It's Friday night and I am sitting in the JFK airport in New York on my way home from Florda. I had a great trip even if it was too short.
I traded most mornings seeing as everyone was slow in getting gonig, I figured I might as well. I did miss three days in there somewhere. Even so I managed to net $2,700 in my TFSA. The holiday almost managed to pay for itself.
I started to implement the 3 contract trade rule this week. Once I get the account up to a balance that can handle 10 trades at the current average contract prices I will start to bump that up to 4 as I work up to 5 then 10.
I don't know if I mentioned the advised trade sizes. They were reduced to 5 maximum due to low liquidity and now there is no max. Someone was trading 30 today's and there was no comment. Interesting as this frees me back up to be able to increase my trading size according to my account balance rather than some arbitrary (but valid) upper limit on trade sizes.
I'll run some other numbers later this weekend.
Jeff.
Questrade, My direct access discount broker.
Friday, April 30, 2010
Wednesday, April 28, 2010
Holiday trading
Due to being in Florida for a holiday the last week or so I have been doing less trading lately.
Having said that I am working on my longer term positions. I have some of my fresh capital in my margin account so I decided to load up on a few of the trades that I was not able to do earlier. These are ones that were recommended and have seen the prices drop a bit for nicer entry's now... they are all still recommended as the patterns are still intact.
Right now I an running $38.54 per day in my momentum options service and $10.25 in the stock service. The daytrading is down but that is mainly due to some losing trades closed the week before last ...still average daily is $34.25.
These add up to $83.04 per day so far. Not bad considering the small positions I am using right now.
One thing that has me thinking about my current position sizing is the many trades that are in the 5% - 10% range that has the commissions eating up enough of the profit to even turn a trade into a loser, even if only by a buck or two. There are so few losing trades in any of the service trades I have made that if all I did is equal size I would be farther ahead. The trouble comes in when the trade is larger than I can stomach due to a big price.
In the stock trading I have ranged from 20 shares to 200. my net per share profit is $9.54. The largest stock price has been $38.40. In order to handle all of the trades recommended I capped the trade size to about $1200. Bumping all trades to 100 shares would take up about $15,000 in margin or $5,000 in base capital. This would take my $10 daily return to $17 range.
In the momentum options I have averaged 2.6 contracts. Running the numbers as if I had always used 1 through 5 contracts has me netting from $836 to $5,136. As the trade size gets larger the commission costs, as a percentage, get lower. This is a huge factor as it turns out.
For single contract trading the commissions eat up 24% of the profits whereas commissions are down to 7% at 5 contracts. The largest size would have been $3,000 so allowing for 6 trades the commitment is fairly large. The average of all of my trades is $2.24 or $1,120.
This is where I am heading, scaling up from my current average and heading for the 5 contract size for every trade. This is in my margin account so I will have room for that as of late next week.
In my daytrading I am headed for the same thing. Based on this month's trading, losers and all, if I were trading 3 contracts for every single trade I would be at $94 per day instead of $34. My current average size is 2.4 contracts but due to oversizing a couple of losers and undersizing some winners it tends to skew the results.
So, in May I will be bumping up to 100 share trades in the stock trades, 5 contracts in the momentum options and 3 contracts in the daytrading account. As the accounts grow I will bump up as there is room.
Jeff.
Having said that I am working on my longer term positions. I have some of my fresh capital in my margin account so I decided to load up on a few of the trades that I was not able to do earlier. These are ones that were recommended and have seen the prices drop a bit for nicer entry's now... they are all still recommended as the patterns are still intact.
Right now I an running $38.54 per day in my momentum options service and $10.25 in the stock service. The daytrading is down but that is mainly due to some losing trades closed the week before last ...still average daily is $34.25.
These add up to $83.04 per day so far. Not bad considering the small positions I am using right now.
One thing that has me thinking about my current position sizing is the many trades that are in the 5% - 10% range that has the commissions eating up enough of the profit to even turn a trade into a loser, even if only by a buck or two. There are so few losing trades in any of the service trades I have made that if all I did is equal size I would be farther ahead. The trouble comes in when the trade is larger than I can stomach due to a big price.
In the stock trading I have ranged from 20 shares to 200. my net per share profit is $9.54. The largest stock price has been $38.40. In order to handle all of the trades recommended I capped the trade size to about $1200. Bumping all trades to 100 shares would take up about $15,000 in margin or $5,000 in base capital. This would take my $10 daily return to $17 range.
