I read The Market Taker’s Edge again by Dan Passarelli, former options market maker. Some of his content regarding hedging and pricing, although seemingly basic, stimulated some ideas. Next up is Options, Futures, and other Derivatives by John C. Hull. This book should help me look at option trading from a more mathematical perspective as opposed to the market mechanics aspect shown by the previous book. I will be taking my time on this book, taking extensive notes, and will likely incorporate what I learn into my trading system.
Thanks. Just ordered the first one you mentioned "the Market Takers Edge" sounds similar to the Baird book. I've read Hull. It's more like a text book. I found it kind of dry but it's thorough.
I perceive forex as usually “Well behaved” as for as either reversion to mean strategies, shorter term trading range strategies, and longer term trend following strategies. Further, it seems forex often lags changes in the risk environment as indicated by equity indexes, sometimes even offering a significant countermove to expectations before “Catching up”. Then again, as far as “Leader” versus “Laggard”, it may simply be all in my mind! What is certain, however, I need to nail down what is the optimal strategy and structure to take for various time frames and possible trade outcomes. It feels inefficient to take a stop loss on a butterfly trade, even a directional ‘Fly, mere minutes to hours after putting it on. Then again, I may need to fully accept that tremendous potential leverage combined with defined risk has a cost associated with it. It may take a few more tries to get it right before I ramp things up in a big way. Grin.
they are totally different markets with different information sets and different market participants. I would be shocked if strategies that work in equities work in FX
There are just so many possibilities for viable strategies for a given time frame. Unless you have have anything specific to relay about currencies, other than, say, lower average daily ranges measured in ticks versus stock index futures, currencies seem like just another asset class. Think signal processing: Frequency and amplitude. Trading range or trend. Orderly or chaotic price movement. From there, indicators when properly used, may give an edge: Tape/order flow reading, contextual correlation, convexity, excess risk premium, market making, and event pricing, finally leading to specific strategies and structures to best extract perceived edge. Whatever “The why” behind the movement of a asset class, there are only so many “Ways” that an asset class price can move.
Silver looks like an odd man out so far tonight. Fade opportunity at roughly 12 standard deviations away from weekly moving average? Edit: Reference price March Comex Silver, $28.84.
On managing my directional butterfly options orders, I’ve decided to take on an equivalent, delta adjusted position in the underlying while working the related options order. I may also try legging in at least part of the order starting with the most expensive long option or vertical spread. In the alternative, especially if I can get better pricing and or easier execution, I may initiate a position in an iron condor instead of a ‘fly to express my outlook.
This post is a monthly and weekly trading performance update. Although progress has been made on theoretical aspects of trading, practical application and execution of these theories and my trading system have been lagging due to inconsistent discipline in both patience waiting for valid setups and money management. It seems when one rule is violated, everything else seems to unravel. Good thing I haven’t left the kiddie pool with risk taking. To be fair, I was quite busy at work, but this was known in advance and my plan was to either not trade or trade less than I actually did. As an adjustment, I would normally reduce my risk tolerance to “Pre-kiddie pool” levels, but I’m still feeling confident enough to stay at present risk levels. I see my system as fairly robust and it is simply waiting for the operator to properly engage. The spot trucking freight market was scary, all-time record strong last week. Scary, because we are at the normally slow, beginning of month. Scary, because we are in the middle of the seasonally slowest part of the year, the first quarter. Of course, another way to look at it instead of “Scary”, is to look at it as “Exciting”. Exciting, as the implications are, we will be entering boom times not seen since maybe the 1950’s. The underlying basis for this outlook is pent up energy from the suppressive effects of Covid as well as excitement for many, including an International audience, related to a new US President. Plus a few trillion in stimulus, of course. While this burgeoning party may last for the next five years, give or take a year or two, there are serious structural challenges that lay ahead. High debt levels and increasing interest rates will substantially increase Federal debt service levels, potentially reducing budget flexibility during the next slowdown. Future slowdowns may have even greater negative feedback potential than historically speaking, making intervention even more critical to avoid systemic collapse. Printing without the corresponding support of continuing productively gains solves little. for example, human nature tends to become complacent after prosperity, which tends to reduce productivity gains. Risk taking increases, often directly or indirectly involving our financial institutions, further increasing systemic risk. In addition, technology advances will cause increasing displacements in certain large areas of the workforce. Plus, there are still the mundane, at this point, geopolitical and demographic issues. Although if we actually have five plus years of prosperity, it could very well get us over the “Demographic hump”. Combining the aforementioned challenges seems to make a very formable future ahead. In other words, we should take full advantage of the opportunities the next few years will likely present. The equities markets will likely rise for the next few years with normal and even larger than normal corrections related to typical ebb and flow of investor confidence and purchasing power along with taper and rising interest rate fears. Monthly Trading Performance: Weekly Trading Performance:
No opening trades this week. Closed out a large losing trade that I stubbornly held in spite of ample evidence I was wrong. To add insult to injury, I jumped the gun in opening this trade as I did not have a valid signal at the point. The potential returns of short term trading are great and worth pursuing in my mind, if I can get my mind right. I’m taking at least next week off of trading to recalibrate. Maybe I’m better off buying SPY and overwriting with protection (Similar look to a butterfly spread, except what would by the in-the-money leg is the actual underlying instead) each time SPY flashes a potential correction signal. Even if the market were to have a big selloff, my earnings power would allow me to dollar cost average, allowing the most reliable long term growth of capital for a undisciplined trader like me. My time off of trading will allow faster progress reading books on trading and to backtest several structures for various scenarios. In the end, though, discipline is just about everything in trading.