I know this should be in another forum BUT I also know there are a number of professional and retail option traders who specifically hang out here and I'm just hoping for a few who might wish to share on what I believe is a common problem for traders. I've been trading long enough to know what works and doesn't for me. However I have found in the past few years I start off with a bang...great returns for the first few months. I either get bored, careless, content or curious and somehow manage to lose what I've made and more by the end of the year. Example last year... Stuck with trading ES..both the cash and options. I had set a specific daily goal with the cash and was doing swimmingly. Tsunami happened volatility spiked and of course CL went crazy. Thought I was doing so well with ES I started trading CL and its options....oops after a few months begin to realize my trading account doesn't have the margin required to trade and quit trading it...small net loss. Summer my life got busy and I didn't want to have to be 24/7 trading and had the brilliant idea that I could just buy the ES and sell calls...you know covered calls and sit back and not pay attention. oops...we droped 150ES pts in 6 weeks or so and I could see the margin call coming my way so got out before I got closed out.....but not before losing about %60 of my trading capital. Took stock..went back to what works and very slowly started grinding my way back. What an F*&^ing idot. So here we are in March. I'm up %44 YTD...looking at the next 10 months with absolute dread...how am I going to screw this up this year? I've traded in high volatility...low vol definitely do better in lower vol.. I'm a net seller of premium but certainly will buy when vol is low..IOW I DO know HOW to trade..I just need a few rules of the road so to speak. My question is simple. How do you protect your gains without completely stopping trading. Should I be taking a regular amount of money out of the account so I won't have "extra" sitting around begging to be spent on the next new idea? Should I open a separate account to try new strategies? And why the hell should I even try a new strategy when what I'm doing IS working? I did read Mark Douglass on money management and am trying to work up a few guidelines that could keep me on the straight and narrow. However when you do trade options its not always easy or simple to close out all your trades and you don't really know when/if the wind will change direction so... Anyone out there with just one or two good tips you would care to share on how you stay focused and profitable?
You need to find a robust system that works well for the past 2 years, backtest it for a few months, optimize monthly, then decide if your system is worth pursuing. It doesn't sound like your question is a quantitative one so unless you have a reliable definition confirmed through numerical analysis the answer is always that it won't work unless you do this. Options are drastically more difficult to backtest, so backtest on the underlying and you'll be able to find an edge before making anymore trades. Don't think that it's impossible unless you don't know how to program, or don't know where to get data. Unless you've been given a strategy and data, the chances are nil besides minute data that you'll find anything robust enough to use for options.
Thanks for sharing however that really wasn't my question. I HAVE a system or methodology which IS successful...my problem is I lose focus and read too much ET and try something else (always with real money not sim) ending up not being on top of my trading and losing money before I know what hit me. I'm kinda asking....is it better to STOP trading when you are X % ahead? Or do you continue and stop if you start a losing spell? When do you pull the plug...take a break? What I do is not really scale-able ...I don't want to add more contracts to my trades so do I skim the money off the top so it won't be tempting to try things I'm unsuited for? IOW what specifically do you DO with your profits from trading????
You should have a plan for each trade type - when to put it on, in what sort of size and also when to take it off. If you approach your book in a systematic manner and adhere to the plan, you don't have to worry about spending the profits. PS. If you are like my junior trader, you might need physical segregation of your "idea-driven" trades from your main trading strategies.
This is actually very practical and very good advice. Just open one more account with 2k/5k in it and use it for all your idea testing and trying out. If you blow it, reload - repeat the cycle 10 times. Just make sure you take at least 1 month rest after 1 blowup before reloading. This 1 month rest will help you crystallize a lot of lessons and then ingrain them in your behavior, thus making you a better trader. Meanwhile, have a main account in which you are trading with utmost discipline and only well tested strategies/methodologies. Treat this main trading account as your wife - who will be with you for rest of your life, have kids with her send them to school etc.etc. and treat your testing account as your 'friends with benefit ', who can be changed every 2-3 months, if need be
withdraw the profits. profits create distractions. subconciuosly you are thinking about how to deal with profits: withdraw? hold? keep it and grow more? and on and on, those questions are not trading ideas!. the easiest way is give back to the market. the hardest way is withdraw and give it to yourself. I withdraw almost weekly if I win. if loss, I deposit weekly. though it seems odd, and cost me fund management fee. what i am trying to do is: I do not want loss/profit bother me, so I can focus on trading. I just hope I can withdraw/deposit daily or even per trade. but this is not practical., the funding fee is unacceptable and brokers are not banks. i have a period that i built up a good pile of profits, and prepare to withdraw, then when i try to withdraw, i made a old trading mistake and give it back to the market. I feel very frustrated about that. then i decided to do it per trade. when i win, i withdraw, but brokers' banking is costy, I switched to weekly banking, it is acceptable and managable though not ideal.
I am into compounding. My strategy is highly scalable, so whenever I make $15,000-$25,000 I'll start following another unit of my system. You know when to stop if your system has a stopping point. Also make note of news events that could be a factor in how robust your model can be.
Physical segregation and withdrawing profits are what I was thinking. Last year when I was up I talked to my spouse about withdrawing but didn't really have a plan where to put the money. I also considered opening a new account with a deep discount broker but didn't get around it it....then proceeded to lose my profits That's why this year I want to be more proactive and set up a plan BEFORE I lose my profits. thanks for the ideas....keepem coming!
Yes, we are all waiting for you to start taking Warren Buffet out to dinner or to buy a nice tropical island... back to the topic - option_vixen, you should try to come up with a few more strategies. In general, you want to have a few alpha-generating strategies that would be mostly uncorrelated. While it's more work, it's also much safer.
If your system works, then just focus on discipline in keeping that system from blowing up, while still using it. I map out exactly how much money I aim for for each session and quarter, based on how I'm going to allocate capital and which contracts or stocks I'm going to trade with that system. When the system trades, I let it go completely automated. I only watch it to make sure it doesn't do something dumb. I regularly move capital out of my brokerage accounts, especially for derivatives, due to the lack of insurance. If I get a medium draw down that requires more capital, I just wire (or transfer at IB) in from equities or cash. If you have the system like you say you do, the answer to your issue is having a clear focus of where you want your p and l to be tomorrow, one week from now, 6 weeks from now, and the end of next quarter. Spend considerable time coming up with different ways to allocate your capital. Be very conservative on implementing a new system - if your current one works, it's best to test your new system live on a sim account for at least one week, but more probable 2 or more weeks since you'll surely come across problems. So longs as you stay on track with your system buildling, you definitely wont crash because your current system will crash. Don't trade discretionary if you haven't done so in weeks - if you do, trade small lots. Really, leave it to your algos. Just my perspective..............hope it helps