09-12-2009, 12:49 AM #1
Any Stock, Options, Futures, or Forex traders here?
I thought I'd start a thread on trading the market and see who all on here actively trades, and what markets etc. I thought people could share their strategies, bounce ideas and inform others about how the markets really work. I know there are a lot of people out there who had lost a lot of money in their 401k's and this might be a place where you can start to learn about how you can control YOUR own destiny.
In my case I didn't know where to start. I started by reading a book by Phil Town called "Rule #1". This book was really easy reading for me (hated to read) and I blitzed through it in 2 days, and reread it several times. Then I went to an Investools introductory seminar. I took detailed notes on the topics and decided to do my own research with what they had talked about. I bought other books on technical analysis, and options, and bought the investools PHD instruction manuals and DVD seminar set on Ebay for $500. That was a lot better than the $25,000 they wanted. It was good info, and I read through it quickly because this stuff captured my imagination. Wanting to learn more, I found a local group of traders who meet once a month and I have made some nice contacts and learned some good things. I've been trading for one year now, and it is my full time job as of 2 months ago. I trade stock and index options only. I do not day trade.
Here are some reasons why I think the market is the best business someone could start:
1) In any business you need something to buy, and something to sell. The market provides that with instant liquidity. You know how much your asset is worth every second, and can buy or sell in a second. No classifieds, no beating down doors to drum up business etc. Just click the mouse.
2) You can do this from anywhere as long as you have an internet connection.
3) Your return isn't based on how many hours you work.
4) In the market you can make money whether it goes UP, DOWN, or doesn't move 1 penny. No other business can do that.
5) You can buy and sell on ANY industry group. It's better than Walmart, you can buy or sell any type of company out there.
I'm sure I'll think of others and I'll add them as they come.
Reasons why Mutual Funds suck:
1) No Mutual Fund consistently beats the S&P 500. Anyone can buy the S&P 500 by using the symbol SPY, or the DOW with symbol DIA, or Nasdaq symbol QQQQ.
2) Mutual Funds fees are rediculous. They break them up to look small, but over the course of the years those fees could've been compounded into gains.
3) Mutual Funds only make money on stocks when they go up. They can't short stocks, or use options as insurance or enhancement. This is why rich people use Hedge Funds. Anything goes with them.
4) Mutual Funds are the bulk of the market. When they buy, the market moves. It takes them weeks to fully buy in or sell out. The faster they buy or sell the faster the stock or market moves. As individuals, we are drops in the bucket and make money off getting a piggy back ride from what they are doing.
I know some people think the market is gambling or risky. Anything is risky or a gamble if you don't know anything about it. Even Casinos kick out gamblers if they play too well, lol. Life is all about risk management. Every choice in life is based around some level of risk. This is no different. Knowledge is the key.
The reason stocks are not gambling is because you are effectively buying a piece of a business. This business makes money, which in turn gives you a piece of the profits back in the form of a dividend, and an increasing stock price. Gambling is just luck of the draw. Mutual Funds and Hedge Funds have analysts which grade out companies earnings potential and growth figures to come up with a figurative price in which it "should" be valued at. This type of analysis is known as "Fundamental" analysis. Technical analysis is the plotting of stock prices by time and date in the form of a chart. Charts reveal a lot of information about future direction and the timing of moves. Using this technical analysis is what gives you the advantage over the fund managers. You can time when to get in and to get out.
There are several types of traders out there. There are day traders, swing traders, short term investors, and long term investors. A Day trader does not hold any position over night. A swing trader trades with a 2-5 day period in mind. Short term investor could be 2 weeks to 2 months. Long term, I consider anything over 6 mos.
The goal everyone should consider, is what type of trader would fit them. Some people have a lot of time, others just want to make some extra cash while working full time. Some might just want to control their 401k for the long term. What ever your schedule is, YOU can do better than your Fund Manager.
Hopefully we can get some input from other traders, and anyone with questions can openly ask.
