What's the Right Strategy?

C

CL Lim

I've developed a stock trading system based around the works by William J. O'Neil. By using a modified screening technique and applying the original concept on weekly charts, I am able to identify some 'good' Cups and Cups & Handles breakouts. These screened stocks often climb 10 to 50% in a matter of weeks, but can also fall just as fast.

I am thinking to use options as my trading vehicle to trade this system. It is because I want to avoid the gap down scenario that happened to the above mentioned stocks (options buyer has limited risks).

I am hoping you guys can help me to choose the right option strategies by looking at the stats below:

No of Closed Trades: 27
No of Winning Trades: 14
No of Losing Trades: 13

Average Win: 22.32%
Average Loss: 8.18%

Ave Weeks per Winning Trade: 4.86
Ave Weeks per Losing Trade: 3.38

Many thanks!
 
Hi! I believe you could do alot better trading the stocks or futures themselves. Buying naked options takes a higher winning % i think.
 
Hypothetically, to earn 22% half of the time and lose 8% the other half of the time is a great system. You're earning almost 3 times as much as you're losing. In real-time, you can expect to earn less and lose more. In calculating the average gain and loss, are there any large numbers that distort the calculation of the average? Does the 22% "number" come from a series of (19,20,21,22,23,24,25) or (1,1,8,15,22,29,36,64)? Recalculate the average gain if there's a single huge trade that accounts for most of the profits.
 
Quote from nazzdack:

In calculating the average gain and loss, are there any large numbers that distort the calculation of the average? Does the 22% "number" come from a series of (19,20,21,22,23,24,25) or (1,1,8,15,22,29,36,64)? Recalculate the average gain if there's a single huge trade that accounts for most of the profits.
More...
HERE is a simple trade-by-trade breakdown.
 
CL Lim,

You seem to be hitting slightly above 50% which is what I have right now. I had 24 options trades in 2005, 14 winners and 10 losers and a win/loss ratio of $1.51. Had a lot of mistakes too on the trading. That I am working on right now.
On the plus side, options probably will be an excellent tool if you are able to get atleast, a 50% hit rate. A huge say, 5 point move in a stock in a few days can be big money in options. I am talking about 100%, 200% or more. A stock I was following went up over 10 points in the last 4 trading days and some of the call options went up big. I saw one which when from $2 to $16, another $3 to $12. Whoo!!! I was not in the stock but, got excited just the same. I will definitely be looking for those high fliers. Just a small but, important bit of advise, maintain a trading journal if you don't have one. It will show you your mistakes so that, you can avoid them!!!
 
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