I’ve never been to Greece.
I have nothing against people from Greece.
I don’t like Greeks, though.
Yeah, I’m an options player.
The Greeks I don’t like are options Greeks, he he he…!
What, you thought I didn’t like actual Greeks?
Come on, I’m sure I’ll love Greece and actual Greeks!
When you don’t like something, you can try to go around it.
I don’t need options Greeks to play options. I’ve found a way around the Greeks.
I’m sure others have discovered this too, because truth is truth.
Let me tell you about it.
You’re buying in the direction of the long-term trend.
You’re buying (calls / puts) after a significant correction / rally level has been hit.
You’re buying post a small move in the direction of the long-term trend, after the correction / rally level has been hit.
You’re buying out of the money to compound the cheapness.
You’re buying with breathing space on your side, so that the trade has enough time to pan out in your favour.
You’re not booking without a very solid reason, once the trade is running in your favour.
You’re trying to book (deep) in the money.
You must, must, must let your profits run as long as you can. This is the toughest part, but also the most essential one.
Just common sense.
I’m on the move.
I play the markets.
How do I combine these two facts?
Life didn’t give me a desk job.
It did give me an appetite for risk, though.
Another two facts to be combined…
I like doing new stuff.
I don’t like following old norms.
You got it, another two facts…
I like breathing easy.
I want to participate, though.
I don’t mind losing… small…
… as long as I can win big too…
… without risking too much…
… facts, facts, facts.
What’s the one common denominator?
What do options mean to me?
– an auto-stop that doesn’t need to be fed in daily.
– low risk market participation.
– freedom to be on the move.
– freedom to not look at the markets for many days in a row.
– implementation of new poker-like strategies with huge reward : risk ratios…
– … for which the price is time-component corrosion of the option premium.
– peace of mind.
– the satisfaction that markets don’t rule my day.
– a very challenging arena that pushes my faculties to the maximum.
– an avenue that teaches me about singular stocks, their nuances, how they move, basically their nervous system… this is invaluable knowledge, which no university is capable of teaching.
I could go on.
Explore your options.
Why have you come?
Meaning, why are you here? What’s the purpose of your earthly sojourn?
Do you want to do something new?
No? How boring is that?
Why would you just want to live and leave with nothing original to your credit?
At times, I feel the urge to discover something earth-shaking.
I mean, don’t you want to go where no human has gone before?
Whether we are successful or not is not the point.
At least we possess this desire.
And that’s where freedom of thought comes in.
You are born free, to think.
No one can steal that freedom from you, even in the worst conditions of bondage.
Use your freedom.
Think freely, even if it’s for two minutes a day.
Lose all shackles, as a rocket in space loses a burnt surplus engine. Define your own path, and think freely on that path. Develop it, bit by bit.
Slowly, your thought will take form. A whole system of work will emerge. Keep developing this.
Your system will take you places. For example, if you’re playing the markets, it’ll win you money.
It is new, it is original, it is your system, and it can well take you where no human has gone before.
Well done, keep going … … and it’s all happening because of the two minutes of freedom you allowed yourself.
So, what are the Joneses upto?
Or the Smiths?
You know something, who cares?
You’re trading, right?
Fine, then just mind your own business, and focus on your return.
I mean, people, let’s just go beyond poking our noses into others’ businesses.
Don’t we have our own businesses to take care of?
Isn’t that enough for us?
If not, and if we start poking around, seeing what kind of return XYZ has made, or for that matter how many winning trades ABC has pulled off, well, we are doing ourselves a great disservice.
For starters, we don’t seem to have much confidence in our own trading system, if we’re poking around like that.
You should be pulling off the winning trades, you.
And XYZ’s or ABC’s performances should have no meaning for you.
They are trading according to their system. Let them be. What’s good for them is not necessarily good for you.
You are trading according to your system. Period.
Not minding your own business can seriously affect even a successful system which has temporarily hit a string of losing trades.
Random losses in a row happen. A winning system can well yield ten losses in a row, for example. Improbable, but not impossible.
Ask a coin, which functons at 50:50. On average, you’re flipping heads and tails equally. Nevertheless, you could land heads (or tails) ten times in a row over many, many coin-flips. Part of the game. Accept it.
Since you have a system, you’re functioning well beyond 50:50, right?
Thus, chances of a large number of losses in a row are even lesser for you.
Tweak at your system if you feel it’s lost its market-edge.
To remind you, an edge starts occurring when one functions beyond 50:50.
After a while, one gets bored, and tells oneself, that from now on, one wants to function at 55:45 and beyond (for example), come what may.
One then tweaks at one’s system, and raises the bar.
Tweak at your system if you feel the urgent need to raise the bar.
Keep raising the bar to your comfort level.
Leave other people alone. Don’t bother with their systems. Focus on your own trading.
Be the cat that survives curiosity.
Are you good at darts?
Actually, I’m not.
