Holidays are over...back to business

Well, the holiday is over. Five days of hot camping weather and no rain until the last day. Couldn't have ordered it much better.

Of course looking at the markets I could have ordered those MUCH better. That rally last week has driven my mostly put trades well into the red and most of them are expiring on Friday... we will see what this brings. Hope really has no place in the market so I will just wait and see what the numbers say.

I have consolidated all of my trading cash into one account over the break so now I can tinker with larger trades and decide how much to allocate to daytrading, momentum swing trading and trend stock trading on the fly. Currently I decided to use all spare cash for daytrading only. This week I will probably keep trades smallish... perhaps $1,000 per trade. Once we, as a group, get settled into the trading again I may ramp it up a bit more. I am aiming to be able to handle a certain number of concurrent trades and, once expiry is done with, I will apply that rule of thumb across all my option trading. I think that allowing for 20 concurrent trades in total with a 20% cash buffer should suffice.

In the future I anticipate that the cash buffer will allow me to skim profits even when I might have a poor month without directly affecting my trading power. The cash buffer may reduce during those times but the active trading capital should remain at least constant.

I don't expect that there will be a lot to talk about here for the next week so the blog will be mostly quiet. I have my plan dialed in now.

Jeff.

Making the consolidation move

I called Questrade services yesterday and got things rolling for putting everything into the margin account. They have changed a few things since last time I had to call anyone about USD being held in accounts.

Apparently they have changed how USD is dealt with in margin accounts now. If I hold CDN$ it still works the same, I borrow against the CDN and am charged interest for this as it just uses the CDN balance as collateral. For me it is silly to do that only to incur a useless interest charge when I can just always use USD anyway.

So my TFSA balance is on it's way to the margin account. I started out also transferring the option positions as well but there was some hiccup in that transaction. I will have to just transfer those once they are in cash.

I realize that I will not be able to put any cash back into the TFSA until January and I may do that if I am still trading with Questrade. I anticipate moving over to Interactive Brokers and there are no TFSAs over there anyway and this lets me double my trading capital to boost my gains. I may have to pay taxes on the profits but those taxes are less than half of the more than doubling of my profit margin. I talked about that before and it would take some time for the TFSA to catchup with the margin trading based on the current limitations. Besides, I plan on trading stocks at some point and margin will likely be needed as well as being able to short stocks.

I am heading off camping for the next week so there will be no trading until the 12th, nor will there be any blogging until then either.

Jeff.

Revival today, sort of.

I expected another non-event day today... or at least some small gainer trades again... while I was not completely wrong it ended up on a better note than I initially anticipated.

Seven trades closed, 5 new ones from today and two older ones from last month that I decided to hold even though the group closed them for losses already... group dynamic thing. I still have two more that I have set very modest sell targets on but my account looks MUCH better now than it did this morning.

I updated my stats for June on my main page.

I almost doubled my profits for the month to date just today (yah, June was THAT bad)... it was a $421 day. Nice note to end the month on. I held positions today ranging from 2 to 12 contracts. The best part was catching the end of the day plunge as I watched the market sell off heavily in the last 30 minutes. I setup all my remaining positions so I could market order to sell them with one click per trade so I closed five trades between 1539h and 1543h for pretty close to maximum gains as the huge down move lost momentum. Actually I called the bottom well enough as it hit bottom at 1545h and bounced for less than 3 minutes before recovering a few points.

I checked the difference in commissions. Not all of my trades were under the new lower rates as two were open from before but even so it would have cost me over 35% more. That's about $62. Nice to have a little extra in my pocket like that. I think switching to IB may only be a break even game now...except for the increased efficiencies in the platform and the i-phone trading application.

I think that this may be the last month that I run two sets of charts to compare various methods of sizing as I have hit upon what looks like the best method now. That will save some time in setting up July's tracking chart at least.

Jeff.

Position sizing re-visited yet once again

I know I keep coming back to this topic often and, although this is not a change since last time I mentioned it, it is worth observing.

I had raised my trade sizing up to an average of the entry prices and considered that every trade was going to be equal sized, and that looked like a decent plan. The trouble was that it out sized a few losers and under sized a few winners which will tend to skew the result to the negative... even though, historically speaking, it worked out very well. But "very well" isn't my thing.

I set up a spreadsheet to give me scale entries based on option prices based on 50 cent increments and it calculated the appropriate quantities for me. That was OK... but "OK" also isn't my thing. This method restricts me to increments that jump 4 and five contract increments in the lower range which left me guessing a bit when the price was between, say $2.00 and $.50, or even worse when it was between 50 cents and $1.00.

So rather than reducing the pricing I decided to let the trade size determine the entry price levels. So for every single contract increase in trade size the price self adjusts to my trade value based on cash and number of trades with a 20% cash holding buffer (basically I will only trade up to 80% of the account cash left and I figure that I will not actually get all trades filled anyway so it ends up being larger cash holding). This way the 50 cent trade sets the bar by using the trade value to produce the largest trade in the bunch, then it auto-increments down to 1. At certain points I have it set to decrement in 2's, 3's and 4's as the trade size gets larger to make the chart more manageable... but then again by that point I will probably be trading with IB and they have this as a setting to auto size the orders.

My point was that my average contract count per trade ends up being just OVER my estimated trade size if it were based on same sizing. Right now it is at 5.81 for June when I did 400 for the first week, 500 for the second week and now value sizing for the last two weeks.

The other thing that I just realized is that when averaging down on a trade after the price of the option has moved down against the entry price I can increase the contract count for the second entry which will serve two purposes.

