Trading options - SLA - Day job

[Jericho574]

Hi everyone.

I'm going to combine this first post as my personal and my journal introduction.

Personal (Cliff's notes version):
-I have a career thus trade weekly/daily/hourly charts (no day-trading)
-I have a wife and 2 young children (3 and 7m)
-I live in the US

That should pretty much tell you the direction my trading is going to go.

Journal Introduction:
I trade stocks and options (mainly options). My first foray into trading was with options, so I kinda learned that before equities. I've become fed up with the commercially advertised methods of trading using lagging indicators and moving averages so I began studying up on trading price. As one can imagine, threads involving the Straight Line Approach (SLA) immediately caught my eye. I enjoy it because it doesn't involve pre-determined targets, but rather you seek out areas of interest where price may reverse, and once it does you enter and then just draft behind price. Sure you miss the top and bottoms, but once you're out, you more than likely got the bulk of the current move. This should be interesting because trading stock is one thing, where as long as you're out above your initial entry, you profit, however with options the floor is constantly rising.

I don't pretend to be an expert in anything so this thread is more of me illustrating my prep, my notes, my trades (to be transparent, I'll be sticking to paper until it proves profitable), and my many many questions. Hopefully DB, and Gringo, and others who trade and are knowledgeable in this area can chime in when necessary.

Thank you very much....here we go.

 

[Jericho574]

At this point, the first step is to practice being on the right side of the trade before adding in the money management issue that comes with options

Trade 1: KMI

Weekly- Upward Channel
Daily- Ranging with a breakout to the down
Hourly- Broke SL, took long, stopped out 2 bars later

Thought process- Ranging on the daily. Formed a hinge and took off to the bottom. I'm looking for a break of the SL at the bottom to show signs of buying. Busts right through the bottom. Reason 1- Its possibly a shakeout as it broke under range and immediately breaks SL. Reason 2- There is the weekly channel directly under it...2 forms of support to hopefully hold price up.

Price immediately breaks my DL ending my trade. It did occur to me that the double bottom may be the strength I'm looking for but alas, me being the broken trader chooses to stick to the script and exists.

 

[Jericho574]

Trade 2: YY

Weekly- Downward channel, looking for a bounce at an extreme
Daily- Went from median to top
Hourly- Bounced off top, broke DL, went short

The pictures should tell the story

 

[Jericho574]

Trade 3: AMBA

Weekly- Downward channel
Daily- Breaks through weekly

This is where I'm not sure how I should view the PA. Should I kind of reset the TL once it breaks out as seen in the middle pic (disregard the entry/exit this is hypothetical), or should I wait for the bigger RET to the "loser line" in the 3rd pic?

 

[Jericho574]

AMBA

It's possible to turn this up move into a channel. So to make things more complicated, the BO is dead in the middle. Of course we didnt know about the channel during BO, so where was the TO (if there was one)?

 

[dbphoenix]

At this point, the first step is to practice being on the right side of the trade before adding in the money management issue that comes with options

Trade 1: KMI

Weekly- Upward Channel
Daily- Ranging with a breakout to the down
Hourly- Broke SL, took long, stopped out 2 bars later

Thought process- Ranging on the daily. Formed a hinge and took off to the bottom. I'm looking for a break of the SL at the bottom to show signs of buying. Busts right through the bottom. Reason 1- Its possibly a shakeout as it broke under range and immediately breaks SL. Reason 2- There is the weekly channel directly under it...2 forms of support to hopefully hold price up.

Price immediately breaks my DL ending my trade. It did occur to me that the double bottom may be the strength I'm looking for but alas, me being the broken trader chooses to stick to the script and exists.

The weekly puts you on the right side of the trade as it gives you the line of least resistance. The simplest and easiest strategy is to trade long when the LOLR is up. This may mean passing on short trades that seem to be gifts. However, any short trade that presents itself when the LOLR is up is a counter-trend trade, and those are best reserved until you have gained/regained your confidence.

The weekly channel provides you with trading opportunities. If you're late to the party, many of these TOs will be hindsight and are of no use in terms of trades that can't be taken anymore. There value lies in telling you where current and future TOs lie. In this case, there is one occurring right now. The drop out of the range may seem like a failure, and, technically, it is. But that's water under the bridge. The consequence of the drop is a test of the lower limit of the weekly trend channel, and that presents a TO. If you focus on that, you are more likely to profit from it than if you dwell on your range trade that didn't work out.

As for your trade, price tested the LL of the channel at the open on decent volume, rallied, tested the low on lighter volume creating a higher low, then shifted into equilibrium. Your trade should therefore be above this stasis so that price stops you in if traders decide to advance this issue. The stop should of course be below the danger point. If this is too wide for your risk tolerance, then skip the trade and shift to observation mode.

 

[dbphoenix]

Trade 2: YY

Weekly- Downward channel, looking for a bounce at an extreme
Daily- Went from median to top
Hourly- Bounced off top, broke DL, went short

The pictures should tell the story

The mean reversion here isn't as tight as in the previous example, but it is at least generally mean-reverting, and it does provide you with the locations of potential future TOs. What is the significance of the "X"?