I’ve even removed all darts from our home. Hazard. Children might hurt themselves. Yeah, yeah, I know, I’m paranoid. Tell me something new.
Well, just in case you fancy playing darts, here’s a market exercise for your consideration.
Take a newspaper section, and pin it on the wall.
I know, I know, you’d love to take pot shots at your favourite corrupt politician’s picture. Please feel free to do so, let out all your venom. When you’re done, we can resume with the market exercise.
Now substitute whatever picture you’re shooting darts at with the equity portion of your newspaper’s market segment.
Take a dart. Shoot.
You hit some stock or the other. Let’s say you hit XLME Systems.
Now take a coin. Flip it.
Go long XLME Systems if you flip heads. Short it if you flip tails.
You have a 50:50 chance of choosing the correct trade direction here.
This is still a winning system, if you manage your trades with common-sense.
Cut your losers short, quite short, yeah, nip them in the bud. Let your winners ride for as long as you’re comfortable.
These two sentences will turn your little darts cum coin exercise into a winning market system.
Try out a 100 such trades, coupled with proper, common-sensical trade management. You’ll see that you are in the money.
Now, whoever turns towards me and starts to talk about trading systems, well, that person needs to be very crystal clear about one thing.
He or she needn’t bother discussing any trading system with worse results than the above-described trading system.
I mean, come on, people, here’s nature, already presenting something to us which doesn’t require any formal education, just an average ability to aim, fire, flip, trade, and manage with common-sense. This small and natural system is enough to keep us in the money.
So, if we want to spend any time discussing trading systems with an edge, we need to be sure that these systems are functioning at beyond 50:50. At par or below is a waste of time.
Good trading systems with a market-edge function at 60:40.
In the Zone, you maneuver your evolving edge to function at 70:30 and beyond.
Frankly, you don’t need more. You don’t need to function at 80:20 or 90:10. Life at 70:30 is good enough to yield you a fortune.
Getting to 70:30 is not as difficult as it sounds. First, get to a 60:40 trading system. Out of every 100 trades, get the trade direction of 60 right. Comes, takes a bit, but comes eventually.
Now you’ve got your good trading system with a decent edge, it’s working at 60:40, what next? How do you extract that extra edge.
Well, tweak. Adapt. Fine-tune. Till your edge becomes that something extra.
Still want more?
If yes, the game becomes a story about you. How disciplined are you? Are you with the markets regularly, as a matter of routine? Are you with the flow? Can you sense the next move? Are you slipping into the Zone? Can you stay in the Zone for long periods? Once you slip out, can you get back into the Zone soon?
The answers to these questions lead you to 70:30 and beyond.
Life’s about reaching out.
There’s not a single bridge that’s been built without someone having to reach out first.
A child connects the dots of life to find that it’s looking at a roadmap. Walking on a known parameter is then easy. One knows where to tread.
Mrs. Market is a conceited lady.
She needs you to reach out to her.
Till you don’t, she doesn’t care about your existence either.
When you do, she starts concerning herself with you, but only after you make the first move towards her.
You have to take the first step. You have to build the bridge.
In the world of trading, you do that by putting on a trade.
Given that you don’t want to lose your pants to a tough cookie like Mrs. M, you need to first look at the stuff that’s working in your favour. Before reaching out, that is.
You are able to connect to her with hardware. As long as the hardware functions, there are no further issues there.
The approach with which you connect is your strategy. It has been developed upon observing the behaviour of Mrs. M, and as her behaviour has changed from time to time, so has your strategy reinvented itself in tandem. The software with which you programme your strategy has highly maneuverable algorithms that are able to alert you instantly upon any of Mrs. M’s behavioural changes. Once you’ve identified her pace and style of movement, you know what kind of a bridge you need, to connect with. You know what kind of a trade you need to put on.
Putting on the proper trade at the proper time is the name of the game. When Mrs. M is trending, your trade time-frame, trade-size and stop are all different from when she is moving in a range. When she is falling, the pace of your trade needs to be fast, real fast. Your instrument needs to be options, not pure equity, since the latter is tougher to move through. When she is flat, take a break, don’t build any more bridges for a while.
Each bridge, that you are capable of building, should give you an edge over Mrs. M. If that’s not the case, then the bridge is faulty, for even a coin-flip is giving you an even-steven 50:50 shot at Mrs. M. Therefore, your bridges need to be in the 60:40 plus category. Bridges take time and effort to build. Thus, they must yield you ample profit once they have been built.
After a while, she gets bored with your approach, and changes her pattern. Your bridge is not able to connect well. You notice this when your trades start going awry. Your systems need to adapt, and new bridges need to be built to account for her new avatar.
And what is this whole exercise?
Just like the child who connects the dots, you are learning to draw at Mrs. M.
And you’re doing it well.
You’re drawing at her with systems that give you a good edge as long as they work. When they falter, you tweak them to adapt to her, so that they continue to allow you to draw at her with an edge.
