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The Learning Journal of RedK Trading Options...
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The Learning Journal of RedK Trading Options...

  #1 (permalink)
Knowledge Seeker
Dubai, UAE
 
Futures Experience: Intermediate
Platform: TOS, TradeStation
Broker/Data: OX, TradeStation
Favorite Futures: Stocks & Basic Options
 
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Posts: 171 since May 2012
Thanks: 44 given, 138 received

The Learning Journal of RedK Trading Options...

Glad i found this forum.. the spirit here is "different" in a positive and friendly way, which i find very appreciated.

i'm starting this journal to share my expereince, and learn from others, as i make my way thru the learning journey of trading options on US equities.. if you have something in common with me (see below), pls feel free to share knowledge and expereinces.. it's much more encouraging learning together since trading is not all winning all the time.. here's a quick background to set the stage:

- i started learning almost a year back .. since then, a lot of reading and self-studying. currently i'm reading 3 books at the same time on different areas of importance (in my openion) to my trading style
- like to think i'm a technical trader.. I'm on TOS .. have started to customize some existing indicators/studies.. and only recently did my first one from scratch .. i call it K-Trender, as it attempts to help me catch trends as they happen.. still learning my way thru TOS scripting..
- i will focus my trades on short-term (few days to 2-3 weeks).. some days i can take an intraday trade if attractive. and i don't mind holding some stocks if they're worth it
- I trade at level 1 only with my broker.. i'm happy with that, think i can do a lot with it, and avoid the complexities of option strategies at the higher levels. i also avoid use of margin completely (a matter of belief). so won't come close strategies that require margin use.
- i trade stocks/option of IT industry .. i feel more comfortable there since i follow it by nature of daily job. will go out of the way for something REALLY attractive and solid (an example i'm watching with interest now is CERN)
- i have a quarterly profit taregt (set at 10%).. trading is so far a hobby but i would like to understand how far we can go (trading and I), for longer term, can this be a full-time business that supports itself and cover all expenses .. that will make me a happy retired guy in 5 years

so far, my expereince has been "OK"'ish .. i can see my trades improving from when i started (i was trading blind back then , and the custom indicators are somehow helping me catch the setups i'm trying to be in.. i'm bad when it comes to setting stop losses, or taking a loss.. also stopping myself from doing impulsive trades (can't help the rush and adrenaline)..

Starting this journal to help those who are on the same road like me, and to help me improve my trading skills & knowledge. i will share my trades and the "case" behind them, and will truely appreciate all tips, tricks, advices, experiences from those ahead of me that would like to share...

see you soon,
RedK


Last edited by RedK; June 20th, 2012 at 06:16 PM.
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  #2 (permalink)
Quick Summary
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Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.

 
  #3 (permalink)
Knowledge Seeker
Dubai, UAE
 
Futures Experience: Intermediate
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Broker/Data: OX, TradeStation
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Posts: 171 since May 2012
Thanks: 44 given, 138 received

The Setup (seeking feedback)


As a level 1 trader, best choice will be to try to identify and ride good, directional trends with basic option plays. i use the word "good" as currently it's good enough for me to stay 2-4 days on same direction with a long Call or Put.. and my target would be done. so a "strong" trend is something else, and ultimately i would love to get into one and all my quarter target is done in 1 trade.. i'm trying to prepare my chart set up to help me with that..

so what i can do in 2-4 days of trend (disclaimer: this is not an advice to any fellow traders to do the same.. we should all use strategies within limits of our risk tolerance)
  • Sell cash-covered put (weekly or current month): to my surprise, this is where i did best in analysis of past statement & trade history for 2 quarters.. (the option writer advantage?) but i do my homework to ensure the only way the stock will go is up (bottom fishing), and use stocks i don't mind owning for a while just in case.. also leverage periods of high IV if low risk (earnings of strong players)
  • get long Put or Call (ATM, weekly or current/next month, with around 0.5 delta, you get $50 per $1 move of underlying, 10 contracts get you $500, 20 contracts get you $1K).. we accelerate as the option gets deeper ITM .. no, i don't use spreads for protection, i will simply exit with loss if the trade doesn't go my way. timing is very critical here, and also simple tools like Stop limit orders.
  • Sell Covered call (if i own the stock and it's going down)
  • ...etc (currently looking for others plays i can use)

Best indicators i found (while keeping my chart setup as simple as i can): combine the signals from these for a confirmed directional move .. trying not to use correlated ones.. hope i got it right:
  • Before all: historic price action: S/R levels and trend lines (now studying chart & candle patterns too).. look at weekly AND daily charts and ensure we have alignment. i have BB on the price chart as i found it incredibly useful.
  • ADX/DMI: i use a customized version .. (will share shortly for everyone's benefit and feedback)
  • K-Trender (my own): based on price action and multi MA's.. gives an indicator of strong vs weak trend based on MA movement and price action (delta) from MA lines (includes a MACD)
  • MFI: with an additional MA line.. shows me MFI in more recent timeframe vs the longer timeframe.. simple but more effective.