09-12-2009, 01:47 AM #2
Haha your thread got really long... so I didnt read the whole thing. I am going to say that I am 18 and have about 1300 in the market right now. I have 15 shares of ge, 70 shares of ford, and 31 shares of bank of america. I use scottrade and it costs $7 bucks a trade. Its really easy to use. I would say that ge is just my stock that I have had since I was 13 and prolly wont sell til it comes back up until that price. I bought the ford and boa about 2 or 3 months ago. The bank of america stock has doubled since I bought, but I think it has capped... That is the stock that I trade to the new latest trend, trading it when its high and selling when its low. The ford stock is my long term stock. Becuase it used to be higher. They had there hard times before the others and now they are turning around... I hope haha. It really is just a guessing game. I just use my gut insticts when buying stock. I also watch Jim Kramer and some other stock shows 2 or 3 days in a row before I buy. That way I can see if they are correct with the next day picks. I hope this is the info that you are looking for. Would love to know if anyone knows some hot spots because I am looking to trade again. I know its not alot of money... but for an 18 year old it is lol. I have made $300 since I invested 2 or 3 months ago.
09-12-2009, 02:35 AM #3
Glad to see you're exposing yourself and learning at a young age. I wish I learned back then. You should focus on learning charts. Focus on finding levels of support and resistance and using indicators such as MACD, and DMI which measure momentum and let those guide you to where it's going to and from. Also learn basic chart patterns and what they mean. If you take the time to learn and see this, you will see it is not a guessing game. I'll post some charts next week on a trade I do to demonstrate. $1300 can go a long way if used right... I started with $3,000.
09-12-2009, 10:37 AM #4
Thanks, this should be a really intresting thread.
09-12-2009, 02:55 PM #5
anyone ever hear of the stock market usually declining in october... if that is ture I will take my money out for a bit.
09-13-2009, 02:56 PM #6
Aaron, good thread ... I owned TradeStation many years back and spent a few 'man-years' back-testing every possible idea and system I could think of or find, using all the different commodity futures contracts. Problem was back testing ends up 'curve-fitting' the system/variables to the data, even when you use 10 years of data to back-test. I quickly realized that I could devise a ton of systems that could make a ton of 'paper money' when back-tested ... but when I took 'out-of-test' data, froze the variables and parameters and forward-tested the systems they never performed anywhere near like the back-tested results. Systems that make money in trending markets will lose money in sideways, choppy markets, and systems that make money in sideways markets rarely make money in trending markets. Eventually I concluded that most purely mechanical systems will eventually have serious drawdowns, to the point of being untradeable for the average person.
I have traded stocks, funds, and done a little index trading, but then walked away from it. I pulled my retirement funds out of the market well before the crash and have been in non-equity funds for at least the last year and a half. I STILL think the markets long term direction has to be down since there is no positive economic data, and I don't believe, listen to, or follow any of the TV pundits ... I think they are mostly handing out poor advice and often lie. On balance, very few make money or have good investment track records.
I now want to trade S&P E-minis, mostly grabbing 1 - 3 points a couple times in the morning and quitting trading by 11am. There are some very good patterns and recurring actions during 'amateur hour' from 9:30 - 10:30am that I have been watching for quite awhile ... time to for me to try to capitalize on it I think. I used to have a futures account with Lind-Waldock way back, but long since closed that ... now want to open another account futures account again to trade index futures/index options and am debating about just signing up TradeStation again as system and broker, or using Apex, or Interactive Brokers, or? Gotta decide that, setup the account and just start trading using what I have observed in S&P morning action ... more as an income strategy.
Do you have a futures account or have input on that? I mostly just want good charting, instantaneous fills with minimal slippage, and 100% fast real-time charts and quotes.
Curious about your decision to go full-time and what size account you think is required to do that for playing options as you do. Also curious to hear an explanation of your options strategies ... based on your other note, I am not sure I understand it. I understand covered call writing, spreads, shorts, etc, but would like to better understand the mechanics of your strategy.
09-13-2009, 07:09 PM #7
I do not have a futures account. I trade options only. I use TradeMonster as my broker. I had Thinkorswim and they wouldn't negotiate a cheaper commission structure. Great broker for options otherwise. My reason for trading options is because they provide me with room for error, and that allows me to stack the odds in my favor. Options decay in value everyday as they get closer to expiration. This is what gives me the odds in my favor. I will illustrate a sample trade and it's mechanics below.