You don’t draw at Mrs. M without an edge. Period.
If you can learn this one basic fact, you’ve learnt a lot.
You’ve started to rake in regular profits on your poker table, or, if you will, on your regular trade-size.
Common-sense now tells you, that you need to scale it up a bit. After all, you’d still be risking the same percentage of your stack-size per trade. Simultaneously, if your win-ratio remains constant, you’d be allowing your stack to grow at a faster pace.
You move on to a higher table.
Welcome to the concept of position-sizing.
Those who position-size can evolve into huge winners in minimum time. Even though the idea of position-sizing is so central to trading, it is still one of the most under-discussed of topics. We need to thank Dr. Van Tharp for teaching this concept properly.
Think about it. When you win, your principal increases. On the next trade, you then put the same principal percentage at risk like you’ve always done. Because your new principal was more, it allowed you to buy more. Thus, you put yourself on the line to win more.
What’s essential here is also to down-size your position when you are losing. Taken a few bad beats in a row? Move down to a lower table for a bit, man. Allow your stack to recuperate at this lower level and then some before moving back higher. With that, when you’re losing, you start to risk less. Crucial point.
Of the different methods available to you to position-size, here, we speak about increasing trade-size when a new trade starts.
The advantage you enjoy when you’re doing pure equity is that on each new trade, your position-size can pinpointedly be adjusted according to your stack-size. Scale-up, scale down, trade upon trade, as the situation demands. Beautiful.
Why does this work out so beautifully for you?
You see, your system gives you an edge. You are opening your positions on high-percentage winners only. Period. Simultaneously, you are cutting your losses at your pre-defined maximum. You are also allowing your winners to win more. And, you are taking your stops. Even if your system then gives you a 55:45 edge over Mrs. Market, you’re doing great. Over a large sample-size (many, many trades, or for that matter many, many poker hands), your stack will increase with a high level of probability. As it goes on increasing, you keep turning on the heat by increasing your position-size further and further.
What happens then? What do you see?
Something beautiful happens.
Your trading principal (what we’ve been calling stack-size all the time) starts to increase exponentially. Have you seen the progress of an exponential function as one travels from zero to the right on the x-axis (the x-axis here would stand for sample-size or the number of trades taken)? If not, check it out on the net.
A good system should give you a 60:40 market-edge. In the Zone, you’d probably trade at 70:30 or beyond. That’s 70 winning trades out of every 100 taken, and 30 losing ones. Imagine what that does to your trading principal over 1000 trades, if you adhere to position-sizing, let your winners ride and take your stop-losses.
The numbers will boggle your mind.
Go for it.
Short circuit in the brain.
You want to move your left hand, but the right one reacts.
Your body needs re-wiring, and rest.
This set of circumstances comes with the territory of trading. Often.
Imagine plugging into the complex matrix of erratic market play. That’s what happens when your trade gets triggered. Your poor nervous-system then deals with a lot of load, which doesn’t recede till well after the trade. Joy at profits, sorrow at losses, life is one big emotional pendulum. And this is just one trade. A sluggish trader might take one trade a week. The over-active one could trade many times in a single day.
What are we dealing with here?
Basically, the writing on the wall is quite clear. If you’re not able to regularly offset the damage to your system due to trading, you’re looking at early burn-out. As in, very early burn-out.
Your method of recuperation needs to bring your system back to its base-line, and then some. Your recuperation savings account needs to be in the black, as much as possible. That’ll ensure longevity in the trading arena.
What happens if you are drained, and the next trading opportunity comes? For me, the answer is crystal clear. Don’t take the trade. Rest. Recuperate. You would have played it wrong anyway. You were drained even before the trade, remember?
Sometimes, periods of recuperation can be long. At these times you need to stop comparing yourselves to other traders who find unlimited energy to keep trading, from God knows where. You are you. They are they. Who gave you the right to compare? Why are you judging others playing to a different plan with different energy and time-set parameters. If you really want to judge, then judge yourself. That’s it.
So, if a prolonged recuperative time-frame announces itself, respect it.
Your system will last longer in the game.
Trading is about sticking to the ground-rules, and then lasting. Your market-edge plays out only over a large number of trades taken over a long time-frame. Over the long run, your market-edge makes you show winning numbers, because the sample-size is big enough, and the time-frame under consideration is sufficient for many big-hitter trades to occur. Your big-hitter trades give a tremendous impetus to your numbers.
Even the best of edges can show a loss over a small sample-size (i.e. number of total trades taken in one’s trading career). It’s statistically very possible to suffer ten losses in a row, for example. You can call a coin-flip wrong ten times in a row. Possible. And that’s a 50:50 shot per flip. Your market-edge gives you a 60:40 shot, or maybe even a 70:30 shot. Still not good enough to not suffer a losing streak.
Winning streaks occur with time, and with supportive sample-sizes. Because of your edge, the winning streaks outnumber the losing streaks.
In the world of trading, if you want to win, you need to last.