Back to les options

In the book, The Complete Guide to Option Spreads and Combinations, there's more of a discussion on delta - how much the option price will change with a change in the underlying stock.  Basically, the sensitivities of the option (time until expiration, volatility, current price, interest rate) are not exclusive, and determinations of one greek independent of the others can be misleading.

This helped me because it reinforces the importance of researching the stock.  "The change in option price that we'd expect to see given a 1 percent change (from say, 20% to 21%) in volatility is called vega... A decrease in volatility will decrease the price of both a put option and a call option; the option price will decrease by vega.

The next chapter is on Vertical Spreads and I'm excited about. It's all about the application! I've only just begun and already it's dispelled a myth I held. I thought "vertical" had to do with the graph of stock price (x-axis) vs. Profit/Loss (y-axis). Nope, it likely got its name because strike prices run vertically in most option listings, while the expirations run horizontally (so calendar spreads are often called "horizontal" spreads).

I really want to jump deeper into this chapter early in the morning when the family's asleep.  Until then, some words of encouragement:

Maintain your discipline. A particular disposition is necessary to think critically. Be patient and empathetic. Oh, the 10 emotions of power:

1. Love and Warmth
2. Gratefulness and Appreciation
3. Curiosity
4. Passion
5. Determination
6. Flexibility
7. Confidence
8. Cheerfulness
9. Vitality
10. Generosity

Success in trading depends on the soundness of your thinking.

The Mathematics

I got to spend the day studying my past trades. Here's what they look like. I'll break this thing down nice and slow, because I learned a lot. 1st off, notice all the negatives in the Profit column? Yeah, it's been rough.

• Next thing to notice is the Type column. I've been pretty even with my buys and sells.  
• Alright, next is the Volume column.  I was really random.  When I lost or gained a lot, I would drop down, up, and all around, so there's no rhyme or reason to the volumes, but they came in handy when I was doing the math.
• Next are the stop loss (S/L) and target profit (T/P) columns.  Most of my trades were automatically executed at the S/L (negative profits) and T/P (positive profits).  You can see this in the far right Price column - the closing price - as it matches the respective S/L for negative profits and T/P for positive returns.
• Take the 2nd trade down: .07 lots of the USDCHF pair sold at .97933.  The position is closed at .97963.  This matches with the S/L price.  It's pretty consistent all the way down the list, unless it's a trade with nothing in the S/L and T/P columns because I didn't even want to take the time to figure it out. (never again).

Les équations

The fun stuff. Ok, skipping all the trouble getting here, I give the conclusions.  Let's calculate the profit for a few of these.  In particular, I'll do one for each currency pair I'm working with. 

Note: 1E5 = 1*10⁵= 100,000, 4E-4 = 4*10^(-4) = .0004, etc.

Second Trade: Sell .07 lots of USDCHF at .97933.

profit = [(lot size)*(1E5)*(start price - close price)]/(close price)
= [(.07)(1E5)(.97933-.97963)]/.97963
= [(7000)(-.00030)]/.97963 = -$2.14 

 Notice that it's (start price - close price). This is because we're selling.  Buying, it's reversed to (close price - start price).  I'm not going into how I got this formula finally, but it makes sense when you try to figure it out for yourself. 

 Also note that we had to divide by the closing price. That's because USD is not the base currency position, CHF is. You'll see the same thing in this next trade. 

 .00030 is how many pips I wanted to risk (3 pips).  The risk reward should be 1:2 or 1:3 meaning S/L:T/P pip spreads of 3:6 or 3:9 for example.  I didn't strictly follow this, but I will.

Fourth Trade: Sell .4 lots of USDJPY at 106.557.

profit = [(lot size)(1E5)(start price - close price)]/(close price)
= [(.4)(1E5)(106.554-106.574)]/106.574
= (4E4)(-2E-2)/106.574 = -$7.51

• Note that JPY pips are .01, while all others are .0001, so this trade was "down 2 pips"

Seventh Trade: Buy 1.00 lot of GBPUSD at 1.22583.

profit = (lot size)(1E5)(close price - start price)
= (1E5)(1.22812-1.22583)
= (1E5)(22.9E-4)= $229

• Note that we didn't have to divide by anything because the base currency is USD.
• That was a 22.9 pip spread. 1 pip is $10, hence $229. Making sense? I'm feeling it.  Alright last one...