My view as a trader is that you need to have at least 2 types of strategies. A trending strategy and a sideways strategy. Just like a baseball pitcher has to mix his pitches according to the situation, a trader needs to mix his strategies to match the environment.
My bread and butter strategy is Selling Vertical spreads and turning them into Iron Condors. I use this on sideways stocks, or indexes (Dow, S&P etc). Although I can use it in a trending market, it just might need adjustments as time goes by. This is my income and high probability type of trade. Example:
SPY (S&P 500) was trading at $104 a few weeks ago and it looked like it was heading lower. 104 is also previous resistance. I sold 100 contracts of the 107 calls and bought 100 contracts of the 109 calls. I get paid up front for this by receiving a credit. The break down is like this:
109-107= $2 spread
Credit received: .44 cents which is my max gain at expiration (next friday)
$2 spread - credit .44 cents = $1.56 in my $ to hold this trade open.
Max return: .44/1.56= 28%
Spy did in fact turn lower and stopped near $99.50. I could have closed this trade out now for a .34 cents profit. Instead I sold a Put spread. I sold the 95 strike price puts and bought the 93 puts. Received another .40 cents in credit. This is now an iron condor. A range bound trade. As long as SPY closes next Friday above 95 and below 107, I will keep my .84 cents. The nice thing about the iron condor is my risk is also lowered. The spread is still $2 but I've now collected .84 instead of .44. $2 - .84 credit= 1.16 in my $ at risk. .84/1.16= 72% max gain on this trade. The reason it's still a $2 spread is because you can't be wrong in 2 places at once. In my case it can't close above 107 and below 95 on the same day.
The Spy options I sold will expire worthless, with no value to whoever bought it if it finishes below 107 and above 95. It does not have to expire in order to turn a profit. You can close it out at any time. If spy looks like it will break above 105 and hold, I will close out early and take my profit. If Spy broke below 98, I would close out the bottom side early.
As you can see this trade provides a great return at 72% for the month while still having plenty of room for error and this is why I use options as my income strategy.
I have been working on a speculation type method in which uses a Double Bottom or Double Top with a divergence (30 min or 60 min chart) on the MACD to predict a strong move in advance. The idea is to use out of the money options, close to expiration (because they're cheap) and the price move will carry the options to be deep into the money by expiration. I haven't done a real one yet, but I know some people who have made a killing doing it. There's a bearish divergence on the market right now, so I'd like to get in before the market sells off this week.
In our group we have a stock day trader who is AWESOME with technicals. He's a scalper, much like what you want to do with the E mini's. He's been trading for 10 years as his only source of income. If I was to trade directionally I'd definitely be a scalper.
What's your system Vern? Thanks for your input!
09-21-2009, 10:00 AM #8
Aaron, it sounds like you are mostly selling options and keeping the income from them, yet using spreads to minimize your risk. That sounds better and potentially safer/higher return than covered call writing possibly.
I am more interested in Emini day trading but have also looked at buying current month out of the money options as you mentioned ... I too have seen some huge returns in a matter of days. Trick is how to locate the options with the most potential ... I have not done serious research on that, other than to track the different Most Actives / Options / on Yahoo. I would just look at Price Increase or Decrease Calls or Puts and then track those options for a day or two ... interesting to say the least! I have not nailed a strategy as to how to select high probability options to buy, but would love to ... the potential is huge, risk is low ... trick is to come up with a solid way to identify which options to buy, and whether to buy a put or a call. Ideas? Truth is that most of these track the overall market too unfortunately ... on a strong up market day, of course the calls usually perform well, and vice versa for the puts.
Curious why you use TradeMonster as broker ... I do have a ScottTrade account that is setup to trade options if I like. Any reason why you would not do limited stock options trading a Scottrade account, other than slightly higher commissions?
I just started exploring www.Trade2Win.com ... lots of good info there, big forum quite like GH, but dedicated to trading.
We could also take this to email since it looks like there is not much interest in this type of trading among GH members. My email is VLGARVELI@AOL.COM
09-21-2009, 10:18 AM #9
- Join Date
- Jul 2007
- near Toronto, Canada
09-21-2009, 11:08 AM #10
i'm very curious as well. been checking out that forum in the link above, but it seems like it's UK based. do the same rules apply?
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