i have tried to "standardize" on many indicators, RSI, MACD, Stochastic, Regression Channels, Fibo, ... but then came back to the conclusion that price & volume action (and indicators) are THE masters of the game, so my confidence is high with current setup and it tells me a lot. MACD is price action based, and i inlcuded it in my Trender.. on it's own, i find it a bit deceiving.

next post, will share a snapshot of my chart setup .. and would love to hear some feedback from others ahead of me on the "story" so far...

"Green Lines" to all..!
RedK

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  #4 (permalink)
Knowledge Seeker
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Futures Experience: Intermediate
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Posts: 171 since May 2012
Thanks: 44 given, 138 received

Week's trades and a question

Closing the week early.. as i'll be away tomorrow..
3 winning trades, not super.. missed couple of opportunities

the winners:
  1. Cash Covered Put on AAPL (weekly), closed on Monday.
  2. Cash Covered Put on ORCL Weekly - held overnight. catch the inflated IV (~70%) on earnings, then closed next day on market open after IV went down. ORCL climbed almost 5% on that day (Tuesday) and that helped a lot. bought back the put at 0.03
  3. Covered call on QCOM (i hold the stock and trying to make up the loss as it goes down from April highs). this was an intraday trade as i didn't want to keep it open. my Trender indicator helped .. Sold @ 1.58 and bought back @ 1.15

Opportunities i missed (learning)
  • MSFT --> major announcement (Surface) and stock jumped.. could have done a 2 day "news" trade with simple long Call
  • STX --> was waiting for it to continue the down-trend.. happened today with -7% move, but i wasn't focused enough to catch it early.. just watched it go by
Next week plan: mainly will continue to watch GLD, QCOM, NVDA for a reversal up, remove CERN from watch list, STX possible continuation down. keep an eye on the other usual suspects...

the question .. if you're using ADX and can help me validate the thought:
One of the ways i have customized my ADX/DMI indicator in ToS is by removing the "absolute value" of the "DI-" in the DX line calculation. the result is that, if the trend is down, ADX line (the MA of DX) will go into negative (we get a clear zero-line crossing) on the indicator, and if it's up, ADX crosses 0 and moves up. it provides a clear reversal signal ( the reversal happens when the slope of that line changes as it hits a bottom or top and swings back.. 0 crossing is a stronger trend confirmation). mathematically, it's still making sense (although a different way of interpretation).. here's the calc after removing the AbsValue() Note: in my final version, i removed the IF statement as it's redundant given DI- is always a positive amount ..

def DX = if ("DI+" + "DI-" > 0) then 100 * ("DI+" - "DI-") / ("DI+" + "DI-") else 0;
plot ADX = expAverage(DX, ADXFastEMA);


i prefer it much better this way.. always was unhappy with the original ADX indicator being non-directional.. anyone tried this, do you see any problem with calculating a modified ADX this way, if i'm missing something?

Until next week, green lines to all,
RedK


Last edited by RedK; June 21st, 2012 at 06:55 PM.
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  #5 (permalink)
Knowledge Seeker
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Futures Experience: Intermediate
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Broker/Data: OX, TradeStation
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Posts: 171 since May 2012
Thanks: 44 given, 138 received

New Trade Wk4 June - tracking unusual volume in watchlist

Haven't traded since last week.. saw something on Volume Spread Analysis.. caught my attention and got very interested.. this is a big topic and i was looking for something that shows me how volume plays a role in the stock move.. but i don't like the complexity of VSA.. i'm sure there's an easier way to reflect that volume impact on price move.. the most useful and interesting indicator i have found so far among all that focus on volume is MFI .. so spent the next few days creating a simple volume indicator that i called "VolumePressure" .. looks promising .. i can't do proper backtesting, but initial "visual" testing looks promising and i think it will be a key indictaor for me.. i now have my customized ADX/DMI, and my own created Trender & VolumePressure (will post if there's interest or someone would like to test and feedback)

been following NVDA for sometime.. and based on yesterday's action (triggering a bullish signal in Trender and VolumePressure) i opened a new long Call position today.. even with the big negative move today, NVDA is holding ground so it seems on the right track for me.. here's the position

BOT +20 NVDA 100 AUG 12 13 CALL @.92
Target date: 3-4 weeks
Target price: $2.00 when underlying around $14.80

expected Resistance levels: 13.6 & 14.4 so i'll be on the guard and may exit earlier around these levels..

