OK, the title of this note is a little tongue-in-cheek.

But let me explain.

I’m a rules based trader. I’m nothing without my rules. Without rules, I’m just a trader pissing in the wind, driven in multiple directions by my volatility and ever-changing emotional reactions to my intraday PnL.

That’s no way to live.

Once I committed to being intentional about every trade I put on, my trading jumped to a new level. This process includes a thoughtful rationale for my thesis, position sizing, stop loss, and profit-taking levels.

So these days, whenever positions are moving either for or against me, I take comfort in knowing that I don’t need to make any new decisions – even as my emotions tug at me to do something! I already know what to do because I laid it out in my original trading plan.

And for me, that works 95% of the time.

Why not 100%?

Because nothing is perfect. Not the setup. Not me. Not the rules. Nothing.

Occasionally, I need to use a little discretion. Thankfully, not often. But when I do, I do it from a position of strength.

This is on my mind today because I currently have two positions on (one bullish, one bearish) that are flirting with my exit criteria. And if I’d followed my rules and my plan to a “T”, I’d be out of these trades right now.

But I still have them on.

Why? [Read more…]

As a Trader with zero to negative correlation to traditional assets, managing money on behalf of institutional investors is exactly where Jason Shapiro is supposed to be.

But if you were to ask him, he’d tell you he probably should’ve been a lawyer. And anyone else who comes to him asking about how to break into the world of full-time trading will likely get admonished with: “Go to Law School instead. Become a lawyer, then trade on the side with the money you make.”

Why would a highly successful trader say this?

Because Jason agrees with us that trading is easy, but BEING a trader is damn hard.

Jason is a contrarian trader. In its most basic form, this means Jason is seeking out opportunities where the crowd may have overextended itself in one direction. If everyone is on the same side of the trade, the reversal can be nasty when they all head for the exits at the same time. Being the trader on the right side of this reversal can be immensely profitable when Jason gets it right. But it’s very, very difficult.

Among the many things that make trading hard is that you are often doubting yourself. Especially if you aim to make money when almost everyone else is wrong. 

“If the market made sense, it would be simple,” he says. “I could hand you a system that consistently makes money, and you’d STILL mess it up.” It’s all psychology.

Jason gets charged up when people think they can easily learn to become successful traders. “Most amateur speculators are delusional.” He recoils when he hears people talking about the “freedom” that trading can provide. “Trading isn’t what people think it is. This isn’t the freedom you think it is.”

And very few can handle the reality of lumpy return streams, even if the “average” annual gain is a very impressive number. “It fucks with your head!”

In reality, Jason believes most retail people who engage in the markets are hobbyists. And there’s nothing wrong with that, “just know that’s what you’re doing!”

In this episode of Off The Charts, Jason shares some tactics he’s devised to keep him in the game for as long as he has been (hint: frugal living), why he’s no longer invited to dinner parties (hint: people cry), and he breaks down precisely why it never works out if one attempts to copy another trader (hint: math). 

 

When holding long out-of-the-money options, theta is your enemy. This is especially true in the last 2-3 weeks before options expiration. The daily decay in options premium – in percentage terms – increases each day as we get closer to expiration.

As such, one of my Best Practices is to review my portfolio of positions on the first trading day of each month and identify any positions containing long options approaching expiration.

If I am holding any, and these options are out-of-the-money, then the decision is easy: time to close and move on. I’m running out of time, the odds are stacked heavily against me, so I better close and salvage whatever is left of the premium in the trade. If I still like the setup in the stock and want to stay involved, then I’ll look for an entirely new trade to put on.

On the other hand, if I’m holding expiring long options, but they are in-the-money, then in most cases, this is a position that is working for me and I’ll attempt to hold on to it for as long as I can. This is where discretion comes in. I’ll begin placing a “mental stop” somewhere at or near a three-to-five-day low. I’m giving it an opportunity to continue working for me, but I’m tightening the leash.

In today’s Jam Session, I reviewed a couple of current examples of each scenario. I had long June options in $UBER that were out-of-the-money which I had to cut to eliminate the risk of any further losses. However, I’m also holding long in-the-money June calls in $SE that are working and you’ll see how I placed my stop at the preceding 5-day low, which I’ll continue to monitor and adjust daily as we approach expiration.

All this and more here:

Trade ’em Well,

Sean McLaughlin
Chief Options Strategist
All Star Charts, Technical Analysis Research

 

I received a well-meaning question from one of our clients today regarding an open position.

This client missed getting into the trade a couple of months ago.

Paraphrasing her question, she asked, “Since the stock is still above your stop loss level, would it make sense to buy the dip here, and/or would you add to your position here?”

Again, it’s a well-meaning question – one I’m sure we all often wrestle with.

The problem, however, is that the position isn’t acting well. It’s a longer-term trade for us and still has a ways to go until options expiration, but the stock is currently trading well below the level at which we first got in.

In the chart below, you can see where we entered at the purple circle: [Read more…]