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Trade for a Living

  #211 (permalink)
 jba1962 
TampaFL
 
Experience: Master
Platform: TWS
Trading: ES
Posts: 183 since Oct 2017
Thanks Given: 97
Thanks Received: 374

Mike,

I am now trading 3 units, so yes the position sizing is fairly large, but the trades are mostly spreads and don't require a lot of margin to initiate. My algorithm for position sizing is the most complex thing in my trading, and it's not all that complex. I mostly spread the various indices against each other and position size per unit varies but is typically something like 6/11/5/8. The 11, as I write this, is the Russell. So if my first leg involves the Russell I will buy/sell 11 micros per unit, so 33 for 3 units. You can see that if the Russell is involved in all 3 legs, and there are no negations, I can end up +/- 99 contracts by the time the 3rd leg has been completed. Now that sounds like a lot, but these are spreads. The margin requirement is actually less than 10K per unit.

Now as the day goes along, I may adjust the position slightly. If I am getting beat up on one side of the trade, I may close a few contracts and/or add a few to the other side. The more trendy the market, the more aggressively I'll implement a bias. Ideally I do nothing all day but watch it until it's time to get out. In reality, that happens only about 20-25% of the time, and the rest of the time I have to tweak the position throughout the day. That is why I love the granularity of the micros.

Now you might be thinking, if you are going to buy/sell 33 M2K, why not buy 3 minis and 3 micros? Excellent question! And that's what I just started doing this week. From June through September I paid IB nearly $12,000. in commissions. I'd like to lower that and mixing minis and micros will, hopefully, allow that. Why didn't I think of that before? Who knows? I should have, but didn't. In any event I made that change this week, and it seemed to work well. I was still able to add and subtract and get the exact mix I was looking for, and commissions were somewhat less. IB charges me .94 r/t for the micros and 4.10 for the minis. But this week was a very good week, far better than average, so it remains to be seen how the mix will work when the model struggles. But I see no reason to believe I can't save $$ on commissions this way. The only negative I can foresee is the need to enter more trades. i.e. I need 33 Russells so I have to enter 1 trade for 3 minis and another for 3 micros. It takes me 10-15 seconds to enter a trade with IB, so it could take as long as a minute if I have to do 4 trades and the market can, at times, do a lot in a minute. No issues this week, but something to keep an eye on. I've always had this issue to some extent because you cannot do spreads with IB. They say you can, but they don't work. Anyhow, I'm rambling, so I'll stop now.

My entries are purely mechanical which is why I feel they are ripe for automation. But the adjustments are discretionary, and I am not sure I could codify them even if I wanted to, though someday I am going to try.

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  #212 (permalink)
 
kareem40's Avatar
 kareem40 
Dallas, TX
Legendary TradeTheBar
 
Experience: Intermediate
Platform: NT, TS
Broker: IB, Oanda
Trading: ES, MES, MNQ, MYM
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jba1962 View Post
Mike,

I am now trading 3 units, so yes the position sizing is fairly large, but the trades are mostly spreads and don't require a lot of margin to initiate. My algorithm for position sizing is the most complex thing in my trading, and it's not all that complex. I mostly spread the various indices against each other and position size per unit varies but is typically something like 6/11/5/8. The 11, as I write this, is the Russell. So if my first leg involves the Russell I will buy/sell 11 micros per unit, so 33 for 3 units. You can see that if the Russell is involved in all 3 legs, and there are no negations, I can end up +/- 99 contracts by the time the 3rd leg has been completed. Now that sounds like a lot, but these are spreads. The margin requirement is actually less than 10K per unit.

Now as the day goes along, I may adjust the position slightly. If I am getting beat up on one side of the trade, I may close a few contracts and/or add a few to the other side. The more trendy the market, the more aggressively I'll implement a bias. Ideally I do nothing all day but watch it until it's time to get out. In reality, that happens only about 20-25% of the time, and the rest of the time I have to tweak the position throughout the day. That is why I love the granularity of the micros.

