodity can do in terms of move ?
Do you have a favorite chapter in the book ? Reading parts over again today..
Not suggesting stocks over commodities, rather taking on less leverage. Trading the commodity ETF is cheaper than the commodity. Or trade FX, you can risk ridiculously small sums. People do underestimate the damage that leverage can do to your account.
I see threads here where people are encouraged to learn how to trade, using futures. I followed a thread on the BMT forum where the world's best CL daytrader had loads of loyal followers losing money everyday, until one by one they fell by the wayside, apologising that they were not good enough. You can only imagine the psychological damage they sustained following that charlatan. When I analysed his trades for 1 day and pointed out that he was not trading ACD, his loyal followers attacked me. True believers don't like facts because they interfere with the good feelings that come from belief.
I don't have a favourite chapter. Any book is much longer than the essence of the message conveyed. I made notes and refer to them. How much would you pay for Fisher's book if it was 10 A4 pages long? My summary of the first 1,000 pages of this thread was 36 pages long, edited down to 15 pages. I need to update that, there has been much that is useful since then.