Since the February expiration, all of the old junk from 2015 has been washed away and all the trades I have on now have been made since I got the risk manager, instituted rules on size, and started trading the checklist.
I have done a few daytrades with VWAP, as mentioned above, in some hot stocks like FEYE, RAX and RPSL, and also I have started trading the Nikkei index during the day here via leveraged ETFs and vol ETFs. PL wise it's been positive. I even think the win rate may be over 50%. The important point is that I have been downright zealous about closing down the losing trades and embracing the small losses. A small loss is a good trade, I tell myself. And what I am looking for here is good trades, not monster profits.
But most of my activity has been in trading options, defined risk spreads, 45 DTE. One lots. I am trying to get a dollar credit and maybe risk up to two dollars.
During the past week or so I have finally succeeded in getting the portfolio net short. We are a little less than 50% deployed at about 130 betaweighted short deltas with 20 positions on. In terms of cash, we are 2 to 1 short over long. POP on the portfolio is 55% This goes against the grain. I see all that green on the board and I wanna buy not sell.
Names include AMBA ASHR DHI FXB GM GS HYG IWM JD JPM MDLZ MS MU QQQ SLV SPY TLY UVXY UWTI VLO XOP YHOO. The ones among these that are indexes are all short in APR expiration and also short bonds. Also short banking. UVXY is actually a long vol hedge, something that scares me since I got bitten very hard by that last year. But I want to put some more long vol on with VXX.
Now the point here is that this has all been very mechanical. I have a checklist with certain critieria (high IVR, high liquidity, a certain duration, RR and so forth). If the trade checks the boxes I put it on. Once I put the trade on I set up a GTC order in TOS to close at 50% of the max profit on the trade.
When I wake up in the morning Tokyo time I usually see a couple of TOS notifications on the iPhone that GTC orders have been filled at 50%. Then during the day I put in orders for some new positions to replace the ones that have been closed. Lather rinse repeat.
This strategy will do well if the prediction of VIX reverting to the historical mean for 2016 pans out. If we get back to a situation where VIX hangs below 15 for months on end, then I will simply go back to selling UVXY. It's a layup.
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Actually, since that time I started watching Nikkei CNBC, which is a Japanese language channel about Japanese stocks. In order to learn how to talk stocks in Japanese. The have a segment that airs every night called "Derivatives Corner" that I enjoy. Although it is primarily about commodities.
The other day I cut the cord on my cable box and now I can brag of being TV free.
My journey to becoming a disciplined trader in 2016 has been going well. I have been sticking with it.
As I posted before, I got a trading buddy to help me manage risk. Every morning I write a market report on my activities from the night before. I have rules on trade size and procedures and penalties. I have yet to trigger a penalty in 2016. I am sorely tempted to but I don't.
I am trading off checklists now. Every trade gets a checklist and a screen cap of the setup. I have the checklists set up as keyboard short cuts, such as "options" or "volatility" and so forth. I just put the checklists right into my daily journal in Day One, then review later by searching on the #trade hashtag.
Now I am in the process of getting more systematic about the bookkeeping end of the business. I am allergic to bookkeeping, but I don't give a fuck, if I have to do bookkeeping and a bunch of other stuff I hate in order to be able to succeed at this, then so be it.
If I have to crawl in the mud for kilometers IDGAF I am gonna do it.
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I need to make a very embarrassing confession, about fat finger mistakes.
One of the items in my checklists now is to re-check the order after a fiill to catch fat finger mistakes.
When I first started trading and I heard some guy on Youtube tell the story about an ultra scary fat finger mistake, I thought ďNot me, how could he be so stupid, thatís not gonna happen to me.Ē
Well, it did happen to me. Last year. I ended up being short 1000 shares of XIV when I actually intended to be long. By the time I discovered the mistake, which was a week later, XIV had shot up (this was at the start of that epic run last spring) and the position was already seriously underwater. My zero discipline on cutting losses early resulted in me rationalizing staying in the trade, figuring that Vol would have to perk up pretty soon.
This trade turned into an epic loss when I finally capitulated. And of course, capitulation occurred just before Vol picked up over the Greek thing in 2015. My original trade idea, that Vol would pick up, was quite correct, but I got myself squeezed out of it.
This resulted in me setting another trading rule that "fat finger trades must be closed upon discovery, regardless of whether they are losers or winners." On principle. Itís a bad trade.