Twelfth trade down: Buy 1.0 lot of EURUSD at 1.10928.

profit = (lot size)(1E5)(close price - start price) 

= (1E5)(1.10750 - 1.10928)

= (1E5)(-17.8E-4) = -$178.00

Important Note: There were no commission or swaps (time sensitive fees) using this broker. Most have fees associated with the bid/ask spread as well as how long you hold the position. I'm not looking forward to that part either.

Sizing it Up

After doing the exercises through all the trades, I was able to work backwards and put more together. Here's the end result.  First, you find the S/L and T/P, then you can calculate the lot size.  Here's an example using my current paper money portfolio.  

Balance: $3500

Leverage: 1:200

I want to expose about 40% of my account at a max.  That's .4(3500) = 1400.  My 1:200 leverage means 1 lot is covered with 100,000/200 = 500.  So, I can have 1400/500 = 2.8 lots in total trades at once.

That's something I can look at and add up really quick, and that deals with not getting into trouble with my margin. For position sizing, let's say I only want to risk 4% of my account in each trade.  Well, that's .04(3500) = 140.

Working backwards from all those exercises, 140 takes the place of my profit (really it's the S/L), and I'm solving for lot size using the same equation!  When looking at graphs, I've been setting my stop loss based on indicators.  For instance, if the EMA 36 is 20 pips underneath EMA 12, that's what my stop loss is.  So, we get the pips, then use:

lot size = profit/(1E5)(pipsE-4)

=140/(1E5)(pipsE-4)

=140/[(10)(pips)]

=14/pips

Note: For XXXJPY trades, (pipsE-4) changes to (pipsE-2).

This is easy enough for me to change whenever my account balance changes.  140 = (risk percentage)(account balance).  I'm hoping typing all this out helps me remember it.  I'll probably hold off until next week and open some positions when I see an entrance.

Tomorrow, I'm back onto options.

Les Opérations sur Options

I got a little deeper today. In the book I'm reading, The Complete Guide to Options Spreads and Combinations, I took my time on just 3 pages explaining calls and puts. I realized that this foundation was important, so I rewrote a few things and I was able to understand the conclusions drawn.  For the blog, I'll only write what I truly understand. As with everything I post, I encourage the reader to dig deep too.

Calls - at expiration, stocks are bought
Puts - at expirations, stocks are sold (you better own 'em)

In/at/out-of-money pertains to profit/loss (P/L) at that moment, specifically when buying calls or puts. So for calls:

• In-the-money: strike price < stock price 
•  At-the-money: strike price ~ stock price 
•  Out-of-the-money: strike > stock

I'll put up charts later.  Selling calls or puts are done to hedge against positions.

A spread is when you buy one option and sell another.

• When the two options differ in strike price, it's a vertical spread
• differing in expiration date is a calendar spread
• Combining the two, it's a diagonal spread

An option combination is owning underlying stock and options, i.e. selling a call against underlying is a covered call.  Buying both an at-the-money call and put is a straddle.

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 In forex, I was stopped out again using the Trend Rider strategy.  Now, I'm in a USDCHF (US dollar and Swiss Franc) trade, and I've watched it go up to $150, but not my target profit, so I let it sit... Now, it's -$10.  I hear "let your winners ride," and "take the small wins," simultaneously, but I'm training myself to be disciplined in my trades.  If I'm stopped out of this one, on to the next.

Tomorrow, I plan on breaking down my trading history so far as well as pick up a little more on the options side of things.  

Daily Trends

I was stopped out of another trade, this time $178.  While viewing MT5, looking for an entry point, I noticed a daily rise and fall of the EURUSD pair.  I'm going to try to capitalize on it tomorrow. Today I entered another trade on the GPDUSD. It looks like I bought instead of sold, however.  I don't know how I made that mistake, but I'm definitely learning a lot about what not to do.

I haven't gotten much studying done today, but I am viewing the charts even as I type this.  Family has been consuming, and I'm thankful for that. When you have time to make moves in any area, get it while the getting is good.  That's all I have for now, utilizing Trend Rider and Trend Bouncer swing strategies. I have to get off this negative streak.  Oh no, it's at -$177 right now, getting close to my SL!

