Some trading advice for new and old guys. Don't listen to your @Innervoice / subconscious mind. Listen to your conscious mind.
Some trading advice for new guys -Design a trading plan -Test it out with demo trading to become profitable for at least six months -Start small. If the trading plan works, you will make money. Better to start small than lose big. -Don't be afraid to go back to working full-time to earn some trading capital if things don't work out. Many of us (yours truly included) have gone back to work several times before trading completely full-time.
So... setting stops, defined-risk options trades, position sizing, scaling in, flattening portfolio delta... those aren't ways to reduce risk? And hedging - which is just exposure reduction - is? Interesting statement, there. Given that the chance of 23 losses (or wins) in a row is a slightly unlikely 8,388,608:1, and the chances of the same guy doing that twice in a lifetime are even a leeetle bit less likely than that, the only believable way that could happen is if you were purposely trying to commit financial suicide. Outside of that - yeah... nah. You may have heard about the run of 26 at a casino in 1913, but that doesn't mean you can tweak the number and claim it as your own.
That's not great as general advice. I know several people who only trade the open - and that includes the most successful equities trader I know. Most of his trades only run a few seconds. Yeah, that's pretty specific to you. It's worth thinking about, because it might work for some people - but for others, it's the complete opposite. As I recall, in Minervini's "Momentum Masters" one of the traders specifically leans into wins because in his thinking, the market is aligned with his approach, and that's not something that lasts.
Hedging can be used to do that, but a mix of trades that are long and short delta accomplishes the same thing - except that it employs your money effectively (assuming your trading has positive expectancy, that is ) without wasting comms/fees/etc. on hedging.
Say SPY opens at 382 tomorrow and I sell a 30d ATM straddle for $22. A few days go by, some of the current craziness settles down/vol drops, and SPY wanders about but remains fairly close to where I sold it... and now I buy wings 10 points out for $10. * What is my maximum loss in that trade? * What is the average return if I run it 1000x? P.S. Now that I think of it: pretty sure I first saw this on one of @destriero's threads, so credit where credit is due. P.P.S. I was fairly specific when I said "assuming your trading has positive expectancy" - that is, an upward-trending port-level P&L. Individual trades may not necessarily be +ve, but as long as your RRR * %win - %loss > 0, you could lose on 99% of your trades and still come out smelling like a rose.
So, your maximum loss is $10 and you paid $10 to lock in this profit by buying wings, you have locked in $2 profit and stand to gain $12 more if SPY settles at the middle. what do you mean by running it 1000x? If you are able to run similar trade 1000 times, your profit will be much more than the locked profit. But, what do you do while waiting to buy the wings? How do you manage the naked straddle risk? That’s the real issue here, isn’t it?
Correct. That's a positive expectancy trade. Call it mental Monte Carlo analysis. And yes, that was the point I wanted you to get: it's positive by more than just credit - max loss. No, the point is trade sizing. If I have a $1M account, is a single-lot straddle in SPY, no matter how badly it turns out, a meaningful risk to me? (Also, how likely is SPY to go to 0, or to 2x its current price, in the next 30 days?) Also, consider this (again applying that mental MC): what should I expect the return from that straddle to be if I ran it some large number of times? If the first answer that comes to your mind is "well, a big loss, of course!" - then you're saying that buying straddles should be a winning strategy. If you don't think so - or decide to rethink that initial impulse - what does the price of that straddle imply about that chance of loss?