My winning options trading strategy – what do u think?
Just like many others, i’ve wiped out my entire principle twice doing options trading in the past. In the process, i’ve found a simple technique that has helped me recover my money and make some…here’s how it works:
I follow a handful of stocks on a daily basis for few weeks and get a good sense of their upper and lower limits. I have $10,000 in my trading account. Once i see a stock get close to one end of these limits, I place my first bet (buy call or put) which is approx $500 (5% of my total). When my lots average price falls below approx 30% to 40% of current contract price, i buy more contracts to reduce the average. Basically i chase the moving stock price by averaging multiple times (only if it goes in the opposite direction) and stay in close proximity until it bounces back a tad bit and then i sell it all to a profit.
I did some math and discovered that based on my betting strategy, assuming that my first bet is 5% of my total cash reserves, i can literally chase the changing stock price by about 50% in the opposite direction and still make money. Ofcourse if the stock price goes beyond that point, i wont have any more funds to follow it – but that hasnt happened yet.
As simple and foolish this strategy might sound, i have money using this strategy in each of my last 18 trades – each time i had to average maximum 3 to 4 times before i made $ – and i turned $2000 to $10,000 within the last 2 months. Average $ per return was approx 30%.
If the stock moves in the direction of my investment (call or put) right away, then i sell for a 30% profit straight up – but since my first bet is small – the profit is small.
I would like you to critique this strategy and tell me if it will continue to work in the long run or not.
There are thousands of ways to lose your entire principle trading options. I think you have just found a third way.
Every successful options trader I know has learned how to limit risk. You are choosing to increase risk when a position moves against you. I believe that is about as sure a recipe for failure as you can find.
I am not a big fan of short-term trading, even though I do a little of it myself. One of the common principles of short-term trading is "Let your winners run and cut your losses." It appears you are doing just the opposite.
If you want to trade options successfully, I urge you to learn about using volatility and "the greeks" to choose your positions and lower your risk. These are not secrets. They are discussed in many very good books on options.
That will not be a quick process, and since you are already trading you may night have time to learn what you need to learn. Therefore I have one specific suggestion: Take half your money off the table now. If you started with $2,000 and you take $5,000 out of your account and use it for safe investments, you cannot hurt yourself as badly. If you can keep up the same results you will be back to $10,000 soon enough. If not, at least you will not have lost everything again.
hopefully you are calculating the theta decay, that will have a large Impact either way.
References :
There are thousands of ways to lose your entire principle trading options. I think you have just found a third way.
Every successful options trader I know has learned how to limit risk. You are choosing to increase risk when a position moves against you. I believe that is about as sure a recipe for failure as you can find.
I am not a big fan of short-term trading, even though I do a little of it myself. One of the common principles of short-term trading is "Let your winners run and cut your losses." It appears you are doing just the opposite.
If you want to trade options successfully, I urge you to learn about using volatility and "the greeks" to choose your positions and lower your risk. These are not secrets. They are discussed in many very good books on options.
That will not be a quick process, and since you are already trading you may night have time to learn what you need to learn. Therefore I have one specific suggestion: Take half your money off the table now. If you started with $2,000 and you take $5,000 out of your account and use it for safe investments, you cannot hurt yourself as badly. If you can keep up the same results you will be back to $10,000 soon enough. If not, at least you will not have lost everything again.
References :
Your method is similar to the method to "beat" roulette – pick a color (red or black) and every time you lose double the bet. The problems are 1) you only win $1 every time you win, and 2) in the end you run out of money.
A better method may be to close positions if they have a 15% loss (thus limiting your losses) and sell half of a position that has doubled (thus getting YOUR money out and letting the winning position ride). I haven’t tried this; it’s likely you will have many more losing trades than winners, but if the market goes into a strong trend one way or the other you could make a small fortune.
Good luck.
References :
I haven’t had much success buying options; I usually do buy-writes or over write existing long stock positions.
ooh instead go for trading in forex…its simple and m broker gets me very good strategies to invest in this market…maybe you can get money through investing through him
References :
http://www.efixforex.com