1) it will average the price lower than an equal contract count second entry

2) which will allow a greater leverage of the entire position

A trade that I am in right now, for example:

FSLR first entry at $3.55 for 2 contracts (total value $710)

FSLR second entry at $2.90 for 2 contracts puts me at $3.225 average (total value $1,290)

I could have entered the second for 3 contracts and brought my average to $3.16 for a total value of $1,580. Seeing as my trade value is set at $736 the first trade is under and the total position puts me a bit over based on it counting as two trades.

When the stock moves I will see a higher absolute profit...if it moved against me the reverse is also true though. But that is the nature of the market.

Jeff.

Apparent new plan...timing or what.

It would appear that John is shaking the tree to weed out the small accounts and the uninitiated or inexperienced traders. Today's trade were small and could have been let run for larger gains instead of the 10% gross returns. This plays hard against small accounts due to the larger relative commission cost and the net profits not being large enough to cover operating expenses.

The last three days have barely netted me $100. That would make a month barely cover the cost of the service without counting any other data services and whatnot. Even taking June altogether the daily average is about $41 due to the largish losses due to expiry's and closing a few positions in the interest of starting from scratch.

Even just going to IB for the exact same trades I would be at almost $200. My daily June average would be $99 and I would have at least doubled the expenses for the month.

Then taking all my current capital and doubling the trades my daily average would have been $198. More respectable but I am planning on tripling my startup right away as a minimum which has me at the $297 mark. Keeping in mind that I have not been equal weighting my trades this month and this includes taking a $15,000 loss in the mix... that would not happen given the new trading plan. Just reducing the big loss to a smaller loss, which I did the calculations already once, puts me at a $700+ daily average.

Of course, as always, these are projected numbers but they serve to give me an idea of where to place my expectations.

Yesterday I had made a list of action items to take me to the next phase of my trading and it included buying an i-phone to allow trading while away. Upon looking into doing this I see that the i-phone 4 is due out next month. Given some of the increased functionality (multi-tasking is a big one for me) I will wait and get one of those instead. The larger battery will be nice as well as the newer email setup.

Among the other things to do this week were transferring my free cash into my margin account, completing the IB account application, continuing trading in the TFSA for now to finish out this month, liquidating my stocks.

So my timing is very good. I am just getting ready to increase my daytrade capital when we are shaking out small accounts, buying a new i-phone when the i-phone 4 is due out, setting up an IB account at the time when I might expect to be able to fund it properly next month.

I'll update my stats after the end of this month, as poor as they are going to look.

Jeff.

Consolidation and extrapolation

Time for some hard thinking about my day trading... what is the next level?

Between yesterday and today I posted somewhere under $60 in net profits based on a gross profit of $165.03 less commissions. With IB my take would have been around $146... which is 240% higher than my return. The trades are only between 9 and 21 cents per contract so I need to consider increasing my capital to trade more contracts as well as decreasing my costs as I am not certain that there will be as many large profit trades going forward. The format we are using now, although a return to the original, has a twist. We are not holding ANYTHING over night or even into the later day. While that may change I cannot bank on it and therefore I need to consider that we may just be taking more smaller and incremental profits.

Having said that, Tuesday and Wednesday were not bad due partially to more trades and partially to some better gains. My concern is that many posted that they were able to make the $500, or close, gain for the day and there may be a move toward keeping to the lower profile format trades. This would not bode well for a smaller account like mine.

The IB route will help but is not going to happen until my current momentum trades are completed later in July and even that timing may depend upon what profits that are to be had from those trades still in progress. If they are not so great then I am going to have to build up cash with day trading first. Also, I cannot use less than $25,000 which is a benefit in and of itself.

So the plan now becomes one of consolidation of my capital. Taking my current trading and extrapolating the results based on possible cash transfer balances results in a relative increase of my profits once I take the switch to IB. That and applying the decreasing relative commission costs should give me a rough guide as to where I might expect to be.

As it stands I can double my cash by moving it into the margin account then work with those increased profits to create a larger base to move to IB faster even given the high commissions. This assumes that I take 100% losses on all of my current positions, just as a worst case scenario.

Seeing as we are not going to hold trades overnight I can eliminate the June 18th losses as they were expired contracts. This gives a better idea of where June may have been otherwise, then doubling my profits and applying the IB commission structure for a comparative purpose only. I dropped all the losers to a 20% loss to simulate the current plan...we are looking at about that for stop losses right now so it is about right even though some of the losers were from the prior month... I will remove those as well for realistic results.

TFSA with Questrade:

Profit = $4900

Monthly ROI to date = 38%

IB recalculated:

Profit = $6349

Monthly ROI to date = 49%

Questrade recalculated after consolidation at June startup figures:

Profit = $8183

Monthly ROI to date = 38%

IB recalculated after consolidation at June startup figures:

Profit = $10,602

Monthly ROI = 49%

IB recalculated using a $30,000 base for June startup:

(my minimum target deposit, which I will likely overshoot once profits are taken into account at the time of transfer)

Profit = $14,602

Monthly ROI to date = 49%

Well, taking the current TFSA recalculated June profits of $4900 and the IB based on $30,000 base of $14,602... or $8761 after worst case taxation, I am obviously ahead doing a full consolidation and transfer. Had I realized that IB was an option at the very beginning I would already be there and be seeing the results directly instead of having to wait for cash to become free in order to get this plan rolling along. I was too focused on the tax free implications and lost sight of the fact that there were other cheaper and better brokers for the plan that I was going to implement. Nothing against Questrade. They have been a very good first choice while I played with my small account balances to see where I would end up, something I could not have done with IB from the start anyway. April I could have switched but to be honest it was not the right time... now is.

Jeff.