Now you might be thinking, if you are going to buy/sell 33 M2K, why not buy 3 minis and 3 micros? Excellent question! And that's what I just started doing this week. From June through September I paid IB nearly $12,000. in commissions. I'd like to lower that and mixing minis and micros will, hopefully, allow that. Why didn't I think of that before? Who knows? I should have, but didn't. In any event I made that change this week, and it seemed to work well. I was still able to add and subtract and get the exact mix I was looking for, and commissions were somewhat less. IB charges me .94 r/t for the micros and 4.10 for the minis. But this week was a very good week, far better than average, so it remains to be seen how the mix will work when the model struggles. But I see no reason to believe I can't save $$ on commissions this way. The only negative I can foresee is the need to enter more trades. i.e. I need 33 Russells so I have to enter 1 trade for 3 minis and another for 3 micros. It takes me 10-15 seconds to enter a trade with IB, so it could take as long as a minute if I have to do 4 trades and the market can, at times, do a lot in a minute. No issues this week, but something to keep an eye on. I've always had this issue to some extent because you cannot do spreads with IB. They say you can, but they don't work. Anyhow, I'm rambling, so I'll stop now.

My entries are purely mechanical which is why I feel they are ripe for automation. But the adjustments are discretionary, and I am not sure I could codify them even if I wanted to, though someday I am going to try.

Brilliant. So basically you are a portfolio manager, right. Making daily income selling premium? A couple questions, please:
Why not lease a CME seat and stay with Micros ( BTW, IMHO micros are still better than miniz for what you are doing)? I think with the volume you do the 2K cost per month is more than worth it.
Do you use Delta or IV to adjust/change the spread?
Did you consider requesting for portfolio margin account? I just requested one. Your margin will drop drastically and you don't need to worry about the spread margin consideration. I think you may qualify for lower commissions. I hear with PM account and TOS, you may get better commissions than IB. Also, at times of super high volatility IB would change margin requirements which may force you to liquidate as the worst possible time.
Would Tastyworks be better since they don't charge for closing a position?
I do like your method and I am sure long term you will do very well. Best of luck next week. I anticipate very high volatility; which is good, right?

BTW, you are one of the few journal that I make a point to read daily

Take care,

K

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  #213 (permalink)
 
NW Trader's Avatar
 NW Trader 
Seattle WA/USA
 
Experience: Intermediate
Platform: NinjaTrader 8
Broker: NinjaTrader
Trading: CL, YM, ES
Posts: 305 since Sep 2018
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jba1962 View Post
Mike,

My algorithm for position sizing is the most complex thing in my trading, and it's not all that complex.

For someone who has never done any spread trading, actually the whole thing is complex!


Thanks so much for taking the time to explain that! I find it fascinating and it points out to me:
1. How little I really know about trading
2. How glad I am to be a part of this community

Over the years I have traded various instruments (just now and then, never consistently). But whether it was stocks, ETFs, mutual funds, commodities, forex or options, it's all been pretty much "buy low, sell high", nothing very exotic. I do understand the concept of spread trading and did some simple spreads with options, but what you are doing is all Greek to me. I'll just continue to watch your posts and maybe do a bit of reading on the subject because I do like to have a general understanding of the markets and trading. I sincerely appreciate you taking the time to make your posts and to explain things as you go along.

By the way, I did change my ATM to move my BE on the second contract to +1 over my profit level on the first contract. Works fine except for the times when price hits my profit but doesn't move that one extra tick, but when that happens I can always manually move my stop if I so desire. Thanks for your input on that.

Hope you have an outstanding week!

Mike
NW Trader

There is no path to happiness. Happiness is the path.
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  #214 (permalink)
 jba1962 
TampaFL
 
Experience: Master
Platform: TWS
Trading: ES
Posts: 183 since Oct 2017
Thanks Given: 97
Thanks Received: 374

First of all thanks to Kareem and Mike for input. I will respond to both tomorrow.

Today I went to the Rays-Astros game. That stadium is in the worst place possible, I think. It took an hour to park, game got over about 10 minutes to 5, and then over 2 hours to get home. Pretty sure I never got over 15 mph. Rays won which was good, but if I had to drive in that traffic every day I think I would shoot myself in the head. No, I wouldn't do that, but I would rather be poor and work a minimum wage job than deal with that traffic on a regular basis. Of all the fantastic benefits of trading for a living, I think working out of the comfort of your home has to be absolutely at the top of the list. I left at 11:30 and got home at 7. So 7.5 hours for a baseball game. They play again tomorrow. I will watch it on TV.

Nothing done on the non day trade side.

Day Trade: Trade did well right out of the gate. As I was preparing to leave, I was up nearly 1300. I thought of closing everything right then and there, and in hindsight, I should have, but I thought it might be fun to trade while watching a baseball game, so I didn't.