In the momentum options I have averaged 2.6 contracts. Running the numbers as if I had always used 1 through 5 contracts has me netting from $836 to $5,136. As the trade size gets larger the commission costs, as a percentage, get lower. This is a huge factor as it turns out.
For single contract trading the commissions eat up 24% of the profits whereas commissions are down to 7% at 5 contracts. The largest size would have been $3,000 so allowing for 6 trades the commitment is fairly large. The average of all of my trades is $2.24 or $1,120.
This is where I am heading, scaling up from my current average and heading for the 5 contract size for every trade. This is in my margin account so I will have room for that as of late next week.
In my daytrading I am headed for the same thing. Based on this month's trading, losers and all, if I were trading 3 contracts for every single trade I would be at $94 per day instead of $34. My current average size is 2.4 contracts but due to oversizing a couple of losers and undersizing some winners it tends to skew the results.
So, in May I will be bumping up to 100 share trades in the stock trades, 5 contracts in the momentum options and 3 contracts in the daytrading account. As the accounts grow I will bump up as there is room.
Jeff.
Friday, April 23, 2010
Equal weighting vs equal sizing
I setup up a parallel spreadsheet to my tracking that let's me vary the position sizing for the trades that I have performed this month in the TFSA account. That is 63, not including a few others in the swing trading account. Right now my TFSA is down $240, which I am not concerned about as I know why. Between goofy group dynamics and a too large trade gone south drove my profits down.
This parallel setup gives me total net results including commissions and fees and let's me compare my current method of equal weighting against the idea of equal sizing. John pushes the idea of going with larger trades for higher probability setups and smaller with lower probability setups. I can go through and figure this out but I cannot go back and easily do a historical check taking this into account unless I just apply a theoretical fudge factor to account for the possible change in profits.
Naahhhhh.
Current results are, as I said, $240 down on the account. This surprises me a bit but my equal weighting is not going in my favour is all. My average trade size is 2.5 contracts so I will plug that into the results as well.
Equal sizing results are as follows: (every trade the same size)
1 contract: $643 loss, commissions $1379
2 contracts: $26 profit, commissions $1505
2.5 (current average): $361 profit, commissions $1568
3 contracts: $696 profit, commissions $1631
4 contracts: $1366 profit, commissions $1757
5 contracts: $2036 profit, commissions $1883
6 contract: $2706 profit, commissions $2009
7 contracts: $3776 profit, commissions $2135
8 contracts: $4047 profit, commissions $2261
9 contracts: $4717 profit, commissions $2387
10 contracts: $5387 profit, commissions $2513
Obviously getting into equal sixing is a benefit, even at my current average sizing I would have been better off not trying to pick and choose the size to trade. Going with 3 contracts per trade may have meant not being able to place the last trade of a day here and there... but based on my historical trades that would have only been an issue once or twice, if even then as we tend to close trades along the way as well.
This certainly puts the commission cost into perspective. I might look into another avenue sometime but finding a decent broker is going to involve a US based company and therefore no TFSA accounts and a $25,000 minimum account balance (which I will have once I finish transferring my remaining trading cash next week anyway).
So, once I get some more cash in my accounts my next plan is going to be to trade equal sizing, 5 contracts per trade, and starting with the TFSA account and moving to the margin account once that account is full. This may reduce the profits under tax sheltering but may be worth it in the long run just to get larger trades on the go in the TFSA while using the entire capital base as a trading balance allowing the larger trade sizes overall.
The step after that will be to start using stocks instead of options for these trades as there is just plain more flexibility in the trade setups (stops and bracket orders are capable as well as the service moving to stock price based exits for some of the option trades).
Jeff.
This parallel setup gives me total net results including commissions and fees and let's me compare my current method of equal weighting against the idea of equal sizing. John pushes the idea of going with larger trades for higher probability setups and smaller with lower probability setups. I can go through and figure this out but I cannot go back and easily do a historical check taking this into account unless I just apply a theoretical fudge factor to account for the possible change in profits.
Naahhhhh.
Current results are, as I said, $240 down on the account. This surprises me a bit but my equal weighting is not going in my favour is all. My average trade size is 2.5 contracts so I will plug that into the results as well.