Petit Entry

Yesterday was the most uneventful trading day as of yet.  I was only able to access my trades through my mobile app. After spending a few hours on the desktop platform, the mobile app is obviously more limiting. Here are some differences to note:

• For each time I set a chart, the settings are used on every currency pair. It remains until I change it. That translates to one strategy approach for all currency pairs.  Then, I have to change the indicators before using another strategy.
• No Help topics, so I can't study the platform on the go.  There is a news section, but it's been empty every time I've checked it.
• I can not modify my SL and TP after entering a trade.

Alright, that's actually not so bad.  On the RobinHood front, there's been a little positive movement on my holdings, and I'll continue studying options later today.

I found it difficult to be outside of trades yesterday, I wanted to enter although there were no good signals for neither Trend Rider nor Trend Bouncer.  Discipline can be difficult. It's a good thing.

Option Call and Trade Recap

I'm currently reading  The Complete Book of Option Spreads and Combinations by Scott Nations (2014). Taking my sweet time, here's what I took so far.

Options increment based on the value of the underlying stock.

• <$50 move in $1 increments
• less traded options at $2.50
• >$100 move in $5
• options exchanges can alter them though, subject to market demand for strike prices.

Example: "SPY June 150 put" mean S&P 500 ETF, expires 3rd Friday in June, strike price of $150.  Buyer of this put has option to sell 100 shares at $150 at expiration. If price of option is $1.35, "outlay" is $1.35*100 = $135 ignoring commissions.

• Buying a call and holding it (going long), if the price drops, you lose the premium.
• The price at expiration + premium = breaking even. More rallying is profit.
• If you sell a call, max profit is the premium.  If price goes up beyond the strike, profit decreases. >strike + cost of option is unlimited loss.
• Buying or selling a call, you start above the current market price
• Buy and hold increases profit as price increases.
• Selling a call, you expect price to stay or decrease to get profit.

This wasn't my 1st time reading this stuff, but it is the 1st time I can say I understand it.  Oh, he also discussed how the bid/ask price can be different from the strike price and that difference is described as the spread.

**********************************************************

So, my trades with USDCHF of .4 lots each were both stopped out.  Now, I must confess that I wasn't going exactly by the trading strategy, and I understand that now.  Instead of entering when the price came down and touched the EMA 12, I entered with it further away. I learned my lesson.  So my losses totaled $-704.  Next trade will be a smaller percentage, and entered correctly.

Trading for currency pairs, I don't see an entrance open for Trend Rider, so now's a good time to study my 2nd strategy, Trend Bouncer. This one uses Bollinger Bands. That's all I know right now. I'll study it more with this evening, and try it out tomorrow if I can.

MT5 Option Strategies

Coming from the MT5 help menu, retyping relevant definitions is the goal of this entry.  By the way, I was able to exit my position with $229 profit. It was just a little above my TP.   Market opened at 0000 Sunday night, not Monday morning. Noted.  To recap on the trade:

Buy: 1.00 lot, GBPUSD at 1.22583 => $100,000 at 1:200 leverage.  100,000/200 = $500
Sold: at 1.22812

1.22812 - 1.22583 =.00229

So, it looks like it was just the standard lot price times the price difference; $100,000(.00229) = $229.  I had less than $5000 in my account at the time.  So, buying one lot was like risking 10% of my account (500/5000 = .1). Now, that was my plan, but I wasn't confident I was actually doing that.  I ended up earning nearly 5% on that trade.  Going forward, have to be more aware of the risk.

I entered another position (two actually) of USDCHF - US Dollar vs. Swiss Franc - for a volume of .40 lots each; a sell at .97223 and another at .97225. I meant to modify the one, but it turned into two.  Stop losses are both at .97842. This is called 619 points, which threw me off. It's 62 pips. T/P is approximately the same distance away, so they're both 1:1 risk to reward trades.  Note: When you modify, you can only modify the S/L and TP, the lot size is kept the same.

$80,000/200 = $400. That should be how much I'm betting on this trade; .8 lots = $80,000.  Sure enough, as I look in the trading window, it says Margin: 400.00.  That means that 400/5000 = 8% capital on this trade. The 62 pips to the SL and TP becomes .0062 (80,000) = $496. So, really, I'm risking another 10% in both directions. Alright, as I type, I moved the SL's down to .97664 to decrease my exposure.  That's .97223 - .97664 = -441.  So my risk reward is a little better; 44:62 is like 1:1.4.  Alright, enough tampering. By the way, this trade was entered using the Trend Rider strategy.  After these adjustments, I moved the SL between EMA 36 and EMA 12, when the SL should actually be on it. Here's a picture.