By the time I got parked ($25. for parking) and checked my IB mobile app, I was break even. Well, rats. But I had already missed the top of the 1st (Jose Altuve homerun for Houston) due to the parking nightmare so I hurried into the stadium and into my seat. After the 1st inning I checked my app, and that's when I found out how terrible the reception was inside the stadium, which is why I should have just closed the trade before I left, but I didn't know. During the 4th inning I finally got reception and was up 2400. What the heck? Well, that's good - I'll keep an eye on it. But alas, no more reception for a while, and the next time I could access it, I was only up 400. Rats again. From there I was able to get an update every 10 minutes or so, and it hung around from +400 to +900. At my normal exit time it was up about 700. I decided that trying to place orders, with the lousy reception, was going to be a nightmare. I thought about just holding everything and exiting when I got home, of course not knowing I wouldn't be home until 7:00. Then at about 4:10, I remembered that I've always been curious about the "Close everything" button on the app. I had never tried it and this seemed like an ideal place to give it a whirl. I went to the concourse to get 2 slices of pizza and a coke ($18.) but most importantly to see if I could access the app. I could. Even better I was up 1142. Nice. So I hit the magic button. Lo and behold, I had to play a game of 20 questions. Are you sure you want to do this? Did you know you were going to close all of your longs? Did you know you were going to close all of your shorts? Did you know you have open orders? What do you want to do with those open orders? On and on it went. Finally I was exited and the final tally was +943 for the day. I don't know if the difference was slippage, the probable lag time in getting the orders placed, or simply the market moving during the time I was answering all the questions, but in any case, that's where I ended up.

I'm exhausted and need a shower. Exact numbers in the morning.

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  #215 (permalink)
 
kareem40's Avatar
 kareem40 
Dallas, TX
Legendary TradeTheBar
 
Experience: Intermediate
Platform: NT, TS
Broker: IB, Oanda
Trading: ES, MES, MNQ, MYM
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Thanks Given: 1,887
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jba1962 View Post
First of all thanks to Kareem and Mike for input. I will respond to both tomorrow.

Today I went to the Rays-Astros game. That stadium is in the worst place possible, I think. It took an hour to park, game got over about 10 minutes to 5, and then over 2 hours to get home. Pretty sure I never got over 15 mph. Rays won which was good, but if I had to drive in that traffic every day I think I would shoot myself in the head. No, I wouldn't do that, but I would rather be poor and work a minimum wage job than deal with that traffic on a regular basis. Of all the fantastic benefits of trading for a living, I think working out of the comfort of your home has to be absolutely at the top of the list. I left at 11:30 and got home at 7. So 7.5 hours for a baseball game. They play again tomorrow. I will watch it on TV.

.....o was +943 for the day. I don't know if the difference was slippage, the probable lag time in getting the orders placed, or simply the market moving during the time I was answering all the questions, but in any case, that's where I ended up.

I'm exhausted and need a shower. Exact numbers in the morning.

That's funny. I did a Rangers game before and yes never again. I glad you enjoyed. You know there is much in common between baseball and trading. But,..... that's for another day.

Take care,
K

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  #216 (permalink)
 jba1962 
TampaFL
 
Experience: Master
Platform: TWS
Trading: ES
Posts: 183 since Oct 2017
Thanks Given: 97
Thanks Received: 374

Non Day-Trade P/L: 0.00 Month: +133.26 *Total: +3880.55
DayTrade P/L: +944.64 Month: +10,695.13 *Total: +65,515.13



* Total is since June 1, since I started this journal in June and June 3 is when I switched to using the micros in the daytrade portion.

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  #217 (permalink)
 jba1962 
TampaFL
 
Experience: Master
Platform: TWS
Trading: ES
Posts: 183 since Oct 2017
Thanks Given: 97
Thanks Received: 374

Hectic day for me. Did not get to address the two posts that I intended to. Will try again tomorrow.

Day Trade Side: Did 4 units today as Tuesdays are generally a good day. But I did not manage the trade very well. I was too early biasing it to the short side, and then had to rebalance. Then I tried to bias on the long side and had to rebalance again. Ultimately at day's end I biased short again, and this time it worked. But I did a LOT of trading scaling up and down. Overall I finished up about 800, but left a nice chunk on the table. A frustrating day because I feel like I reacted poorly. Any of the moves I made would have netted me a nice winner if I had been more decisive, but easing up and down just got me whipsawed unnecessarily. Without the sustained down trend at the end it would have been a losing day - in fact I was down over 4K at one point, or more than 1K per unit.

Exact numbers tomorrow.

