First week live trading

Hi everyone.

I'll start with an intro about myself.

About 6 years ago when I was about 16 I went to a seminar on options trading, I learnt alot but never really took it serious. Well I'm almost 22 now and have re-dedicated myself to learning technical analysis. Anyway I've spent the last few months watching the stock market, reading lots of books and paper trading.

The problem I have at the moment is that I have very little capital to start off with ($1500). I can afford to put about $800 a month into my trading account so it will take some time to get a god capital base.

So this week was my first week trading live and I only managed to get in and out of three trades. Once my capital raises that won't be a problem. My first trade was a put option on ANZ I got in on Monday and got out on Tuesday. I made a 14% profit and I was very happy with myself.

I jumped straight into another trade. Put option on WBC. This is where I made a mistake, I held onto this trade from Tuesday morning until Thursday midday. From my technical analysis i thought it was going to go down, at first it did but half way through Tuesday the stock WBC started rising. For some reason I just kept telling myself 'don't worry it will go back down' I said that to myself for the next two days even though the stock continued to slowly rise. I finally pulled the plug and closed my position at about a 26% loss.

I've been kicking myself all week. I can't believe that I let my emotions get the better of me. Part of my risk management is to close any position if I hit a 15% loss. But I just sailed straight passed that mark because my emotions kept telling me that eventually it would go my way. Anyway it's a lesson I needed to learn and I'm happy I've learnt it now when I don't have much to lose.

So on Friday morning I jumped into an ANZ call option position. At midday I closed the position for a 20% profit. I could have stayed in longer and made a little more but I hit my target of 20% and got out.

So after brokerage charges i've come out just down on what I started with. But on the positive side I've learnt more in this week doing live trades then in the past two months of paper trading. The difference between paper and live trading is huge. I understand now what people mean when they say that you have to take your emotions out of the decision process.

So hopefully next week I don't have to learn any lessons the hard way. I will update you all next week on how I'm going. Hopefully I'll will start to learn a lot more from my experiences and yours.



Sorry for the long post.

Re: First week live trading.

Hi xxJxxOxxExx

Well done on your first week -- seems like you had an eventful one!
I'm not expert on options trading -- so can't give any advise there

One thing that alarmed me was "Part of my risk management is to close any position if I hit a 15% loss"

Is this a 15% loss of capital? Or Trade? If it's per capital be careful

"So on Friday morning I jumped into an ANZ call option position. At midday I closed the position for a 20% profit. I could have stayed in longer and made a little more but I hit my target of 20% and got out. "

Very good discipline there.. Remember take the meat of the trade

Good Luck
Brad

Re: First week live trading.

Hi xxJxxOxxExx

it is hard to implement stop losses with options as depending whether itm otm or atm the value can change dramatically with small movements in the Sp of the underlying .
a 5% move in the underlying can represent 15-20% move of an option premium which can cause losses to amount very quickly or the reverse and profits realized.
maybe have a look at your time frame as trading over such a short horizon may see a lot of whipsaws throwing the value around

if playing with the options market there are plenty of strategy's which can be used to try to gain a profit, which at the same time can help to limit your losses.

Gary

Day trading isn't really good, in your instance, since you have such low startup capital - you'll be paying heaps in broker fees epically since your investing in stocks.

Although i'm going to start live trading in a few weeks, when i get the government grant but i'm going to trade Forex and CFDs. So i also don't have much capital either but i've been practising on the demo accounts and i'm up nearly $1000 in a week (on a $10000 demo account but only risking $100-500 per trade). I made $300 (demo money) when i shorted the DOW when it fell 200points last week. I'm treating this demo acc seriously so it's good practice

Thanks for the replies everyone. Firstly to answer beamstas, my 15% exit is per trade.

Dowdy my brokerage fees arn't to bad. (ComSec $34.95) I'm not purposely trading intraday it's just that my last trade rose to my target of 20% within about 3 hours so I got out and took the profit.

Also Dowdy be perpared for the change over from paper trading to live trading, it's a really big difference. I'm also using my $900 for my investment account.

xxJxxOxxExx you are doomed. Your position sizing WAY to large and a 20% profit in 3 hours is to small.

Why?

Because you are going to have an average loss much higher than your average win. With way too small capital base and paying 2% brokerage (is that per side ?) there wouldn't be a real trader here who could see this working.

In my not so humble opinion.

xxJxxOxxExx said:

Thanks for the replies everyone. Firstly to answer beamstas, my 15% exit is per trade.

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If you are risking 15% per trade, your position size should be LESS than 15% of your portfolio ie: a little over 2% risk of capital per trade

If you are using 15% of your portfolio (to preserve capital by risking 2%) then each trade will have a face value of $225 and you will stop loss when that trade loses $33 (2% of $1500)

Your brokerage is $70 in and out

This means every trade will need to be 2R OR BETTER to BREAK EVEN. Each trade will need to be a 25% or better profit to break even. If you are taking profits at 20% you are losing no matter how you look at it

Im thinking you havn't really thought this through enough, and if you have you are crazy. That $1500 isn't going to last long when you need 2R every trade to break even.