Copyright MetaQuotes 2019

Option Strategies

• Volatility chart - typically, lowest values are found near the strike price, which are very close to the current market value of the underlying asset.  The further the strike price is from the current market, the greater future price change is expected by traders.  The chart form resembles an arc is called "Volatility Smile".
• Gamma shows how Delta changes when the underlying asset price changes; 2nd derivative of the option price.  if Gamma = .01, and Delta = .05, then an increase of the underlying asset by 2  units will lead Delta to increase by .01*2 = .02, so it becomes .05 + .02 = .07.  Great explanation.
• Vega shows how an option value changes with the change of implied volatility. It is calculated as the ratio of a change in the option price to a change in the implied volatility.  If Vega is 10, then 1% volatility growth leads to 10-unit growth in the option price; volatility:option$ = 1:10.

The Help menu mentions the feature of creating a custom strategy. That's a goal when I'm versed in the basics.  Just like chess, I have the most fun utilizing my own strategy.  Typically, it's just based on other strategies with 10% or so of my own fixings.  Some games I'm more ambitious. Failure can easily bring me back to a comfort zone, and these basic strategies should provide that for me later.

For the sake of time (I have to give the kids a bath), I'll introduce the strategies section.  The built-in strategies are broken down 1st into bullish, bearish, sideways, and regardless of trend.  2ndly, they're divided into:

• Volatility up - Used when a growth of the underlying asset volatility (UAV) is expected.
• Volatility down - Used when a fall in UAV is expected.
• Regardless of volatility - Self-explanatory. 
• Limited Loss - involves limiting of possible losses.
• Unlimited Loss - the loss is not limited in case of unfavorable outcome (what? why?!)

All built-in strategies assume the purchase and sale of options with the same expiration date.  Are you excited?! I am. At first, I felt information overload. Thankfully, I've received reassurance via motivational speakers and podcasts.

A great metaphor is seeing trading like driving a car.  The vehicle is the market, its tools, trading strategies, etc.  Like a car, it is very complicated. The brake assembly, the chassis, the electronics, the wiring, the combustion engine, the frame, hydraulics, and the list goes on.  Approach trading like driving a car.

You know where this is going.  You don't need to know everything about a car to drive it, and indeed most people don't.  Steering wheel, gas pedal, mirrors, gears, good to go. Instead of attempting to learn everything about trading, figure out what's important to get behind the wheel and on the road.  Most people don't learn how to change a flat until they have one.  Beyond that, they can still be great drivers.

The goal is to get from point A to point B.  In the case of trading, the goal is to make money.  Everything should be with that objective. When I go negative, I'll learn more to avoid that.  At this point, I've cranked the car, and I'm learning how to drive in a parking lot before I get out on the road, but Lord knows I'm excited to get out there.

Leaders are Readers.

MT5 Trading Operations

1st off, I checked my position with GBPUSD and I'm up $224, past my TP by 28 pips (TP - 1.2259, it's at 1.2287).  I got no alerts or anything. I'm thinking the autotrading tool was off. Closing 1st thing Monday morning (0000).  Anyway, today I'm in the help topics, learning about Trading Operations on the MetaTrader 5 platform.

This trading game is like chess to me. I enjoy it most when I'm playing the game, not reading about it.  And the more L's I take, the more determined I get to win. I can see myself using the buy limit and sell limits based on market conditions. Of course, I want to use the buy stop-limit and sell stop-limits, that'll come soon.

There's a Depth of Market window that shows more detailed analysis of the current market conditions. It may come in handy in other trading strategies. For now, my analysis is based on indicators.

I see how the "one click" trading would be helpful for day traders. For me, with my strategies, I use the Toolbox, Trade tab because I can set the SL and TP from there.

For today I stopped with the section on the Options Board. This section details strategies, templates, and analysis tools. I'm not sure if it's available to me, but the information is great.  I'll continue reading tomorrow and prepare for trading monday morning.

The Complete Book of Option Spreads and Combinations

This is the new book I've started today. Nothing new to report. My trade is still holding. I modified my forex position by raising the stop loss.  In options, I'm determined to understand how to enter into these spreads and know my risk.  That's it for today.

I need strategies

I finished the Visual Guide to Options Trading. Turns out, it has more to do with visuals within Bloomberg software. The language was dense, and there was little gained. It's more advanced than I expected. It speaks on the basics, but the language is dry.

