Credits, points and trades.

My TFSA account is up another $150 or more as the market surges ahead some more. I have AEM sitting at zero as the option expires this week. I doubt that it can surge enough to bring this back to reduce the loss at all... a $1.70 option is a bit more than I would allow normally...now ... but this was a legacy from another service that I cancelled but I will still count it in my tally.


My first Optioneer trade was executed today. It filled at the settlement price so the target is on line with 1.9 points even though I allowed 0.3 points for it to fill I didn't need it this time. So my daily target return is $12.41 over 31 days.

Now, I am aiming for $10 days... I had used DDD to describe this target (DecaDollar Days) but the easiest way to view this is as points or credits (saves getting confused with points in the market). I don't know why but dropping a zero seems to make the whole thing feel more like a game but it certainly makes the math less onerous though.

Bear with me on this one as I ramble one using a credit and trade system rather than using dollars.

Right now the gains are in points which are worth $250 per point. I like 1.9 as it creates, after commissions, $397. For a 30 day trade this makes a 0.063 point daily gain or $13.23 daily gain. These are not round numbers. The trades are worth $4500-$4700 per trade, returns are in the 8.6% range which is 0.286% per day...again, not nice round numbers. As much as I like to play with numbers I also like to simplify things greatly.

In the name of over simplification let's break this all down.

Every trade cost between $4500 and $4700 to execute and usually have similar targets for gains, so let's just call them all "trades" as they are mostly identical. I figure that my capital can be broken into the number of trades I can manage with it so at $4600 per trade $13,800 would yield three trades. This allows a little leeway for trades that require a bit more as I actually have $14,000 in the account.

For every trade my minimum target is a realized $10 per day. Like the trades this makes every single day for every single trade the same. Take it farther and $10 is equal to 1 "credit".

Every trade yields one credit per day that it is active. A 45 day trade will yield 45 credits or more, a 30 day trade will yield 30 credits or more. If I close a trade early it will only be if it has seen 1 credit per day unless I am closing to reduce a loss.

I have 3 trades in my account at any given time and I have a goal of 1 credit per day per trade and I want to have these trades in play for as much of the time as possible. Ideally this would have three trades active each month yielding 30 credits per trade per month, or 90 credits per month. The credits per month are not as important as just having each trade produce a credit for as many days as possible.

Keep in mind that a trade is on average $4600 and a credit is $10 so each trade's value is actually 460 credits. In order to place one more trade in play I need to have 460 credits in profit.

At 90 per month that is 5.1 months.

Add that new trade into the mix the monthly becomes 120 credits which lets me add another trade in 3.8 months.

At 5 trades and 150 per month I can add another trade in 3.1 months.

Considering this is a minimum target (we'll see what reality brings) that equal going from a three trade capacity to a six trade capacity in (5.1+3.8+3) 12 months is the very same as doubling my money in that period.... to the part month, and I didn't plan it that way.

I see a few decimal values in there and trades expire only at two times each month, third Friday's and EOM but I can close a trade at any point as long as it meets the realized 1 point per day minimum so I can actually close a trade early and reuse the trade for another trade that is ready to enter. As long as the trades are active and producing 1 credit per day it does not matter if I close a trade early or let it ride, it will always be producing credits.

I checked with the broker on this last point. If I close a trade today the cash is available to me to trade with on the same day. If I am letting a trade expire on a Friday and I want to catch a 30 or 31 day trade on a Thursday they will allow me the margin use for the one day overlap. I need to go over a calendar to see the day of the weeks on some of the EOM expirys and where the minimum 30 days would fall with regular expirys. I did work out a schedule that allows me to keep trades in play constantly, missing only a day or two here and there, but it needs some work and is rather complicated. I'll try to put it in a format that works here and also try to keep it simple. In reality I doubt that I need the calendar as I can just be sure to roll the trades over quickly and use the possible one day overlap to ensure this happens.

The real issue becomes placing trades to keep some sort of diversity as three trades expiring at the same time means entering three trades close together and the market may not have moved enough to really do this safely. AS much as the number of loosing trades should be very small it would not do to have three all in a losing position at the same time. This gives more emphasis on exiting early to take advantage of market moves as they happen. Again, just observing the credit rule is important here.

Still a work in progress and perhaps not exactly what the Optioneer guys had in mind when it comes to using their system for trading.

Jeff.

Plan M

I decided to pick various good things out of each of the strategies that I had come up with and tried out in the past...which means a bit of review of all my old posts and charts.

The final version is going to be based on one of the oscillators that were among the most promising, half of the Counter Trend Positioning strategy, a sprinkling of Point and Figure charting and a heavy dose of option picking.

In the past I tried to make oscillators work for every situation, but they don't. Most work well during certain phases of the stock price trend and the trick was to know when they stopped working and change the strategy or move to a stock that is following the pattern. While it could be said that it is "curve fitting" to make a system work for a particular stock but I feel that curve fitting is exactly what is needed. I don't feel that it is a bad practise as long as it is used in the correct context. Fit the system to the trend and watch for the trend to setup that the particular system works with. Uptrends are the easiest to play as things are easy, buy long stocks or options and let them ride to catch various percentages of the wave as it tracks along a trendline.

