My trading system

Dimtrad

Junior member
18 10
Hi,

I have been trading various financial markets for the last five years and eventually came to a conclusion that I know only of two strategies that can provide a decent income to a sloppy retail trader with limited time to monitor markets. The purpose of this post is to outline some basics of my strategy to see if anyone else is trading it as well as to ask for a feedback. I am aware that there is plenty of information that "I don't know that I don't know" and therefore I am hoping that the discussions on this forum will shed some light on the potential shortcomings and ways to generate more income.

To understand where I am coming from let me describe my beliefs about the stock market and what I am trying to achieve there:

I believe in the following:

- It is possible to make money in the markets
- The markets are random and all available information is quickly priced in which means that while there are some slight inefficiencies that appear from time to time these are quickly discovered and eliminated
- Technical analysis does not work and most of the people using technical indicators simply have never tested any of them. Statistical probability of all indicators is exactly 50% meaning that in the long term they are not better then flipping a coin.
- Retail traders are at a huge disadvantage when it comes to trading as they compete with better equipped institutional traders

What I am trying to achieve:

- Generate a stable return of 20-30% p/a over long periods of time
- Have a number of systems for different market types.

Now, after the short introduction, let me describe the systems that I am trading.

The two systems that I am trading are:
- Volatility futures
- Selling vertical spreads

I will start with the second system - I am selling vertical spreads on commodity future options, index future options as well as interest rates and currency future options. So nothing new or earth shattering here. In order to be able to generate a fairly stable income I usually choose 40-70 days till expiry far out of the money options. Usual spread generates around $120 in premium with maximum downside of $1000. As I mentioned above I don't use technical analysis in any shape or form, however most of the trades are fairly directional I usually look at the chart and pick instruments that have reached their peak in the short term or are in the fairly strong uptrend. For example, when S&P has reached 1460 I thought that on the balance of probabilities it is unlikely go much higher up, I also usually calculate the maximum that the instrument can reach within given timeframe based on it's current volatility and sell options a bit above that level.
In most cases I would immediately put an order to close the spread if it has generated 50% of profit in the first week or two, if not then I wait for the whole spread to expire or close it when it reaches $10 or so.
Risk management is also pretty simple - I either close the spread based on my opinion about the market or wait for the underlying to reach the strike price of the sold option at which point I close or roll the spread at the market price.
As an additional risk management parameter I am never concentrated in any one commodity or correlated market, in addition I usually build my positions slowly over the course of several weeks. This way it prevents me from making a big mistake, every trader can give an example of the time when they have entered the market only to discover that it went south right after the trade has been executed.

I think it is enough for the first post, the second system is also simple but involves taking on much more risk, the additional good system that I know of (not guaranteed to make profit) but not currently trading due to the lack of time is called Fractional trading it involves CFDs and can be traded only through a handful of brokers, the risks in these systems are significant, therefore I will leave them for future posts. Please let me know what you think of the system and if you can find any apparent flaws in it.
 
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NVP

Legendary member
37,536 1,988
hey D

this looks interesting ....well done for posting

let me have a read later and come back to you with any questions

N
 

BeginnerJoe

Senior member
3,329 350
Flipping a coin has significantly less than 50% chance of winning. You are not pricing in the fact that the big players and insiders are there to make money from you. Heads or tails, they are taking your money, unless they are busy taking someone else's money.
 

NVP

Legendary member
37,536 1,988
Looks like you are calling tops and bottoms...........

Aside from the normal risk of simply calling it wrong - this is an interesting strategy by using the option vehicle allows you to stay in the game right to the wire

(unlike a standard trade that will be killed on stop losses placed)

Let us know how it goes
N
 

NVP

Legendary member
37,536 1,988
Flipping a coin has significantly less than 50% chance of winning. You are not pricing in the fact that the big players and insiders are there to make money from you. Heads or tails, they are taking your money, unless they are busy taking someone else's money.

BJ

I ignored the first bit of the post and critiqued the system
let him know what you think of that :cool:

N
 

Dimtrad

Junior member
18 10
Looks like you are calling tops and bottoms...........

Aside from the normal risk of simply calling it wrong - this is an interesting strategy by using the option vehicle allows you to stay in the game right to the wire

(unlike a standard trade that will be killed on stop losses placed)

Let us know how it goes
N
I would not say that I am trying to call tops and bottoms per se, I am simply trying to determine where market won't go. In addition quite often I would convert the trade into iron condor to make it directionless and to collect more premium. The main premise of the strategy is to be fairly diversified and be roughly right which should be enough to make a profit.
 

Dimtrad

Junior member
18 10
To say technical indicators do not work? It is subject to the user how one uses them.
There is a very simple test - show me an indicator or a series of indicators that do work. Buy working I mean a statistically valid predictive capability of lets say 60%.
In most cases when someone claims that indicators work the reality is that the person either uses his/her experience to supplement the indicator or has a string of good luck.
 

bbmac

Veteren member
3,584 787
First off - indicators or any tech analysis for that matter is not predictive. Seccondly the ones that tend to say they don't 'work' tend be those that haven't found them useful themselves. thirdly - the clue is in the name -'indicators' - they indicate that one thing may happening over another and I understand how I use them and what they may be telling me. Lastly - I use indicators - they help to tell me something that price alone cannot in the market I trade in - I have set-ups involving indicators that have a 90% strike rate of a successful outcome - but like all set-ups (repeating patterns) they have to be validated by price action itself. (I won't be showing them on an open forum - they are part of my trading edge and as such I regard it as intellectual property.)

It's a misleading and overly simplistic argument to say 'indicators' don't 'work period.'

G/L

There is a very simple test - show me an indicator or a series of indicators that do work. Buy working I mean a statistically valid predictive capability of lets say 60%.
In most cases when someone claims that indicators work the reality is that the person either uses his/her experience to supplement the indicator or has a string of good luck.
 

BataviaTrader

Member
94 5
Hi,

.... As I mentioned above I don't use technical analysis in any shape or form, however most of the trades are fairly directional I usually look at the chart and pick instruments that have reached their peak in the short term or are in the fairly strong uptrend. For example, when S&P has reached 1460 I thought that on the balance of probabilities it is unlikely go much higher up....

I am eager to hear what that balance is like for you, and how you make up that balance ? How you would measure those 'probablitities' you're talkin about.

regards
 

BeginnerJoe

Senior member
3,329 350
I have set-ups involving indicators that have a 90% strike rate of a successful outcome - but like all set-ups (repeating patterns) they have to be validated by price action itself. (I won't be showing them on an open forum - they are part of my trading edge and as such I regard it as intellectual property.)

No need to show your indicators. Call out 10 trades and demonstrate 90% strike rate. If I had 90% strike rate, I'd be the richest man around here. Maybe you and I should form a partnership, I will take your profits to the next level.
 
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BeginnerJoe

Senior member
3,329 350
BJ

I ignored the first bit of the post and critiqued the system
let him know what you think of that :cool:

N

Unless proven with actual consistent profits over an extended period, I suspect whatever he's using would be no better than anything else he tried in the past. The fact he's asking for opinions suggests he isn't sure, presumably because the result remains inconsistent.
 

NVP

Legendary member
37,536 1,988
I would not say that I am trying to call tops and bottoms per se, I am simply trying to determine where market won't go. In addition quite often I would convert the trade into iron condor to make it directionless and to collect more premium. The main premise of the strategy is to be fairly diversified and be roughly right which should be enough to make a profit.

ok - fair do's show us an Equity curve D.....:cool:
 
 
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