So back to Nikkei CNBC for a moment. When you watch Japanese stocks live on their screens you will notice a strange thing, that up is represented by red and down by green. So the ticker at the bottom of the screen is red and green except the colors mean the opposite of what the mean in the English speaking world. (dunno if this is the same for other Asian exchanges). Why is this the case. Dunno, the Japanese are just bassackwards about everything, that's the way they are.
Same color coding bassackwardsness goes for the order placement interface. The SELL button in green on the *left* side and the BUY button in red on the *right* side on the SBI Japanese mobile app, which I usually use for trading. The buttons clearly say ďbuyĒ and ďsellĒ in Chinese characters, but reflecting back, I think my brain reacted to the color and blocked out what was written on the buttons. The inverse is true for the IB Japanese mobile app.
Anyway, I made this same mistake again and again, and going over my records for the year I could not figure out why I had kept doing it.
Until I did the same thing the other day, and caught myself in the act. Some sort of cognitive dissonance created by user interfaces.
I think that readers of this forum, who are mostly daytraders, probably wonder why how I could be so unfamiliar with my user interface for this problem to still be with me after all this time. And the answer is simple, I do not get enough practice.
If you are swing trading once a month or once in several months, you just do not get enough practice.
With my options spread trading I have developed very good interface skills. I am pretty good at my options platform, TOS. That is because I try to make at least one trade per day. The more the better.
Now I need to get work on this with my swing trading. I just need practice, so I have set the rule that I am going to daytrade the first 90 minutes of the NY session each night. This is very painful for me, because I am a very early riser and the market opens at 10:30 at night here, but IDGAF I am gonna do it. I need screentime and lots of it.
Another painful lesson I have had to learn the hard way, is about options assignment.
I had a couple of one lot call spreads with a that got assigned back in March. The minute they got assigned I thought of exercising. The trade thesis behind both of them was weak, they are POS names, and anyway I did not want to own the stocks. But I delayed. And I ended up holding shares that I did not want, with no stop on them and then the losses ballooned. Now I am sitting on losses much larger than the original defined loss on the trades, and I am stuck in the same old same old slope of hope mentality, dammit. So I have to bite the bullet now and cut these losses, which will wipe out a month's worth of profits or more.
So, add a new rule to the list, If I get assigned I exercise immediately.
Haha don't feel bad I also double check now. If it was so uncommon there wouldn't be a saying for it.
As for the call assignment were you -100 shares? I'm a little confused on that. Anyway, I have also learned that the hard way. Around the middle of last summer I got this genius idea that I was going to sell a 74 put on XLE thinking it was definitely going to act as support. Needless to say I got hammered on that one and was sitting on quite a loss at one point. The only reason I held it was because it was a sector. I would've never held a company stock through all of that. At the end of the day though it would've been better to take the loss and buy in lower if I was really that determined to go long.
I double check expiration and also for event risk. Even so, occasionally one slips through on an unintended expiration.
I had a credit spread on HYG based on a kind of vague thesis that was not supported by the odds. So, I got assigned short 100 HYG. And then oil exploded upward.
I had another fat finger mistake today, due to a different reason. Executed the right closing trade as per signal with good timing in the wrong account. This time the result was up slightly. I had the conversation with my risk manager in the morning after, and was wavering over whether to leave the trade on.
Then I decided to just follow my rules and close the trade, winner or loser.
I did a little review of the first five months of the year for my options trading.
On a $15K account, 76 wins 46 losses and up about $200, before fees.
These are all defined credit trades, condors and spreads.
I am actually encouraged by this result.
It shows that I am beginning to get the hang of it, and that I can make money despite making a lot of stupid beginner options trader mistakes and getting my market direction wrong. And despite having a low volatility environment for much of the time period.
OTOH, as for the volatility cash trading, in the two small accounts I have done 61.5% YOY.
This is exactly the kind of performance I have been looking for since I started trading. Now that I have seen with my own eyes, I feel encouraged for the first time to really bear down and become a hardcore volatility trader. I've had to pay alot of dues, and more to come, because UVXY is a hard taskmaster, but I am willing to do what it takes.
Furthermore, although I did not realize it at first, there is a good bit of synergy between trading options and cash products for volatility. And now I have a good bit of experience in trading both. I know the common sensical setups that work and more importantly, I know what not to do.
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