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well my basic idea is to always trade SYSTEM signals (with well defined entry AND exit points) and use stop loss in case system signal does not produce a gain before exit point is reached...
..i.e., trade the SYSTEM signals ONLY and use stop loss or other protection mechanism to avoid excessive losses (given that system signals have a certain loss probability)...
i know that the issue of limiting losses with options is a tough one and yet i only see 3 possible solutions:
(1) trade large options positions (25-50% of total account) and USE stop loss to limit losses
(2) trade smaller options positions (10-20% of total account) and RISK a total loss on this (smaller) position
(3) trade arbitrary positions and hedge when losses exceed a certain % of total portfolio to limit losses
...the point is that UNLIMITED losses (as a % of portfolio) should not be allowed...
well, i know options trading is very difficult due to premium erosion and high leverage not present when trading indexes...
personally i just trade profunds...yet a kind of automated system (with stop losses) may be desirable to eliminate guesswork and enforce a type of computer-like discipline based on reliable signals...otherwise the risk may exceed acceptable levels and severely reduce gains over time...
KEY point: options require tight risk controls and a very systematic system-like trading approach imho
steve, after watching your trades last few weeks here are my thoughts:
why do you need a trend? why do you need to have an opinion? why not just buy calls (puts) when indicators look very oversold (overbought) and set a stop loss on it?
if the market goes up (down) next 48-96 hours you sell for a nice gain and if not you get stopped out...and on to the next trade...no need to have opinions, market predictions, etc...just reliable, back-tested indicators in some kind of system...
NO bias...NO opinion...reliable SYSTEM...to me these are the KEY things imho...your thoughts?...
wahz, you do have a colorful take on the markets, no question..
but do the program-trading computers that run this market REALLY care? <ggg>
steve, are you still 50% in calls/100% cash ira/100% ndx 401?
..tia..tia
george
the idea is to replace "insight", "instincts", and "feelings" with verifiable testable signals based on composites of various indicators that one is using...
this reduces/eliminates arbitrary trades and improves the win probability ratio...it also enforces computer-like discipline on emotion-prone humans...
.."seeking enlightement through artificial intelligence" <gg>
george
Larry, great header on your thread...i will follow your trades very carefully from now on...and ask a lot of "tough" questions...all in the hope of improving both your and mine trading systems...
suggestions:
(1) please number the trades like wahz does for easy reference
(2) please indicate the relative size of each trade...are they all the same in size? if so, what % of acct do they represent?
is margin used at all?
questions:
(1) i noticed trade #2 represented averaging down from trade #1 (ie trade #2 was entered while trade #1 had a loss)..under what conditions do you average down?
(2) do you have a stop loss?
any answers will be just delightful...tia..tia..
good luck
george
optimal bias is...NO bias...just the signals...
so,50% in calls (trading),100% in cash (ira),100% ndx (401k)?
why go long spx +2x at all if, on average, ndx moves 2.2 as much (percentage-wise) as spx on a daily basis (based on my excel calculations for the past 3 years)?...what will you do about your ndx positions in 401k?...tia
george
wahz, what % of acct is each qqq position?...tia
george
steve, thnx...i have been working on my "system" with ndx signals...also following trades by you and a few others...
do you have a stop loss or will you average down if spx drops more?...which calls are you in?...are you 50% cash?...tia
george
steve, thanks for posting your trade today...you are one of about 4 people (on all websites) whose trades i follow very carefully (just the trades not market predictions <gg>)...
if you care to reveal what % of portfolio these spx calls represent that would be very useful...this is a great thread to post trades imo as wahz is an amazing trader himself...
tia...tia...
george
wahz, why do you try to predict the market?...i thought your system was generating signals to go long or short more or less automatically...
isn't it better to spend time improving your system signals instead of "idle chatter" on market direction...after all what's the point of "predictions" if your system does not generate corresponding signals?
judging by your trades, your system is reallly good
george
wahz, i am following your "system" trading with great interest since i like all good trading systems based on verifiable signals..i am impressed with your excellent results so far...questions:
(1) what percentage of your total portfolio is each qqq trade?
(2) you mentioned going on margin..does it mean your positions taken in the aggregate sometimes exceed 100% of your total portfolio?
(3) qqq trades seem based on an successful system...so why do you trade other equities?...do you also have a system for those?
(4) what is your stop loss on qqq trades if any?
(5) are your long and short qqq positions of similar size (as a percentage of total portfolio)?
tia...if you choose to answer any of the above...
george
ZEEV, you are too rational, analytical, systematic, and focused..<gg> why can't you be like the 95% of all the traders who let their emotions and hope guide their trading decisions? ...<gg> I LOVE your posts!
george
zeev, i agree and these "phony" equity pc ratios make useless the reliable 21 dma equity pc ratio indicator on this chart:
http://vtoreport.com/sentiment/putcall.htm
i hope some site soon comes up with equity pc ratio calculations stripped of qqq option trades...
wahz, it would be nice if you stated which signals are mechanical when posting them for future analysis...tia
wahz, is the current short based on similar signals as your previous trades? tia
george
i know you have your "secret" indicators developed over the years...
still, imo it should be in your interest to privately share them with at least some sharp methodological traders like larry d in order to improve them or at least gain insights from others...
also info on the signals you decided not to trade and any info on your stop loss limits would be appreciated..
i wish you great success..
george
wahz, i like your calls/approach...imo your system might even produce better results if you made it more mechanical..