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  #218 (permalink)
 jba1962 
TampaFL
 
Experience: Master
Platform: TWS
Trading: ES
Posts: 183 since Oct 2017
Thanks Given: 97
Thanks Received: 374

Non Day-Trade P/L: 0.00 Month: +133.26 *Total: +3880.55
DayTrade P/L: +746.23 Month: +11,441.36 *Total: +66,261.36



* Total is since June 1, since I started this journal in June and June 3 is when I switched to using the micros in the daytrade portion.

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  #219 (permalink)
 jba1962 
TampaFL
 
Experience: Master
Platform: TWS
Trading: ES
Posts: 183 since Oct 2017
Thanks Given: 97
Thanks Received: 374

Brilliant. So basically you are a portfolio manager, right. Making daily income selling premium?

Not doing much premium selling lately. Over the years, that has been my bread and butter, but I am no longer getting the risk/reward ratio that I like. I am mostly on the sidelines when it comes to premium selling.


A couple questions, please:

Why not lease a CME seat and stay with Micros ( BTW, IMHO micros are still better than miniz for what you are doing)? I think with the volume you do the 2K cost per month is more than worth it.


Many many years ago I looked into the leasing of a seat and it just didn't make sense. Of course the dynamics have probably changed a lot since then, and this is perhaps worth another look. If you know a good synopsis of the plusses and minuses please let me know.


Do you use Delta or IV to adjust/change the spread?

This is probably asked with premium selling in mind, but the idea is the same. It might even make sense to create an indicator that gives me a "delta" of my longs vs. shorts. I kind of like that idea. I may play around with some numbers and see what it looks like. If I could come up with something, that might be a key part of automating the adjustments when I get that far. I like it.


Did you consider requesting for portfolio margin account? I just requested one. Your margin will drop drastically and you don't need to worry about the spread margin consideration. I think you may qualify for lower commissions. I hear with PM account and TOS, you may get better commissions than IB. Also, at times of super high volatility IB would change margin requirements which may force you to liquidate as the worst possible time.

As I said before, my main trading income came previously from selling options, and they were typically in place for 3-6 weeks, so commission wasn't anywhere near as big a factor as it is now that I am primarily day trading for income. I do need to start examining ways to lower those rates. Since I started this journal, I am averaging just over 3K per month commission. Is IB doing enough for me to justify that? I don't think so. As for margins, not really a factor for me due to the spread trading. As I write this, I only have 2 of my 3 legs on, and I am only doing 2 units today, but I am long 28 MES and short 44 M2K. The initial margin is 6940, and the maintenance 5552. It won't even go up too much when I add the 3rd leg. So not really a factor. Of course the margin does creep up when my positions get out of balance, but even then, not much.



Would Tastyworks be better since they don't charge for closing a position?


Don't know. Only vaguely familiar with them. But you have motivated me to start looking at ways to lower costs. I tend to focus on trading, sometimes at the exclusion of other ways to increase profits. Lowering costs counts every bit as much as trading profits. Dollars are dollars. I did receive an email from IB saying:

IBKR is pleased to announce a reorganization of our Key Account Services desk through which my colleague ***** ****** (Blanking out the name because I'm not sure I should post somebody else's name without permission) and I will now be operating as dedicated representatives for your account U*****27. As your dedicated representatives, we will serve as the primary point of contact for any inquiries or services you may require.

So I think I'll start there and see what they have to say.


I do like your method and I am sure long term you will do very well. Best of luck next week. I anticipate very high volatility; which is good, right?

No idea. And not because I haven't thought of it, just that I haven't been able to find a correlation. I'm sure it's there, but not sure how to find it and/or apply it.


BTW, you are one of the few journal that I make a point to read daily

Very kind of you to say. Sometimes, I feel like I am just talking to myself, but I do that a lot anyhow, so it doesn't bother me.

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  #220 (permalink)
 jba1962 
TampaFL
 
Experience: Master
Platform: TWS
Trading: ES
Posts: 183 since Oct 2017
Thanks Given: 97
Thanks Received: 374


Don't sell yourself short with statements like "How little I know about trading".

I see posts on here with charts and annotations and awesome looking lines and graphs and arrows, and I don't have the first clue what they mean. It's impressive as heck to look at, but too complicated for me.

My trading is very simple, and it works for me. What works for you may be more complicated than what works for me. It may be less complicated. Either way, all you have to know is how to trade what works for you. Nobody on this planet could know every possible way to trade, but fortunately, it isn't required. Find/refine what works for you - understand it fully, and that's all you need.

Keep at it, and don't put yourself down.

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