Comparisons were made between options trading and advanced system in a fighter jet. Funny, considering my day job on F-18s. I was reminded about in-the-money, at-the-money, and out-of-the money options.  Also, delta, gamma, Vega, and rho.  So, I skimmed forward to get into the strategies, but again, the language couldn't keep me.  I need more example trades, especially within the platform I'll be using, RobinHood.

So, that's my conclusion as I look to another reference, learning how to enter straddles, strangles, spreads, condors, butterflies, etc.  I saw more diagrams of them, so that was a refresher as well.  Once I get the strategies, all my time can be spent on research.

Within MT5, I have an open position with 100 S/L and 200 TP.  Pips that is.  I'm seeing the candlesticks a little clear. Watching the closing prices change in real time was interesting. Until tomorrow.

MT5

I was able to set up my stop loss (S/L) and target price (TP) on my desktop version. I actually have MetaTrader 5, not 4 as I'd thought. So I downloaded MT5 for my android as well. Starting with the desktop version, I set up another demo account with $5000 and 1:200 leverage. It was easy to then sync accounts and get alerts for when trades were executed or stops/targets reached onto my android phone.

I finished the MT4 book, realizing that some things are a little different on the more recent, MT5 version.  I also started another book, Visual Guide to Options, by Jared Levy (2013).  Meanwhile, I'll be studying MT5 using the Help menu, which is quite comprehensive. I just finished the first 2 of 11 tabs in the "Trading Platform: User Manual" in the Help menu, which is a book worth of info in itself.

Tonight or tomorrow morning, I'll be opening another position.  The last one I did reached it's stop loss and I earned -$4.75 or something like that. I was trying to risk 4%, and thankfully I under-calculated.  I'm still working on understanding pips and calculating my position size correctly.  Forget your losses, work the strategy consistently, make adjustments after reviewing a few months of trade data.

Options (as of 2013)

8 exchanges currently trading options:

1. AMEX - American Stock Exchange
2. BOX - Boston Stock Exchange
3. CBOE - Chicago Board of Options Exchange
4. ISE - International Stock Exchange
5. BATS - BATS Exchange, electronic communication network (ECN)
6. PCST - Pacific Coast Stock Exchange
7. PHLX - Philadelphia Stock Exchange
8. NASDAQ - Nasdaq Options

Brokers can route orders to cheapest exchange, or the exchange will match the lowest prices.

Avoid stocks less than or equal to $50, Volume or 750,000, and spread greater than $1.

Option prices comes from:

1. Stock Price
2. Strike Price
3. Interest rate
4. Dividend
5. Implied Volatility

Average options spread is $.10. High volume, low volatility, low price = tight spread. Low volume, high volatility, high price = wide spread.

"Mark" is the midpoint between bid and ask prices.

I'm still on the basics with options, looking for ways to immediately apply information to a trade. Still, there are fundamentals I have to get a handle on, so that's where I am. Laterz.

MT4 Position Sizing

I made a mistake and deleted my demo accounts on my phone, but it works out. Now, I can sync my desktop account with my phone, and set up alerts for potential entries and exits.

I have figured out few things today to help going forward.  For one, I began my last trade incorrectly in regards to the Trend Rider set up.

1. Watch for the EMA 12 to cross EMA 36 - cross above for potential long, below for short.
2. Wait for price movement to come down (or up respectively) and touch EMA 12. That's the entry point.
3. Set stop loss (S/L) at EMA 36.
4. Set profit target at twice to three times the stop loss above (or below) the entry point.
5. Exit when ADX 14 goes above and comes back down to 40.

The thing about this set up is that it neglects to mention the position size. That's where my studying comes in.  I spent a lot of time this morning before work as well as my lunch break, looking into percentage in points (pips) and position sizing.  A good youtube video that helped a little by Karen Foo really got me to start playing with some numbers.  There's even a mathematical mistake in the video, can you catch it?  I also read some articles online about it too. I'll try to reiterate it below for my readers, and also for myself.

Alright, let's take the currency pair, EUR/JPY (Euro and Japanese Yen) as an example.  The second currency, or counter currency is the one that sets the pip value.   Let's say the EUP/JPY exchange rate is 117.964.  That means 117.964 Yen for one Euro.  

My account's in USD though. So we use the USDJPY exchange rate. Let's say it's 106.278.  That's 106.278 Yen for 1 USD.  We're almost at position size. 