78% cash..ZEEV I LIKE YOUR SUPERIOR MARKET ANALYSIS!
Jim, your observation that "as we approach OE, Max Pain moves towards price as fast as price moves toward MP" is very important (and intuitively correct) especially since most traders focus exclusively on the part "price moves toward MP".
I basically agree with your comment on tue/wed bottom and 30-60+ pt bounce and i am interested in what indicators you monitor to reach this conclusion. tia
George
Zeev, many people also claim that excessive put buying on dow/oex means that professional traders are turning short-term bearish...da_cheif and others subscribe to this view...your opinion? TIA
steve, i calculated some numbers based on the spx feb 03 options table
http://finance.yahoo.com/q?s=^SPX&d=o&q=B
it corroborates many of the observations you made in your posts
..thanks for your explanations
spx feb 03 options premium table
(spx close at 901.78 -12.82)
CALLS
strike price chnge premium#
825 82.6 -15.0 82.6 - 77= 5.6 ITM
850 63.0 -10.4 63.0 - 52= 11.0 ITM
875 42.0 -10.8 42.0 - 27= 15.0 ITM
900 27.0 - 8.0 27.0 - 2= 25.0 ITM
925 15.5 - 5.5 15.5 + 23= 38.5 OTM
950 7.2 - 3.8 7.2 + 48= 55.2 OTM
975 3.0 - 1.7 3.0 + 73= 76.0 OTM
compare -DI for dec01 and jan02:
http://stockcharts.com/def/servlet/SC.web?c=$NDX,uu[f,a]daclynay[d20011112,20030112][pd20,2!f][iUl14...
and then look at dec02 and jan03...well?
Chris, is buy at RSI(5)=21, sell at RSI(5)=45 you preferred trading method? Do you have other worthy alternatives (especially for shorting)? TIA
George
Hi Irene, thnx for detailed explanations...you are a very sharp and thoughtful trader...I am very impressed ...do you post on SI under alias?
George
Tradermama, congrats on great 2002 returns, I like your approach a lot. I have a few questions:
(1) how many switches into foreign funds have you had in 2002? (2) did you invest 100% in foreign funds each time you made a switch into them?
(3) would the results be inferior if you made switches into domestic funds (say, S&P 500 index fund) instead of foreign funds every time you made a switch?
TIA
George
Brightness, did the houses hedge their longs from the past few days with the massive block of 100k QQQ 25 strike puts only to unhedge (sell) the puts once they thought the rally was underway? Any similarity to past rallies? I would really like to hear your opinion on this. TIA
George
Sandy, I put those fixed numbers there for my own reference when I look at it later to give me an idea of what to expect ... didn't mean to criticize Zeev's forecast ... 5-6 months out is impossible to predict with any degree of accuracy anyhow just like you said ... personally, I don't have any longer term numerical targets at all ... I just look at all kinds of indicators daily, weekly, etc. and decide if we have a top or bottom at that point
Zeev, thnx, I saw that you said Naz 1100 could be breached but I just wanted some fixed numbers there even if this is just one of the two alternative scenarios.
Zeev, I summarized your road map in 4 short lines:
(1) 1/25-31: Naz 1537, Dow 9100
(2) 3/19: Naz 1263, Dow 8500/8650
(3) 4/15-22: Naz 1391, Dow 9300
(4) 5/15-25: Naz 1100, Dow 7700-7900
sykes, congrats on yout excellent and consistent trading results. I was wondering if you ever considered (swing) trading
(1) rydex or profunds funds that move twice as much as ndx (both long and short)
(2) options on qqq or spx
I saw a few individuals (admittedly, very few) on silicon investor getting similar annual gains trading them in the past year.
Zeev, this "rush in to cover their losses" is called delta hedging, correct?
Brightness, the praise is well deserved. In this post you say that normally there is a follow-thru trend continuation after Max Pain is exceeded either way:
http://www.investorshub.com/boards/replies.asp?msg=545217
Do you have an explanation for this as well? TIA
Brightness, this is a superb, lucid explanation. So, it seems that point (1) is the MaxPain phenomenon where option writers try to pay out the least amount of money at expiration. Also, point (2) suggests that massive call/put purchases indicate corresponding massive new equity short/long positions, indicating a top/bottom or at least creating a major resistance/support level for QQQ. Would you agree with these interpretations? TIA
Brighness, very nice and correct analysis of implications of QQQ call/put open interest changes. I have learned to pay close attention to QQQ call/put open interest changes as they often seem to influence QQQ moves. The same goes for options with large open interest on all other equities. Do you have a good explanation for this phenomenon?