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Using Options for Swing Trading


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Using Options for Swing Trading

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  #201 (permalink)
Market Wizard
Chicago, Illinois
 
Experience: Intermediate
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Trading: Forex, Stock & Options
 
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SPY is holding above intraday VWAP (blue line) for the time being today so the average person is making money, but that price is being tested right now:




Planning to go short on AIG & SPY if things break down.

I was stopped out of TSLA and a few other positions for losses.

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  #202 (permalink)
Market Wizard
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The markets kicked my ass last week. By Friday, I had reduced my position sizing lol.

I definitely lost a bit of my confidence (and money) over the last week or two, but I've made some adjustments and I'm going to be launching some new trades tomorrow using full risk per trade. There are some great set ups both long and short, though mostly short.

I'm relatively bearish on the overall market until SPY gets back into its recent consolidation range:


^^^ It is also possible that the downsloping bearish channel that I was originally trading becomes relevant again as price has re-entered that area.

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  #203 (permalink)
Market Wizard
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Bermudan Option View Post
The markets kicked my ass last week. By Friday, I had reduced my position sizing lol.

I definitely lost a bit of my confidence (and money) over the last week or two, but I've made some adjustments and I'm going to be launching some new trades tomorrow using full risk per trade. There are some great set ups both long and short, though mostly short.

I'm relatively bearish on the overall market until SPY gets back into its recent consolidation range:


^^^ It is also possible that the downsloping bearish channel that I was originally trading becomes relevant again as price has re-entered that area.

The Value area high of the channel served as resistance and pushed price lower:


I need to work on my stops while trading to the short side. I've been right in terms of overall direction, but because my stops were too tight, I still ended up getting stopped out. These last few weeks have been tough to trade and humbling for me. My hope is that the indecision that the markets have had for the first half of September are over, and that the markets are more clearly bearish moving forward.

I can take solace in the fact that I am losing less money than I would have a year ago, and that I have adjusted my non-trading investment accounts to also prepare for the potential of a sell-off, so I'm treading water at the moment while the average American is losing $$$.

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  #204 (permalink)
Market Wizard
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Stalking SPY for a potential short trade. The markets can definitely push higher, but I like the confluence across different technical analyses:

Short Term Horizontal Channel + 5MA (Yellow Line)


Longer Term Down-sloping Channel


VWAP


All Analyses Combined


Current short positions in CVX, SPY & CI.

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  #205 (permalink)
Market Wizard
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September 2020 Review
Notes
I've been dreading this analysis lol. September was a bad month but after the analysis, I was finally able to put an actual number to it.

I feel like every time I earn the ability to increase my position sizing, the markets go in the opposite direction and I suffer a drawdown smh. I guess on the bright side, the quickest way to mentally accept an increase in position sizing is to deal with a drawdown right off the bat.
Stats (Setepmber 2020 only)


Note: ^ The last two charts have different scales, so losses look larger than the profits at a glance

Risk
Lost my grip slightly
I think I touched on this previously, but I'm experiencing more slippage with options than I did with stock. I feel like for the most part (save for two trades I will mention below), I am exiting my options trades around the same price levels as I would my stock trades, but my average options trade loss is larger. I think part of it may have to do with poor entry fills.

Separate from that, I had 2 trades that were unacceptablly large, exceeding 1R. With the NIO trade, I was (poorly) multitasking and the price got away from me. With CI, I had a limit stop order and the markets blew by it.

Overall, my expectancy per trade was negative, which is not a great sign. On average, every trade lost 0.22R. Ahhh well, I suppose that number could be even higher.

I can't win for losing
My win/loss ratio is slightly lower than August @ 20.4% but still in the same ballpark. A handful of that percentage can be attributed to WINOs (wins in name only) where I stopped myself out just above breakeven.

I think this illustrates moreso the difference between a few home runs in a month for me. 3-4 winners can turn my month from terrible-to-great and vice versa.

Takeaways
Live to Trade Another Day
Truth be told, I thought the numbers would be a lot worse or at least that doing this analysis would sting more. I think it helps that I have had a good start to my October trading. When I was in the thick of things though, the drawdown definitely had me questioning which way is up.

Preserving Mental Capital
Thoughts started to bubble up around whether the summer was a fluke, whether I would give back all of my summer gains, etc. I am proud of myself for not going on tilt in a major way. There were some trades I would take back, but I refrained from increasing my size, revenge trading, or betting it all on red.

I revisited Brett Steenbarger's Daily Trading Coach and realized that a lot of my self-talk was more negative than it should be. Not only how I talked to myself in my head, but also how I represented trades in my Google Docs journal.

One of the biggest changes I made was taking a step back and acknowledging where I am and what the markets were doing... I was still profitable YTD and, although I was getting my ass kicked, I was weathering the toughest uncertainty of the year thus far outside of February when Covid hit. It is easy to miss it when you are trading it, but the markets were gapping higher/lower by over half a percent and the trading day alternated between continuing and fading the gap direction.