My QCOM keeps losing ground, the only other position i now have .. but i'll hold .. it's indicating possible reversal but lacks confirmation. i'll keep enhancing my BE price by selling calls against it. so far i'm doing well with that (relatively)..

Tip: to keep track of unusual volume action i added this custom column in my ToS watchList.. it compares current volume to a long average (to avoid inconsistencies).. i'll next enhance it by comparing volume size up to that "time of day" to long term average of same period of day.. but it kind of does the trick now (when you see volume hitting 15% in first half hour, that's unusual)..

Plot v = round((volume /average(volume,200)*100),1);
assignbackgroundColor (if v > 200 then color.blue else if v > 100 then color.dark_Green else if v <= 100 then color.dark_RED else color.CURRENT);


will check-in later, green lines fellow traders,
RedK

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  #6 (permalink)
Knowledge Seeker
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Futures Experience: Intermediate
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Posts: 171 since May 2012
Thanks: 44 given, 138 received

Tip: Free realtime watchlist in the browser

Starting the week, and before the market opens, i always check this link among others, so thought to share with fellow traders .. if you're like me, been looking for realtime prices gadget to put on your desktop and can't find a decent one, you may find this trick simple & useful....

AAPL, NVDA, ARMH, QCOM, STX, MSFT, INTC, ORCL, IBM, GOOG, HPQ, GLD, SLV

you can replace the symbols with the ones you watch, then add the link to you favorite.. these are realtime prices from CNBC, and they work pre-market and after hours.. even on the ipad and mobile, i have the same link .. while i do have the CNBC market app on the ipad.. it's still the quickest way to keep track of your important stocks..

Green lines to all traders,
RedK

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  #7 (permalink)
Knowledge Seeker
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Futures Experience: Intermediate
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Broker/Data: OX, TradeStation
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Posts: 171 since May 2012
Thanks: 44 given, 138 received

Big Learning wiht NVDA...

just closed the NVDA calls.. my new indicators (worked on them over the weekend) show it will dip first (for coupole days) before picking up again.. i will be there then. the dip started early today (NVDA down 3.0%)

Open $0.92 closed $1.05 or $260 profit before comms.. i was looking at $800 since Friday as the calls slightly moved over $1.30, but let it slip.. not upset, the lesson is worth it, and will come around later.

the learning..
1. if i get a good profit within a day or 2 from open (good means i'm SO "surprisedly happy" with), close and take profit.. it would be a gap that will retrace quickly (most probably) .. when it re-traces you can re-open the position again on the way up..(but i already knew that one. just not following it .. the next one, was a big eye opener for me, a real Aha! moment..)

2. volume is sooo important.. did some homework on it over the weekend, inspired by some Wyckoff/VSA material & TradeGuider videos i haven't come across before.. so built 3 custom indicators (i call them VolPressure, PriceVolBias, and VolumeFlow - some shown on the charts) to help me see what this is all about.. and WOW!! (see how the charts show better entries & exits for the NVDA position, very clear on the 15min ... the circles are my actual entry/exit - the vertical lines show "better entries/exit" based on indicator signal - the DMI then the volume-based ones confirming .. or is it the other way around ) .. i had this view setup only after i was already in the trade, but from now on, they are my guide..
(if anyone is interested, i can further explain the setup & indicators)

- researched around some blogs and forums, i'm amazed how so many traders (like me) don't look at volume or volume-based indicators, and only follow the price action (and price-based indicators)..OK, so we're all guilty (most of us at least).. when i saw how much volume-based indicators can tell you (in Wyckoff's context, it's cause & effect, so looking at price only is like analyzing the effect and following it).. Volume action is like the "leading indicator" .. the cause, the fuel of the engine .. OK, so have to always look at both.. i'm a believer now ..

- i'm not going all the way to VSA style analysis, and will keep this simple.. i'll look at how volume is moving from different angles (pressure, accumulation..) and different time frames, combine with price action, and make a better decision. if anyone is reading this journal, you should look at combining some volume-based indicators to your trading method.. if you haven't already.
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Let's see how this works with my next trades.. does it improve my gains.. will also practice this set up on SIM for sometime..
Green lines to all,
RedK


Last edited by RedK; July 2nd, 2012 at 06:26 PM.
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  #8 (permalink)
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2 Weaknesses Discovered ... work to be done!

had 5 trades in previous week. 1 loser, and 1 winner - the rest, closed near open but no loss. i can better identify trade entry much better compared to previous weeks - exits, not improving
NVDA moved down as expected, but i missed an opportunity to make better gains as it moved 1 day later than expected and i was already scared out.

this leads to reflecting on all recent trades i made, and (i hope) i managed to identify the next 2 weaknesses to focus on. (all feedback appreciated)

1. better identify multi-day moves, and the best entry point. in few cases, i would enter too late, then there's no enough days to make profit on an option trade --> solution: i should check and follow my setup and signals consistently. if possible, find another set-up that can identify multi-day uni-directional move and signal as soon as they start. this inspired an idea for an indicator that compars 2 RSI's of fast/slow lengths. resulting signals look promising with visual backtesting. so that's my 2nd trusted set-up beside the "Pressure-based" one above. i also added the formula as a custom column in my WatchList. now i can see it all times.