 

[dbphoenix]

Trade 3: AMBA

Weekly- Downward channel
Daily- Breaks through weekly

This is where I'm not sure how I should view the PA. Should I kind of reset the TL once it breaks out as seen in the middle pic (disregard the entry/exit this is hypothetical), or should I wait for the bigger RET to the "loser line" in the 3rd pic?

Your first chart is a daily chart. Resist the temptation to save time by using one chart to act as both a weekly and daily. The first impression provided by the weekly will be different than that provided by the daily and there will be as well slight differences, aside from the fact that the weekly provides a broader view.

Bypassing the weekly is the chief mistake made by those who play with this. Without it, one quickly and easily ends up in the weeds.

As far as intervals less than hourly, since you have a job, none of this is of interest. Even the hourly may be too small. Don't get sucked into intraday trading.

 

[Jericho574]

The weekly puts you on the right side of the trade as it gives you the line of least resistance. The simplest and easiest strategy is to trade long when the LOLR is up. This may mean passing on short trades that seem to be gifts. However, any short trade that presents itself when the LOLR is up is a counter-trend trade, and those are best reserved until you have gained/regained your confidence.

The weekly channel provides you with trading opportunities. If you're late to the party, many of these TOs will be hindsight and are of no use in terms of trades that can't be taken anymore. There value lies in telling you where current and future TOs lie. In this case, there is one occurring right now. The drop out of the range may seem like a failure, and, technically, it is. But that's water under the bridge. The consequence of the drop is a test of the lower limit of the weekly trend channel, and that presents a TO. If you focus on that, you are more likely to profit from it than if you dwell on your range trade that didn't work out.

As for your trade, price tested the LL of the channel at the open on decent volume, rallied, tested the low on lighter volume creating a higher low, then shifted into equilibrium. Your trade should therefore be above this stasis so that price stops you in if traders decide to advance this issue. The stop should of course be below the danger point. If this is too wide for your risk tolerance, then skip the trade and shift to observation mode.

Understood. I took a shot at the channel holding, it didn't so I get out with the idea that my next TO is at the weekly LL.

 

[Jericho574]

The mean reversion here isn't as tight as in the previous example, but it is at least generally mean-reverting, and it does provide you with the locations of potential future TOs. What is the significance of the "X"?

The "x" was my exit. Going forward I'll stick to green dots as my entry and red dots for my exit. The direction of my trade should be fairly obvious.

 

[Jericho574]

Your first chart is a daily chart. Resist the temptation to save time by using one chart to act as both a weekly and daily. The first impression provided by the weekly will be different than that provided by the daily and there will be as well slight differences, aside from the fact that the weekly provides a broader view.

Bypassing the weekly is the chief mistake made by those who play with this. Without it, one quickly and easily ends up in the weeds.

As far as intervals less than hourly, since you have a job, none of this is of interest. Even the hourly may be too small. Don't get sucked into intraday trading.

Understood. It's easy to want more TOs.

At this point, I think the next TO would be a RET off the daily DL.Its a ways away so I'll keep this one on the watch list and move on.

Thank you very much for your analysis DB.

 

[Jericho574]

One thing I know will be a challenge will be waiting for a RET. I'm so conditioned to hunt for tops and bottoms that the idea of awaiting a RET makes me think I've missed the TO. Of course this method could be a blessing in disguise. I pick a strike and expiration based on pre-determined entry and exit. If the move doesn't start at my entry then both my strike and exp are compromised. By awaiting a break of a TL and RET hopefully I'll be able to pick better choices.

My initial thought is to pick strikes that are ATM with relatively short expirations----high delta now and lower theta cost since I'm anticipating a move now.

 

[Jericho574]

CLF

Here's the story I'm reading-

We have a mean reverting stock that was hanging out on the median of the upward channel. Earnings pushed price up on big volume (which doesn't mean much to me quite yet). The ensuing day was bigger volume but a very narrow spread which tells me there is a fight going on between a lot of buyers/sellers. The next day price breaks up and out of the channel but on still lower volume (again doesn't mean anything at the time but it does make me watch). Volume continues to drop and price subsequently falls back into the channel providing a short TO. I'm essentially reading a failed BO attempt. Buyers seemingly lost interest above $12 thus I would defer over to AMT (it reverting back to the weekly mean over it breaking out and trending).

Thoughts?

 

[Jericho574]

CLF 2/21/17

Popped through my SL but not definitively enough for me to decide if it is the RET of the supply, or demand taking over. If tomorrow opens down then I would say today was the RET (considering the low volume yet again on an up day) and would go short with my danger zone being ~$12. If it opens high, then that would be going long with an entry just above the V and my price of admission would be below Thursday's low.

 

[Jericho574]

XBI

Top of the weekly channel awaiting for price to give me an indication which way to go.

 

[Jericho574]

GILD

Weekly was drawn but is just a perfect hinge, so I'm only attaching the daily as its clear as day.

Comments in pic.

 

[Jericho574]

CLF- A whole lot of nothing

XBI- Broke the DL, went short

GILD- Not quite decisive enough yet

 

[Jericho574]

CLF gapped up, crossing the SL which put my entry above the V. Turned around and I got smoked. My price of admission point was crossed, and I exited.

Green = in
Red = out

Didn't expect that to happen so quickly lol

 

[Jericho574]

XBI looking good, I'm in management mode

 

[Jericho574]

GILD- Continued back under the SL, went short. As I type this it's rising