Equal sizing results are as follows: (every trade the same size)
1 contract: $643 loss, commissions $1379
2 contracts: $26 profit, commissions $1505
2.5 (current average): $361 profit, commissions $1568
3 contracts: $696 profit, commissions $1631
4 contracts: $1366 profit, commissions $1757
5 contracts: $2036 profit, commissions $1883
6 contract: $2706 profit, commissions $2009
7 contracts: $3776 profit, commissions $2135
8 contracts: $4047 profit, commissions $2261
9 contracts: $4717 profit, commissions $2387
10 contracts: $5387 profit, commissions $2513
Obviously getting into equal sixing is a benefit, even at my current average sizing I would have been better off not trying to pick and choose the size to trade. Going with 3 contracts per trade may have meant not being able to place the last trade of a day here and there... but based on my historical trades that would have only been an issue once or twice, if even then as we tend to close trades along the way as well.
This certainly puts the commission cost into perspective. I might look into another avenue sometime but finding a decent broker is going to involve a US based company and therefore no TFSA accounts and a $25,000 minimum account balance (which I will have once I finish transferring my remaining trading cash next week anyway).
So, once I get some more cash in my accounts my next plan is going to be to trade equal sizing, 5 contracts per trade, and starting with the TFSA account and moving to the margin account once that account is full. This may reduce the profits under tax sheltering but may be worth it in the long run just to get larger trades on the go in the TFSA while using the entire capital base as a trading balance allowing the larger trade sizes overall.
The step after that will be to start using stocks instead of options for these trades as there is just plain more flexibility in the trade setups (stops and bracket orders are capable as well as the service moving to stock price based exits for some of the option trades).
Jeff.
Monday, April 19, 2010
Position sizing revisited... Yet again.
John, the host and moderator of the trading room, seems to like to keep everyone informed on a need to know basis... which is not necessarily a bad thing but it can be annoying. He is catering to the "lowest common denominator" which means everything is dumbed down pretty heavily. There are a number of people who should not be in the room as they cannot follow or do not know enough to be able to follow straight forward instructions to execute the trades necessary to profit or even to just execute the trades...period.
For this reason he has indicated position sizing to use along the way without doing a full overview of his expectations in order to ensure that nobody trades too big to affect the room or too small to profit.
Initially we were using "normal" sizing which was no larger than 10 contracts. I scaled my sizing to accommodate equal weighting by price... $1000 to $1200 worth of contracts. I will admit that I went over that on a few trades and it bit me in the ass.
Next the volume came out of the market as there was a bit of a consolidation going on and everything was neutral as opposed to bullish or bearish. Maximum trade size was set at 5 contracts. This was hammered home as a few oversized the trades and it was a problem for the group.
Now we are back to normal sizing as volume is back. For me that puts me trading 2, 3 or 4 contracts...perhaps 5 in some cases as I don't like how much leverage gets into the $1 contracts. Cheaper does not mean they are a better deal.
Today we doubled up on two positions and are treating them as separate trades for all intents and purposes... although each entire position may be closed at the same time... or not. In order to play I have to leave enough room for some of these trades to double up for the purposes of reducing the average cost and to stay with the program. If I do not then when the trade is eventually closed, for a profit, that profit may rely on the average effect and not the original higher cost putting me behind the eight ball, so to speak.
Trade every trade of someone else's plan... and this is a good plan.
More on sizing in my next post.
Jeff.
For this reason he has indicated position sizing to use along the way without doing a full overview of his expectations in order to ensure that nobody trades too big to affect the room or too small to profit.
Initially we were using "normal" sizing which was no larger than 10 contracts. I scaled my sizing to accommodate equal weighting by price... $1000 to $1200 worth of contracts. I will admit that I went over that on a few trades and it bit me in the ass.
Next the volume came out of the market as there was a bit of a consolidation going on and everything was neutral as opposed to bullish or bearish. Maximum trade size was set at 5 contracts. This was hammered home as a few oversized the trades and it was a problem for the group.
Now we are back to normal sizing as volume is back. For me that puts me trading 2, 3 or 4 contracts...perhaps 5 in some cases as I don't like how much leverage gets into the $1 contracts. Cheaper does not mean they are a better deal.
Today we doubled up on two positions and are treating them as separate trades for all intents and purposes... although each entire position may be closed at the same time... or not. In order to play I have to leave enough room for some of these trades to double up for the purposes of reducing the average cost and to stay with the program. If I do not then when the trade is eventually closed, for a profit, that profit may rely on the average effect and not the original higher cost putting me behind the eight ball, so to speak.
Trade every trade of someone else's plan... and this is a good plan.
More on sizing in my next post.
Jeff.
Friday, April 16, 2010
Largish mistakes in trading
Hyphenating the word mistake leads to miss-take. So a mistake is the result of taking something the wrong way. Often this is not the case though as a mistake is really a lapse of judgement, not following an instruction or rule or even just being impulsive or emotional about something.
