My Trading Plan II

Published by noworry on

Preface

My original Trading plan, found here, was very wordy and all over the place. I have since overhauled it and tried to make it more concise.

My Vision

Trading is a hobby for me. I am a part Time Option Seller, Swing Trader, and Scalper.

I am a conservative trader in which my goal is to preserve my starting capital and add profit to it.

When I retire in 2022 I will reassess if I want to become a full-time trader.

I will continue to live simply. I’ve always worked hard and have been, by choice, a public servant all of my life.

My house is paid off and I have no bills other than normal living expenses. I have made sure my family is taken care of when I die. I have enough money, that I made by hard work, to live on and travel in my retirement years. I will retire at the age of 57 and hope to have many more trading years.

Trading is work. It is work of constant learning, keeping up with the markets, keeping up with world events, and effectively managing money. It keeps the mind active.

Trading activities for me are fun rather than a chore for profiteering or chasing a pot of gold. If it buys me a trip around the world and a new Lexus or Tesla every once in a while, then so be it.

My Financial Commitments and Objectives.

My Trading Capital currently is $110k. This number will change as I win, lose, or draw money out.

My goal is to average $200 a day, but I am happy with whatever income I receive from trading. I usually exceed this, but keep this number as a measurement of my performance.

My Expenses: Tradingview Online Chart Software – $90 a year. I really don’t need this since my broker charts do the same. I just like the layout of the Tradingview Platform. I like that I can access it through the web and the drawing tools are nicer. They also gave me a 75% discount.

My Trading Philsophy

Trade like Spock trying to surpress your human emotion. Live long and prosper.

I believe option sellers have a distinct advantage over options buyers as outlined in a 3-year study that is discussed here.

There is no secret or magic trading system. You have to learn to trade what works for you within the realm of probabilities and take what the market presents you.

People and computers make up the market. There are now more computer program trading than humans. Both react to price action. When humans traded we called the reactions greed and fear that gauged the volatility in the markets. Now it is all based on algorithms that mainly drive price action. I believe that these algorithms revert back to the mean as bullish and bearish algorithms battle it out. Add in the constant ebb and flow of people pulling money out of the markets and putting money in again into this equation. I intend to collect profits on these trends and reversions.

Managing my own money is in my best interest. Gurus and financial advisors are not in my best interest for managing my money. I find them useless. I have friends and family that are brokers and owners of firms. They are great researchers and salespeople, but they will admit they suck as traders in the retail market.

I have successfully managed my own money for over 20 years and have done better than many so-called gurus, and financial advisors that come and go as the markets chew them up and spit them out. Some lost all theirs and other’s money and some are in jail. I have also outlived many of them and their firms as a trader.

There are many scammers in the business of selling snake oil to those naive enough who think they are gonna hit it big in the market with a “system” that everyone has bought into. I have seen many acquaintances, friends, and family lose money to these folks. Yes, there are statistical outliers who make it big, but they are rare. If someone wants to try to sell me something, the first thing I ask them is to see their certified broker’s statement for the past year. I usually get crickets.

I believe price action makes the market and is purely subjective. With that, I believe using a statistical approach to making trades and strong money management is best. The market is never wrong. It will either deal you capital gains or a shit sandwich.

I believe that there is consistent money to be made in selling options. I primarily use option spreads with high probabilities to capture extrinsic value.

With spread options, I will mostly trade neutral and keep my total portfoilio delta between +- 100.

If I swing trade and take a bearish or bullish position, I understand that I ultimately have a 50/50 shot in what the market hands me.

I will use Technical Analysis as a tool and realize that it only looks at the past. It cannot predict the future. With bullish or bearish trades, I will use Technical analysis to determine what the trend has been for the last day, week, and month and trade accordingly with the understanding that there is a 50/50 chance of that trend continuing.

My level of aggressiveness is conservative and I understand that if I recklessly trade too big I will recklessly lose money.

Risk control (probabilities) and money management are what guarantees my survival and profitability.

I will take wins based on my strategies. I expect to take losses even when I am doing everything right within my strategies. This is a natural part of trading. I will continuously analyze any losses to see if there is a pattern emerging in regards to my losses and adjust the strategy accordingly if I need to.

If I am consitetly losing trades, then I need to reassess my trading stategies.

My Trading Psychology

The market knows best. I will not argue with or go against the market, to do so is futile. Yes, another Star Trek reference.

Emotion is the leading cause of money loss, trader burnout, and having a stroke. Don’t believe me, Google it. A stroke is the number three cause of death. Therefore I will leave out the emotion in trading as I plan on having a long, healthy, and well-balanced trading life.

I am responsible for my own trading losses. It is not the market’s or anyone else’s fault.

When a trade reaches my profit goal or my loss limit, I will close that trade immediately and not dwell on it or leave it open and have hopium that the trade will move in my favor.

*hopium – a mashup of the word hope and opium. Both hope and opium will cloud your judgment. Put them both together and you have a disaster.

I do not expect any particular outcome of my trades, the market decides that.

My correct mindset is:

  • I will trade without emotion and trade mechanically like most of the computers I am up against.
  • Focus on the trade setup and not the money.
  • Volatility is welcome and one of the main measures in how I make money.
  • If I suffer losses I will not dwell on them as losses are to be expected. If it is a large loss then I will learn from my mistakes.
  • Every day is a new trading day.

My Trading System

Each trade I do uses one of the strategies on my on my strategies page. These will change or evolve as I adapt to changes in the market.

My trading size is outlined within my individual strategies.

I will keep lists of stocks that I trade. These lists and tools to build them are found in my trading platforms. These stocks must have liquidity in their options.

I will not blindly trade on a tip I got from another person. I will not make a trade because I feel like I know the top or bottom of a stock’s price action trend.

I will only use Technical analysis to look at the current trend of the stock and not to try to predict where I think or feel the stock price is headed other than the use of statistical probabilities. I know all trades are a 50/50 shot, but good money management will help with any losses and gains.

Practicality

I don’t believe that witchcraft or voodoo moves the market. I do however believe that governments injecting funds into markets and maniulating markets will have an effect on markets and volatility.

I will scale my trades up or down as my account size grows or decreases.

I will keep a trading journal. That will be this site and currently, most of my trades are kept on the website Profitly. I have hired a programmer to build a trading journal for this site So I do not have to rely on a third party. It should be ready by July 2020. It was cheaper to have someone build the software specifically for me and my workflow than paying a third party. I also will literally own the software.

I will keep stats on my winners and losers. This can be found here.

If I am consistently losing 40% or more of my past 10 trades, I will stop trading and take a break to reaccess what I may be doing wrong and/or if the market has changed drastically because of world events.

I will keep up with world events only in relation to the markets. This means large events like the current coronavirus pandemic, wars, oil wars, bankruptcies that will have some impact on the markets. I will not focus on speculative news of individual stocks and will only stay focused on factual news like bankruptcies, hostile takeovers, or mergers.