Then the trick is to find the next trend system, the one that fits the next profile as the stock transitions. Perhaps this is the horizontal consolidation pattern that stymies the typical trader as there is no up or down trend in place. This is a good time to use a good swinging oscillator to trade long AND short or calls and puts. a better plan might be to use an option strategy, call or put spreads or even a strangle... the iron condor seems to be the easiest to setup.

Playing the downside can be tough as the downside is typically fast and furious and the main move is easy to miss and is, very often, not forecastable.

Ultimately a single stock could be used to trade successfully, I believe. Daytrading is often based about one stock or index or even just a select handful. They get to be familiar and often easier to spot when a change in trend is occurring because of this. Having said that I do not plan to only trade one stock as trends are easy to track.

Next up: review and idea selection... rules, strategies, indicators etc.

Jeff.

Cherry picking to sell a serivce...some ramblings about Plan M

I get lots of emails from people trying to sell their service, that comes from doing tons of investigating of a variety of services while scoping out their plan and method and, as it turns out, even try some on for size.

I am down to one advisory service now...I will wait until after this pullback is complete to give a final comment on it.

Suffice it to say that I have not stuck with any other service that I tried and I checked out far more than I tried.

Today I received an email from one that chattered on and on about a pick that is currently at the 27% return mark. Now I must admit that the dividend yield, due to the purchase price, was something like 21%...but high yielding stocks are easy to find right now I suppose. I have not been looking as I do not have the capital to buy and hold a stock for a good yield.

I usually skipped the emails altogether that made claims of success based on a single position, usually, but not always, an un-named one. In order to find out what the trade was I would have to sign up or at least click on their link... oh, do they mention that they get some sort of payback even for that?

If I were to decide to sell a service, newsletter...or whatever I could very easily cherry pick some of my picks and come up with some decent winners. Of course I could ignore the losers and really paint it nice but I don't really want to do that.

Since I have been playing and trying to stay within my cash allowances while picking trades and strategies I have necessarily restricted myself to trades that work for me in my situation, otherwise I would have been wasting my time.... of course if I chose to sell information I could virtually do the trades and pass them about and just draw in cash for the information. No restrictions on valuations, position size, loss allowances... I would be willing to bet that almost any of my more tested strategies would have been profitable in a virtual situation. I know they mostly all backtested very well.

That is not my thing though. Due to playing with options now I can widen my scope so some of the nicer picks are available where they were not previously. Loss allowances can be built into the option trade easier than with a $60 or $70 stock trade.

This, of course, leads me back to my latest "Plan M"... which is in the works... but then even that leads me in another direction again.

Focus, simplicity and repetition will be the new keys.
Small position sizing and tight loss allowances the regulations.
Trend channeling and predetermined targets the triggers.
Put and call options the medium.

Even though my TFSA is committed in full I plan on aiming this at a $5000 account size anyway and providing for at least a 15 to 25 position portfolio... even with only 32 stocks (or so) options allow for multiple time frame trading, rolling positions and profit crystallization...some things not possible with a stock trade. The "headroom" allows for an initial drawdown without affecting the number of positions possible as $5000 could hold as many as 35 active $120 positions and allow for commission costs

Well, enough babbling for today. Hopefully I can post some trades by early next week, or at least some ideas applied to some older picks that I did not follow through previously....or maybe even get some charts back in here. I do like playing with charts.

Jeff.

Plan C...or maybe I'm on M by now...

Without going into detail I started trading with one plan in mind, plan A, and have since changed plans a number of times. In some cases one plan merged into another so there was no real delineation, just a progression of changes that resulted in something different enough that it could be called plan B.

There have been some parts of each plan that tended to stick, particularly the money management rules and loss allowances. Today I am looking at where I am at overall and I am satisfied with my progress except that I am not using my own system or plan in selection and execution of my trades. While that is disappointing, perhaps it was inevitable.

I mentioned yesterday that my portfolio of options had returned some of the paper losses, today, so far, it has returned another $120. Once again, taken as a dollar amount it does not sound like much but the percentage is a reasonable re-gain.of about 2.5% or 8% depending on how I choose to spin it. My zero value options are still zero but the others that had some value left are returning here and there. I did not place an Optioneer trade as the target was just a hair too low for my liking.

I have entered a few more trades as I would hate to be at the bottom of a pullback and not be there when some nice new positions rally. Trading someone else's plan does involve making every trade... if I stopped right now I could very easily rack up some losses and not take advantage of new positions making good gains from this low point.

So all in all I like the place that I am at in my trading right now.

Having said all that I am pining for my own trading plan. I am hoping that a break from playing with my own plans will give me a slightly different perspective...or return one of my previous perspectives that I had for a while. I still like the idea of using a handful of familiar stocks and keeping the trade entry trigger or indicators extremely simple. Seeing as most of my cash is allocated now, I may try some paper trading or do some curve fitting to select a method for my next foray into formulating a trading plan.... I must be on plan M by now.

I figure that I should do dome targeting... four high volume stocks from each main sector...that makes 32 depending on how many sectors I choose. I will stick with the eight main ones. Set up each sector separately, do a bit of loose backtesting to get a feel for the S&P correlations and temperments. Then apply one decent indicator (not MACD, it never really did it for me) and stick primarily to trend lines again. Maybe go back to P&F charts as they were dead simple to work with.

So, Plan M it is.

Jeff.