All of these qualify for the miss-take that I started with an old trade.
I have been trying to follow a particular methodology in my position sizing which has been morphing along the way to where it is now. I am placing maximum 4 contract trades if the setup is a low risk and going as low as 1 contract for higher risk setups.
Another factor has become where we place our stop loss, mentally. Up until this week we have often held trades overnight in order to take advantage of the potential gap up in a stock the next morning. This has led to holding trades for many days in some cases, longest is 30 days now and is the main reason for my post topic...more on that later. Now we are exiting all trades before the end of the trading period in order to stick with the idea of "day trading" and also due to many people not being able to manage a trade past the initial time frame of one to two hours.
I have to keep in mind that smaller contract price does not equate to lower risk, in fact this is often the reverse. Today we traded front month options or options that were expiring in April... expiring today. While an option expires out of the money it is worthless so trading options that expire today is quite risky and VERY volatile. I kept trades to 2 or 3 contracts only and made out OK considering.
I also have to keep in mind that a larger price does not equate to less risk, depending upon how it is traded. I entered an oversized $10 option trade with my average cost of $9.30 last month. I watched it drop to the $4.20's and had the opportunity to exit after that at $10. I did not as I was holding out for breakeven at the time of $10.10. For the sake of 10 cents I let the trade go to zero and lost 100% of the capital in play. That is un-acceptable for a day trade.... but I did this three times, all last month. If nothing else it gives me some losses to cover some gains going forward, mot the ideal though.
In all I dropped all of my March profits times 2. Considering that I had, up until this point, been doing very well as I made 50% in three weeks on a $10,000 starting capital.
Had I exercised proper management in trade size that would have been a $1000 at most for the large trade, $500 and $400 for the other two. Even at that I should have exited at near breakeven and been down about $20 on the larger trade and maybe as much as $100 for each of the other trades... total of $220.
Lesson learned.
Going forward I have shrunk my trade size considerably and look forward to increasing it slowly as my account grows up to a maximum of 5 contracts per trade.
My stats are not up to date as these trades have messed with my overall numbers.. I'll look at these later and see where I am at.
I did run a duplicate spreadsheet to track all my trades as if I had used 5 contracts for every single trade that I placed in the TFSA, I will do the same for the Margin account sometime but the $10 options would not have made it to 5 contracts regardless so I will not use that one, seeing as proper management would have had it only loosing $20 or so I feel that optimized sizing and management would have had me stay out of this larger risk anyway.
The trouble with 5 contracts right now is that I could not run all the trades as I would run out of capital. Seeing as we are exiting all trades on the same day I likely could bump up to that level soon, perhaps start with three per and see how that would have fared... three I could have handled and it sure makes placing the trades easier as there is not 2 seconds wasted figuring out the sizing for the trade.
Jeff.
All of these qualify for the miss-take that I started with an old trade.
I have been trying to follow a particular methodology in my position sizing which has been morphing along the way to where it is now. I am placing maximum 4 contract trades if the setup is a low risk and going as low as 1 contract for higher risk setups.
Another factor has become where we place our stop loss, mentally. Up until this week we have often held trades overnight in order to take advantage of the potential gap up in a stock the next morning. This has led to holding trades for many days in some cases, longest is 30 days now and is the main reason for my post topic...more on that later. Now we are exiting all trades before the end of the trading period in order to stick with the idea of "day trading" and also due to many people not being able to manage a trade past the initial time frame of one to two hours.
I have to keep in mind that smaller contract price does not equate to lower risk, in fact this is often the reverse. Today we traded front month options or options that were expiring in April... expiring today. While an option expires out of the money it is worthless so trading options that expire today is quite risky and VERY volatile. I kept trades to 2 or 3 contracts only and made out OK considering.
I also have to keep in mind that a larger price does not equate to less risk, depending upon how it is traded. I entered an oversized $10 option trade with my average cost of $9.30 last month. I watched it drop to the $4.20's and had the opportunity to exit after that at $10. I did not as I was holding out for breakeven at the time of $10.10. For the sake of 10 cents I let the trade go to zero and lost 100% of the capital in play. That is un-acceptable for a day trade.... but I did this three times, all last month. If nothing else it gives me some losses to cover some gains going forward, mot the ideal though.
In all I dropped all of my March profits times 2. Considering that I had, up until this point, been doing very well as I made 50% in three weeks on a $10,000 starting capital.