Sorry about being the doomsayer but it needs to be said!

Brad

Trembling Hand said:

xxJxxOxxExx you are doomed. Your position sizing WAY to large and a 20% profit in 3 hours is to small.

Why?

Because you are going to have an average loss much higher than your average win. With way too small capital base and paying 2% brokerage (is that per side ?) there wouldn't be a real trader here who could see this working.

In my not so humble opinion.

Click to expand...

Hey thats my line get your own!

T/H is right.
You need to learn everything you dont think you need to learn!

G’Day xxJxxOxxExx,

Just a couple of comments,

I notice you’re using options as directional instruments, I suppose they are OK on the long side when big moves are happening and you got the direction right, volatility is relatively low at the moment so that may also be working to your advantage.

Due to your low capital base I suppose you may be buying out of the money options, when volatility kicks back up again this may not be so good for an out the money options buyer, spreads widen up, time decay is a killer so even if you got the direction correct you can still lose money , the commsec charge of $35 dollars per side also eats pretty heavily into profits.

Sorry I can’t offer any helpful suggestions regarding long only options trading, I just feel that the odds may be stacked against you in this area.

Perhaps for straight out directional play you may need to investigate another instrument.

Won't add too much to what has already been said, just hope you tread cautiously and take heed of the warnings from some old hands that have posted.

A novice trading options is not too disimmilar to a beginner riding a racehouse, it can be a great ride and it can also tear you apart.

Manage your risks at all times, hedge dynamically or otherwise & know your exits before entering.

You survived your first week Congrats, your out of the gate. Look forward to your on going success.

Save your money to 10k US, get an account at Interactive Brokers, sim trade and then after a reasonable period of profit, trade the futures there ($10 round trip, just 40% of a move). Also be prepared to lose it .

I like everyone has said; think you may be greatly undercapitalised for options trading. I would say, call it quits on options for a while. Use the capital you have at the moment and try and get into FOREX with a mini account.. Leverage is up to you, but I'd recommend 200:1 or something.

Just be very careful!!! Adhere to your stop losses!! Never increase your stake on an already losing trade!!!!! and do alot of reading. I did FOREX before I dabbled in the options market and I am very glad I did. FOREX does require some nerve.. can be very hard to not get emotional over a position, which is because profits AND losses.. can happen extremely quickly.

best wishes
sam

cutz said:

]

volatility is relatively low at the moment so that may also be working to your advantage.

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Im sorry, are we on the same planet? Volatility is massive at the moment, especially taking into consideration the major bear market rally we had over the last few weeks. Check out the VIX.


On a side note, well done for giving it a shot! Regardless of the outcome, $1500 is not a lot of money to lose for experience. Even if you get murdered, its all part of the process. I'd suggest looking into the broad market for your analysis though too. Maybe wait for a good collapse before buying puts? Do some correlation analysis with this market too. If you can get a hang of analysing the broad market, you should do pretty good with your trades.

ivant said:

Im sorry, are we on the same planet? Volatility is massive at the moment, especially taking into consideration the major bear market rally we had over the last few weeks. Check out the VIX

Click to expand...

If we examine the VIX as relative to 50MA we can see volatility is indeed relatively low.

ivant said:

Im sorry, are we on the same planet?
Maybe wait for a good collapse before buying puts? .

Click to expand...

i dont think we are bud .....


nice chart sinner

ivant said:

Im sorry, are we on the same planet? Volatility is massive at the moment, especially taking into consideration the major bear market rally we had over the last few weeks. Check out the VIX.

Click to expand...

I checked it out. It seems quite low to me. Sure, it's a bit higher than it has been historically but no where near it's highs of a few months ago. In relative terms it's quite low, to me this means the fear has subsided and the market has gotten used to all the bad news. For me on this planet it's pretty low.

Thanks for the chart sinner,

I pulled up the 1 year S&P 500 verses VIX and it's interesting how the two look like mirror images, i.e. VIX is at a relatively low point, S&P500 relatively high, it follows this pattern going backwards.

So if this pattern is to continue into the next couple of weeks it looks like there could be a kick up in the VIX with a corresponding correction in the equity markets.

What an exciting time.

cutz said:

Thanks for the chart sinner,

I pulled up the 1 year S&P 500 verses VIX and it's interesting how the two look like mirror images, i.e. VIX is at a relatively low point, S&P500 relatively high, it follows this pattern going backwards.

So if this pattern is to continue into the next couple of weeks it looks like there could be a kick up in the VIX with a corresponding correction in the equity markets.

What an exciting time.

Click to expand...

Not really sure about this, 40 was strong support on the VIX and now it's broken might be time to head lower.

Several indicators I use for long term timing are playing funny buggers, screaming sell at me but the market really isn't paying attention. We are at a pretty strong diagonal resistance line on all indices now as far as I can see and my only remaining longs are counter-cyclical stocks.

So we are overbought and heading up, not really much of a surprise, right?
If November proved anything, it is that the market will not rally simply because it is oversold, just the same as it will not correct simply because it is overbought!