To Trade or Not to Trade?

chiquita said:
They all worked, but then my gains get wiped out by losing trades.
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When you back test, do you have firm rules of when to put trade on, rules of when you get a signal but chart is not right which negates the signal, Do you know all the answers before having a question? Brainstorm for a few days of all the possibilities of what can go wrong and figure out what to do, so when these situations happen, you have an answer. What is the "mean" profit so you have a target in mind, what is worst each trade went against the position on winning trades, how long did trade take so you could get to breakeven plus a little hard/mental stops?

What is more important to you, making most money or not losing? If you out to make the most money-you will have bigger drawdowns and if you working toward having low losing percentages-you working more on money management rules.

Keeping great stats helps greatly.
 
i960 said:
  1. If the market environment or context is not producing good results and you're certain it's not your methods, stop trading - the market is not conducive to your methodology. Accept it and be patient. Recognize that the current market is in a period of uncertainty in ways and violent moves up and down are to be expected. It's volatile and not always a "good" kind of volatile.
  2. If you don't have any risk parameters or make them up as you go, stop doing that and make a plan.
  3. If you're bailing too early because you're worried about losing money rather than obeying your risk parameters you're hawking your P/L too much and focusing too much on money.
  4. If you're bailing too late because you're getting greedy or fantasizing about all the money you could make on this trade if it only went to xyz you're stepping outside the parameters of the trade and thinking too much about money.
  5. If you're doing stuff like selling OTM options (naked, iron condors, etc) and just hoping, based on "probability", that price won't go near your strike - then you're a slave to gamma and will get screwed eventually. These strategies don't really work IMO, get closer to the money and learn how to hedge with the underlying when necessary. If your size is so large, just to produce a substantial concern, vs your account size, that you couldn't even hedge, then it's only a matter of time until a blow up happens.
  6. Don't screw around with earnings.
  7. Possibly don't even screw around with individual stocks if that's what you're doing, instead trade index options.
  8. If you're making trades because you just want to trade and not because there's any significant setup, stop doing that.
  9. Patience.
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I for one appreciate your post and excellent advices as they summarized the painful experiences I accumulated over the past 3-4 yrs of trading options. Most of my losing trades were because of #3, #4, #5 and #9. I wasn't patience enough, either got in too early or got our too soon. I found out that mechanical trading (e.g. #5, buy/sell every period based on a "formula" like probability) did not work and trading index options did not work.

I am profitable so far but boy it is hard work :sneaky:. Perhaps, I have not been doing it long enough and will get "wipe out" one of these days.

To the original poster, my suggestion is to start thinking out of the box and don't follow what all the books said. Be humble and accept some of the wisdoms folks here are willing to share as they represent some of the best advices I got. The fun part is there are so many different ways to profit or to lose trading options.
 
OP. Took me a while to grasp this, but as a small retail trader, you will never be able to profit from the small picture unless you understand the bigger picture. The experienced traders in here know exactly what I'm talking about
 
profitlocker said:
OP. Took me a while to grasp this, but as a small retail trader, you will never be able to profit from the small picture unless you understand the bigger picture. The experienced traders in here know exactly what I'm talking about
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yes
 
drcha said:
The expected value of most options trades is approximately zero. I would expect that over the long term, the trader who cannot predict anything would make zero. You need to be able to make enough accurate guesses about direction or volatility. You cannot just blindly put on trades and wait for time to pass. So work on a method that can successfully predict movement of indexes, stocks, futures, or whatever you want. Then use options to leverage it.
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drcha,

A lot of wisdoms in this short reply. However, easier said than done.

What is your opinion on all those published technical indicators (including Ichimoku) and their predictive values?

Regards,
 
ironchef said:
A lot of wisdoms in this short reply. However, easier said than done.
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Yes, and it's hard enough to predict direction, that worrying about the shenanigans in the options market, in my opinion, just isn't worth it. I'll just put up the cash. With options leverage, comes a whole different set of headaches
 
ironchef said:
drcha,

A lot of wisdoms in this short reply. However, easier said than done.

What is your opinion on all those published technical indicators (including Ichimoku) and their predictive values?

Regards,
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Chef, I don't know much about them.
 
profitlocker said:
OP. Took me a while to grasp this, but as a small retail trader, you will never be able to profit from the small picture unless you understand the bigger picture. The experienced traders in here know exactly what I'm talking about
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Could you further explain this point? (Much appreciated if you do).

Do you mean that one should develop a strategy where if you predict a gain using a long time frame AND also predict a gain using a short term time frame, then you go long. Only if data analysis from both time frames (thru whatever logic) concludes the same point should you take up a position?
 
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