Had I exercised proper management in trade size that would have been a $1000 at most for the large trade, $500 and $400 for the other two. Even at that I should have exited at near breakeven and been down about $20 on the larger trade and maybe as much as $100 for each of the other trades... total of $220.
Lesson learned.
Going forward I have shrunk my trade size considerably and look forward to increasing it slowly as my account grows up to a maximum of 5 contracts per trade.
My stats are not up to date as these trades have messed with my overall numbers.. I'll look at these later and see where I am at.
I did run a duplicate spreadsheet to track all my trades as if I had used 5 contracts for every single trade that I placed in the TFSA, I will do the same for the Margin account sometime but the $10 options would not have made it to 5 contracts regardless so I will not use that one, seeing as proper management would have had it only loosing $20 or so I feel that optimized sizing and management would have had me stay out of this larger risk anyway.
The trouble with 5 contracts right now is that I could not run all the trades as I would run out of capital. Seeing as we are exiting all trades on the same day I likely could bump up to that level soon, perhaps start with three per and see how that would have fared... three I could have handled and it sure makes placing the trades easier as there is not 2 seconds wasted figuring out the sizing for the trade.
Jeff.
Sunday, April 11, 2010
Lamentations of a bored trader
Ho hum.
Yes, I am bored in my trading. That can be a problem for me as I tend to want to keep the interest level up in activities that I choose to do. I think that this may have been one of my problems in my earlier trading and why I tended to not get a plan to be particularly profitable...as soon as it was no longer fun I had to change it up.
Interestingly I have an easy time stopping a losing plan cold... as I just did with Optioneer even though I recognize it's longer term potential it did not mesh with my short term plan... "outta here". The profitable plans tend to just peter out as I shift it to something else, let the profitable trades run their course, take the profits and put them into the next idea. In fact I am up about $700 on paper in my two other current plans. I considered just cashing in the trades, taking the profits and putting them into other newer and more fun trades. They have not run their course yet but it is not interesting to have them just sitting there making money.
HUH?
Yep, making money is not as interesting as losing it, not by a long shot. Forming the plan then trading it and having it do what was expected compared to doing the same thing, being wrong and figuring out why it was wrong. In the most recent case of the Optioneer plan I know what the problems were. Between the timing of me starting the plan and trying to get nice short term trades, as short as I could, it just has not worked out with the market activity. The longer term trades would tend to get into the profit point, slower, but would not be as volatile. Although they might have still produced losses probably not as quickly and I would have been open to closing them earlier. In the end they just don't suit my current plan anyway.
I have now decided to leave the interesting stuff alone for a bit, which makes for terribly boring posts here as well, but interesting posts are not my primary goal anyway.
So, re-funding my Questrade account over the next while, taking a trip next week but still going to trade in the mornings anyway. I will be seeing if I can step this up to get some boring but profitable trading in.
Jeff.
Yes, I am bored in my trading. That can be a problem for me as I tend to want to keep the interest level up in activities that I choose to do. I think that this may have been one of my problems in my earlier trading and why I tended to not get a plan to be particularly profitable...as soon as it was no longer fun I had to change it up.
Interestingly I have an easy time stopping a losing plan cold... as I just did with Optioneer even though I recognize it's longer term potential it did not mesh with my short term plan... "outta here". The profitable plans tend to just peter out as I shift it to something else, let the profitable trades run their course, take the profits and put them into the next idea. In fact I am up about $700 on paper in my two other current plans. I considered just cashing in the trades, taking the profits and putting them into other newer and more fun trades. They have not run their course yet but it is not interesting to have them just sitting there making money.
HUH?
Yep, making money is not as interesting as losing it, not by a long shot. Forming the plan then trading it and having it do what was expected compared to doing the same thing, being wrong and figuring out why it was wrong. In the most recent case of the Optioneer plan I know what the problems were. Between the timing of me starting the plan and trying to get nice short term trades, as short as I could, it just has not worked out with the market activity. The longer term trades would tend to get into the profit point, slower, but would not be as volatile. Although they might have still produced losses probably not as quickly and I would have been open to closing them earlier. In the end they just don't suit my current plan anyway.
I have now decided to leave the interesting stuff alone for a bit, which makes for terribly boring posts here as well, but interesting posts are not my primary goal anyway.
So, re-funding my Questrade account over the next while, taking a trip next week but still going to trade in the mornings anyway. I will be seeing if I can step this up to get some boring but profitable trading in.
Jeff.
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