After the fact, my trading can be seen as fighting the trend, but at the time, the intermediate term trend was in my opinion, signaling a push lower. In terms of my mindset, maybe it is because I am on the other side of it, but mentally I finished September better than I did August. (mid-September was admittedly a lot less rosey). September was definitely a learning experience... Very humbling. There is a possibility that price actions around the elections are even more volatile, but having traded through September, I am more confident that I will be able to weather that as well. I will lean on things like reducing size, removing myself from the markets a few days and revisiting some trading books. Speaking of which...

Jack of All Trades (Master of None)
In September, I was of the belief that the markets would be pushing lower or choppy and started implementing a mean reversion trading strategy that I had been reading up on for the prior few weeks. There was a lot of moving parts going into the mean reversion strategy, and I can say that I understood the majority of the strategy, but, ironically, I missed the boat completely on the entry criteria, which is arguably one of the most important parts of the strategy.

FWIW, literally ~2% of the entire book, touches on how to enter a trade, so it is easy to miss, but on the other hand, how was I implementing a strategy, with real money, but without clear entry criteria haha.

During my time taking a breather from the markets, I revisited the text and definitely had an "Aha!/D'oh!" moment. Ideally, attempting a half-baked strategy accounts for some of my September drawdown but only time will tell.

Gaining a Working Knowledge
The worse I did in the stock markets, the easier it was to refocus into my actual 9-5. I am definitely more productive than I was in August. It is a lot easier to pull yourself away from the trading screens when they are telling you things you don't want to hear haha. The gnawing sense of guilt I had for my lackluster work performance has dissipated and I think I can keep a healthy balance between trading and my job moving forward.

Follow Up
Getting the Right Mix
There are three strategies that I think fit my personality and beliefs about the world that I am working to combine into one. They are:
  • Breakout Trading using swing highs - Advanced Skill Level
  • Breakout Trading using TA Patterns - Average Skill Level
  • Mean Reversion Trading using ranges - Novice Skill Level
  • Pure Price Action trading (a la Al Brooks) - Complete Newbie

I am working on is having the foresight to see more than one of these strategic opportunities align within the same chart. Currently, I have to prime my mind beforehand with a specific strategy in order to see it in a chart. The best analogy is trying to see both two faces and, ironically, a candlestick at the same time in this picture.

It feels like I am trying to pat my head and rub my belly at the same time. For example, I can define trading ranges better than I ever could previously, but my brain shuts down and I am oblivious to any continuation/reversal patterns within the range. Another example is that there are times that I can see a pattern forming, but I will unconsciously overlook recent candle closes that illustrate that the pattern is likely to fail. I am missing the trees for the forest.

I think with experience, and repetition, I will get this down. I know there were times when I had trouble pairing volume w/ price action when I first started trading, so with practice comes competency. I will set some structured goals around it in my daily Google Docs journal.

My Stops are a Go
With regards to my outsized losses that cost me over 1R, I have made some adjustments:
  1. Going forward, I will not schedule any meetings or extra-curricular activities near the market open
  2. When I am sizing up which options to trade, I look for an open interest of around 1,000. There are times when only one strike has ideal Open Interest. I used to think that I lucked out that there is a strike price worth trading, but what I have realized is that it is probably just as illiquid as the other strike prices, and the open interest is probably just a few large traders that won't be helpful if/when I end up rushing for the exits. As a result, I will steer clear of these situations as well.
  3. My stop loss orders is preset as I enter a position. If the options chain is reasonable, but perhaps a little liquid than I'd like, I will give the stop loss order a little more wiggle room than normal. Since my stops is in no man's land, I'd rather pay slightly more to get out in a hurry than to have to manually finagle my exit on a stock that is falling like a rock.
  4. If I am not overly concerned about a breakout, I have the ability to be pickier with my entries... try to get in on the bid or below the mark price. I may miss some trades, but I think that it will force me to be more cognizant of my entries instead of taking whatever market makers give me.

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  #206 (permalink)
Market Wizard
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No intentions of going short (Don't even have the ability to trade Futures currently), but the S&P is definitely overextended and it relates directly to my stock positions, so I will be watching this closely:


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  #207 (permalink)
Market Wizard
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Posts: 545 since May 2011
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October has been interesting. I clawed back most of my gains earlier in the month but have become gradually less interested in the stock market. I'm not done with the markets though, I have redirected my attention almost 100% to Currency trading.

So far, I'm still getting the hang of Forex, but the early signs are promising and my general impression is that it might suit me better than the stock market. It requires less time for daily due diligence, it leads to less stress around managing positions, especially around the open and close of the markets or when there are gaps, and lastly, forex gives me a more focused approach to trend trading.

I am not completely walking away from the stock market/options trading, but it will get less of my attention moving forward. Depending on how my current strategy matures, I may eventually dabble in the Futures markets as well.

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