2. lousy exits. among the 4 winning trades, i passed on a profit of $1,300. i see the figure in my P/L and just let it go by .. grrr! yes, for these trades, i didn't set a target before i open the trade. i still managed to lock $500, but i consider it a lost opportunity. position mismanagement? no, it's my exit strategy (or lack of one). --> solution, if i'm not sure where the multi-day move will end, set initial exit at 35% profit and monitor. if it keeps moving in my direction, move it up to 50%, and exit then. an exit stop should be at 25% (downward), and an exit loss at -10%. best trades i had when i pre-set my target with an OCO, but in so many cases, my orders will not fill (gaps or other reasons - reported to broker)

It's tech earnings week(s). so have only kept 1 stock position (QCOM), and no option trades open. will watch things carefully. had bad surprises before holding positions thru earnings, so will only trade if an attractive high-volatility setup shows.. otherwise, keep sharpening my saw.

green lines all traders,
RedK


Last edited by RedK; July 17th, 2012 at 10:13 AM.
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  #9 (permalink)
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A quick intraday

managed to squeeze a quick trade on INTC. followed the signals and the price action closely. i rarely make intraday trades, but wanted to test how well would i do to improve entry & exit, and sort of the opportunity presented itself.

well, entry was "on signal" - and not an impulsive shot so far after. so that's progress. exit i managed manually since i was sitting there - and wanted to close the trade before leaving the PC.

i'm also getting more confident about my pressure-based setup.

After INTC opened with a run up, selling pressure came in on strong volume for arond an hour from open. that was my trade window. 20x Aug 25 Puts, in and out .. BOT 0.85, sold for 0.96, for $220 excl comm. not bad for a quick test. (vertical lines show buy/sell on chart and the signals)

there was another excellent one after on calls as the buy pressure went back in (in anticipation of earnings?) .. saw it after i came back to PC.. no worries. more will come.

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still need to work on exits, and do this cycle on multi-day trades. that's where i want to be next.

NB: i worked further on my custom indicators, so new versions show in this screen vs previous ones. still need to enhance the DMI for better visibility.. i don't like that histogram anymore.

Grren Lines,
RedK

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  #10 (permalink)
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Posts: 171 since May 2012
Thanks: 44 given, 138 received

Earnings Week Trades - sharing a custom indicator


looks like investors initially liked the tech earning results, but the initial reaction quickly faded. my QCOM stocks gained but then started moving down again. My analysis shows a possible quick retracement to $57 level. tried to lock the move up by buying puts, timing was wrong and i got stopped out. move down continued today, so i sold Aug 57.5 covered call and will continue to watch. if it breaks my $57 support level, will then go in and buy protective puts.

INTC case is different. my chart analysis show they will go back to continue downward trend (my expected reversal level is around $24.2) after the quick earnings reaction. so after watching the action, i opened a trade with 20 x Aug 26 Puts @ $.93

today i share my first custom ToS indicator as promised. will appreciate all feedback. i started to love building my own indicators in ToS, and spend a long time doing so. the script engine in ToS isn't great, but simple and effecient enough and it brings back nice memories of the time i used to write code early 90's .. so i enjoy playing with some indicator ideas inspired from books or other sources. my focus is still on creating what can help me catch multi-day/week moves in the same direction .. trend-hunting sort of.

so here's one of my firsts, which is my own customization of the current Directional Movement Index/Indicator (DMI), with ADX for ThinkorSwim. IMHO, ADX/DMI is one of the best technical indicators for price movement. i wanted to make it easier to visualize and action on. was always confused by the fact that ADX is non-directional, so i changed that. you can try with different timeframes and instruments.. i only use it to identify significant price moves & trends for stocks & option trades. if it works on futures and others, great ..

link below to where i posted it. in above posts, you can see KR_DMI V2 & V3 in the screenshots. i posted V4, which adds some visual enhancements. this custom indicator will not be posted on any other forum so appreciate if you do not share outside of futures.io (formerly BMT)

https://futures.io/download/vip_elite_circle/1227-download.html?view

Green lines fellow traders,
RedK

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