Busy Year

It's been a busy year, personally, for me. And it looks like it will get busier still.

I spent the winter skiing a lot. We had a number of house guests and Kiki was here over the Xmas period. She's a snow boarder and I enjoyed spending a few weeks with her again.

We've also been travelling and will do a lot more of that this year. We recently were in Dubai in the U.A.E. It's an amazing country where the vast majority of its residents are foreigners. There are literally hundreds of new skyscrappers. The pic below is my favourite. We went up to about the 140th floor to see the view. Its hard to find a building older than 10 years.

The result of this has been a change in timeframe for my manual trading. While Flo is still grinding it out day trading, I've moved to a daily timeframe for my manual trading except on the few days when I can sit in front of my workstation.

Using the daily timeframe is the same as any other timeframe except that I can make my market decisions outside trading hours.

I run a number of live trading accounts and I have decided to use this blog to document the trades in one of them. Not all my trades will be shown nor will the size of my total position as trades areallocated to different accounts and can be exited differently. I'll post after the close of the day when the trade goes on and before the open of the next trading day. The post will include a picture of the execution confirmation in the IB trading account.These trades can have a much larger drawdown per contract but with a commensurate larger profit.

I intend to post regularly, whenever there is a trade I want to share.

I'll start off with the trade below which was executed a couple of days ago:

As you can see, I basically went short using options. The trade is profitable now. It would have been profitable even if the proce stayed the same or went against me slowly. The risk is limited to the difference in price between the strikes of the options. The profit potential is the difference between the sold premium and the bought premium.

This trade is one of the usual Outside In trades. My rules trading daily charts are the same as the rules I use for intraday.

They Are Still Printing Money

Everyone is still printing money. Strangely Gold and Silver have had their day for the time being. Maybe I'll be able to buy back the Gold I sold at $880 and then watched the price go up.

Lot's happening in the markets again as the transition continues. The only constant is the methodology I use to make my trading decisions. I'm spending a lot less time in front of my screen and am using the daily timeframe with options more and more.

Here are a couple of charts that show the type of things possible. When you look at the chart, if you ignore the description on the top, the chart looks like any intra day chart even though it is daily. Instead of using the underlying, I use a vertical credit spread (VCS) so that my ROI is increased and I improve my edge by more than 66%. How is the edge improved? Well, the VCS means that I make money by both the directional move and the erosion of the sold option. My typical trade is a 15% profit on the margin I use. It's important how the trade is constructed using the variables of DTE (days to expiration) and the Deltas of the two option legs. I've set up a screener on MultiCharts and can follow lots of symbols and take the cream, trading as many opportunities per month that come up. Same analysis as intraday.

The book is going slowly but surely. I'm getting what is often called "scope creep" which means that what I have decided to cover in the book is increasing. As I cover something, it leads to something else that I think is important. And so it goes.

I'm skiing most mornings. We've had lots of people staying over here during the winter and that's been a welcome distraction. We're heading to Dubai in a while to have a look and then to the Italian Riviera as summer gets under way. I'm planning on getting a Microsoft Surface Pro as my travelling PC. I can connect it to TVs wherever I am with HDMI and get a big enough screen. My Samsung Note2 will allow me to tether to the Internet wherever I go.

And So It Goes

A new year but the same old global problems. The transition is continuing. More uncertainty in the U.S. and Europe. We'll see how all this finally effects China.

These days, I'm trading through Flo and trading option strategies. Not much manual trading. I'll be in London for a week soon and Dubai in March for The Dubai Cup, with a few more trips later in the year

I'm skiing in my mornings. We've got a great season here in the Mont Blanc area. The book is progressing, albeit slowly.

I have nothing new to say at the moment so I'll be posting sporadically but I'd suggest that any new readers wanting to see the EL methodology in action go back to the beginning of the blog and start reading. It's all in there.

The Holy Grail of Trading and How to Find It. Part 1

One of the reasons that most traders fail is their unending search for the so-called Holy Grail of trading, which they never actually find.

Let me say at the outset that your Holy Grail is right in front of you.

This series of posts is to present how I found my Holy Grail and how it is evolving.

Firstly, let's decide what this Holy Grail is. For me, the Holy Grail is "what I do" to be consistently profitable in my trading. I hesitate to call it a methodology or system because it's a lot more than that.

There are only three things that a market can do: Go up, go down or go sideways. That's it! Lets clarify this a bit and say: Trend up, trend down, chop sideways. As soon as I make this clarification, I have to qualify my descriptions by attaching a time frame or periodicity to the clarification.

In subsequent posts, I'll explore the way I would suggest that this elusive "grail" quest take place. Let me start by saying that there are many, many methodologies that can lead to consistent profitability. What is hard is the putting in the steps to make that methodology consistently profitable.

The answer is CONSISTENCY. I think it was Henry Ford, the auto magnate, that devised the production line so that less skilled workers could effectively carry out skilled work. Adapting the production line methodology to trading is a way of making consistent profitability a reality.

To be continued....

Holy Grail

As I progress with my book  I find it's really slow going- much harder than I thought since I want to do a really proper job. Meanwhile I thought I'd share some key ideas here on the blog that will end up in the book.

One of these key ideas is the search for the Holy Grail. There will shortly be a series of posts comprising a number of parts entitled: The Holy Grail and How to Find It. If you've signed up to twitter you'll be notified as this multi part series of posts hit the blog.

Trading is all about Probabilities

Trading is all about probabilities.

We have pictures that have a high probability of disclosing momentum and order flow in certain directions. But these are only probabilities because it only needs a very strong hand to do the opposite of what the then order flow is showing.

But this is the best we can do. If our pictures are correctly described and we have backtested them up the wahzoo then we will have the statistics of the probabilities.

Calculation of probabilities is done in many endeavours including weather forecasting and electioneering. This is a link to a very intereesting article from the Sydney morning Herald on probabilities being used to forecast the recent U.S. presidential elections.

http://www.smh.com.au/technology/technology-news/he-called-it-and-now-silvers-a-popculture-star-20121112-2978j.html

Discretionary Trading

There are some great conversations in the comments to the previous post. The last question was:

El, per your stat, how many contracts, say on euro futures do you trade per $30,000?

As an example, 1 contract per $10,000, i e 3 contracts per $30,000?

Can you expand a bit on what you beleive is a "proper" account per so many contracts?

 The answer depends on many things including: Are you CP? What your win rate is. What your average trade size is (the average of all wins and losses). Your risk per trade and so on. In other words, how many contracts can you trade without wiping out your account. Making this assessment is crucial if you want to trade aggressively or even passively. Once you have this number then it should be reduced to half, to a quarter or even less depending on your degree of aggression.

All of this depends on having comprehensive back testing stats with a large enough sample size to be relevant. The back testing is not only to validate you as CP but also to provide the information for proper position sizing.