Probabilities & Decent Methods, Questions on EXITS

[natureboy]

Ok, so to make money, you have to have the risk, reward, and accuracy variables of the equity curve equation within certain parameters. for instance you can have a winning strategy with only 30% accuracy or win rate as long as your reward pay outs are large enough relative to the risk you take on.

i prefer high probability methods, meaning 60% or greater accuracy.

so what really works? statistically, how many around here have sampled 100 trades? 1,000 trades? .. of various methods?

from what i've heard, the Andrew Cardwell type divergence, or hidden divergence, is 6/10 over large sample. certain patterns are also high probability.

i've been looking at combining P&F patterns with the hidden divergence as a possible system. coding that right now actually..

walter bressert has cycle/oscillator combinations, although i have yet to experiment with that...

what do folks around here use? some may feel this is a state secret. i sort of look at it that way, in terms of people who do not want to put any effort into getting something. but on the flipside, knowing that something works for others is not the real work, is it? its part of the picture..

EXITS are tricky, and are what determine our reward to risk on a trade. Do people scale out? Set objectives? Use a parabolic sar or chandelier? I'm just looking for something i have not heard of yet, or some good chatter, either way

 

[HowardCohodas]

Welcome to the forum. There are lots of smart and helpful people here.

An essential ingredient in successful trading is to find the edge you want to exploit. The edge I exploit is time decay of options. Others may use technical analysis.

I trade and teach Credit Spreads and Iron Condors because they are high probability, modest profit trades which, when properly managed, can have low risk.

When I began teaching I opened a separate account so that my students could watch over my shoulder, so I'll give you some performance statistics that others have observed. In the past 11 weeks since I opened this special account, I have traded 20 spreads. 12 have expired. 10 profitable, 2 unprofitable. However, all the iron condors were profitable, i.e. when there was a loss on a spread, it's iron condor companion more than made up for the loss so it was overall profitable. The account cash balance is up over 25%, however that includes credits received for the 8 spreads currently open.

Others here will have other good suggestions.

 

[NVP]

Welcome to the forum. There are lots of smart and helpful people here.

An essential ingredient in successful trading is to find the edge you want to exploit. The edge I exploit is time decay of options. Others may use technical analysis.

I trade and teach Credit Spreads and Iron Condors because they are high probability, modest profit trades which, when properly managed, can have low risk.

When I began teaching I opened a separate account so that my students could watch over my shoulder, so I'll give you some performance statistics that others have observed. In the past 11 weeks since I opened this special account, I have traded 20 spreads. 12 have expired. 10 profitable, 2 unprofitable. However, all the iron condors were profitable, i.e. when there was a loss on a spread, it's iron condor companion more than made up for the loss so it was overall profitable. The account cash balance is up over 25%, however that includes credits received for the 8 spreads currently open.

Others here will have other good suggestions.

Hey H

what the hell is an iron condor ?

N

 

[NVP]

Ok - i'm there.........i'll leave this to the experts !

The Iron Condor is an advanced option trading strategy utilising two vertical spreads – a Bull Put Spread and a Bear Call Spread with the same expiration. The number of call spreads will be equal to the number of put spreads.

The position is so named due to the shape of the profit/loss graph, which loosely resembles a large-bodied bird, such as a condor. In keeping with this analogy, traders often refer to the inner options collectively as the "body" and the outer options as the "wings". The word Iron in the name of this position indicates that, like an Iron Butterfly, this position is played across the current spot price of the underlying instrument having one vertical spread below and one vertical spread above the current spot price. This distinguishes the position from a plain Condor position, which would be played with all strikes above, or below the current spot price of the underlying instrument. A Call Condor would be played with all call contracts and a Put Condor would be played with all put contracts.

One of the practical advantages of an Iron Condor over a single vertical spread (a put spread or call spread), is that the initial and maintenance margin requirements[1] for the Iron Condor is often the same as the margin requirements for a single vertical spread, yet the Iron Condor offers the profit potential of two net credit premiums instead of only one. This can significantly improve the potential rate of return on capital risked when the trader doesn't expect the underlying instrument's spot price to change significantly.

Another practical advantage of the Iron Condor is that if the spot price of the underlying is between the inner strikes towards the end of the option contract, the trader can avoid additional transaction charges by simply letting some or all of the options contracts expire. If the trader is uncomfortable, however, with the proximity of the underlying's spot price to one of the inner strikes and/or is concerned about pin risk, then the trader can close one or both sides of the position by first re-purchasing the written options and then selling the purchased options.

 

[HowardCohodas]

Hey H

what the hell is an iron condor ?

N

An iron condor is the combination of an equal number of options in a PUT credit spread and a CALL credit spread each on opposite sides of where the underlying is trading so that both are OTM. The advantage of an iron condor with cooperating brokers is that the margin is zero for the second spread because the underlying can't be in two places at once.

 

[HowardCohodas]

Good definition. Better than mine.

 

[NVP]

Good definition. Better than mine.

Hey H

regardless of deffinitions...i'll humbly leave this to the experts

best wishes
N

 

[HowardCohodas]

Hey H

regardless of deffinitions...i'll humbly leave this to the experts

best wishes
N

It's actually pretty easy to teach. Some of my students didn't know what an option was when we started. Where else can I reliably earn 6%-8% per month growth of my account, only spend an hour once a month and about five minutes at the end of a trading day.

Doesn't work for everyone but it's been good to me.

 

[dmilong]

It's actually pretty easy to teach. Some of my students didn't know what an option was when we started. Where else can I reliably earn 6%-8% per month growth of my account, only spend an hour once a month and about five minutes at the end of a trading day.

Doesn't work for everyone but it's been good to me.

Sounds like printing money license but what do you do when there is a strong move against your position?

Do you apply those options strategies in currencies?

 

[HowardCohodas]

Sounds like printing money license but what do you do when there is a strong move against your position?

Do you apply those options strategies in currencies?

October expiration was a good example of a strong move against one side of the iron condor I had. The CALL spread ended up with a small loss. But with the strong trend I was able to roll the PUT side twice for three solid profits. Funny thing is, even with the loss, I made more money on the four spreads than I projected when I set up the Iron Condor with the plan of letting the options of the two spreads expire worthless.

Many gurus teach Iron Condors as a set-it and forget-it play. I believe that to be dangerous. I do Iron Condors as two separate credit spreads. Sometimes one of the sides does not offer the right profit at my risk level and I may have to wait a while to put on the other side. Total time for both sides is about one hour for a given month's expiration date. Then about five minutes a day to check things and another half hour to execute a roll or escape a spread that has lost too much money.

Actually I spend a bit more time than that because I use my actual trades to develop training materials.

I prefer options on indexes. I trade a selection of indexes because I want real examples my students can relate to irrespective of their bankroll size. I do spreads with $5, $10 and $25 differences in strike prices. I shy away from indexes with only $1 difference in strike price because commissions begin to become a significant proportion of the profit. And $5 differences match what my broker (thinkorswim) requires as a minimum account size to trade options.

I trade the strategy I teach in a separate auditable account so that potential students can have confidence in my methods and see the good, the bad and the ugly. So far I have avoided ugly, but I've made some journal entries indicating where I could have performed better.