---------------------------------

Now, back to the Trend Rider. Let's say the 117.964 was my entry point and the EMA 36 is 30 pips below.  Since we're talking pips in Yen, that's 

(.01/pip)*(30 pips) = .3

30 pips below would be 117.964 - .3 = 117.664 = S/L

My target price (TP) would be 2(.3) = .6 above the entry price (60 pips... that's aggressive sounds to me).

117.964 + .6 = 118.564 = TP

-----------------------------------

I got that part pretty well, now comes the position size.  So let's say I have $5000 in my account. I only want to risk 4% on this trade.

.04(5000) = $200.   In Yen,

 

200 USD*(106.278 Yen/USD)= 21,256 Yen.

21,256/30 pips = 708.52 yen/pip

(708.52 yen/pip)*(10 usd/106.278 eny)*10 = number of units = 667 = .007 lots = 7 nanolots of volume.  That should be the volume I enter into MT4.

It took me an hour to get that. I hope it's right. This is a confusing topic right now, despite reading and listening from 4 or more sources at this point.

Value/(lot*pip) 

More of this to come.

Next up is understanding how leverage/margin comes into the picture because my calculations didn't include any so far.

MT4 Charting Tools

In the MT4 User Manual, I covered the Chart tools yesterday.  Things I'll be using very soon include:

• Template - Save time settings and indicators

• Chart Shift - puts latest price moves in the center of the chart
• Standard deviation lines - place line and double-click to set the number of deviations
• Fibonacci lines as support/resistance
• Comments placed for announcements.
• Profiles menu is in File menu to save groups of charts
• Parameters tab - most specific data of indicators

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That was it for the reading. Onto my 1st trade using Trend Bouncer.  I entered into USDJPY, 

• Leverage is 1:200 using WSI Technology Ltd. as a broker.
• Opened buying 1.00 at the ask price of 106.466 
• the EMA 12 having already crossed abode EMA 36.
• The ADX 14 indicator never reached 40.
• I closed just a minute ago at 160.327. That was a spread of 139 pips.
• EMA 12 was still above 36.  I could have waited for ADX 14 to rise to 40, but I had no stop loss set.
• Profit: -130.73
• Swap -20.83
• Commission: -35

I'm sitting here with a calculator trying to figure out how to generate all these numbers beyond the price move, and it's a little tricky. Tomorrow's trade, I'm using MetaQuotes as a broker because I don't have to worry about swaps or commissions in the calculators.  Yes, I have two demo accounts open right now.

On the charts, I've also zoomed in a lot to view the candlesticks over the last day. The other thing I need to do is set position size. I'll be extra aggressive for training purposes at 10%:

Balance: $4879.59

.1(4879.59) = $488

The leverage in this account is 1:50. So, 1 lot = 100,000 / 50 = 2,000.

Rounding 488 up to 500, 500/2000 = .25. I can purchase up to .25 lots.  I think that math's right.  Well, that doesn't include the spread, which is really my risk.  Still, I'm stopping here and I'm just going to open a trade for tomorrow with volume .25 and see what it looks like.

Prep for the week

Alright, quick post. I know I won't be able to use the desktop app very much right now, so most of my work will be on my mobile app. I've limited myself to 4 currency pairs:

XAGUSD - Silver 1 Lot = 5000 Ounces, Chicago Mercantile Exchange (CME), USD
USDJPY - US dollar/ Japanese Yen
EURUSD - Euro / US Dollar
USDCHF - US dollar/ Swiss franc

Within each one, I've made sure that the charts are set to H1 or H4.  That's about it for today. I still have two positions open, XAGUSD and USDCHF, both positive right now, and I will hopefully close them positively tomorrow once the market opens.

I'm excited about using the strategies. It's the start of something beautiful and exciting, and I'm done talking. I'm ready to play. À demain.

Feels like the 1st Time - MT4 User Manual

Section 1: Opening MetaTrader for the 1st Time

• A lot customization tools I won’t be using to start off
• Market Window is the main one
• Navigation Bar has most common tabs - Accounts, Indicators (over 100), Expert Advisors, and Scripts
• Account History, like the cell app, provides all trades in the last 30 days
• You can “Save as a detailed report” and export it as an Excel file (.xls). I’ll do this for the blog at some point.

Section 2: Opening and Managing Your Trades

• Spillage is addressed  with Market Orders because of closest market price, connectivity, processing, etc.
• 4 types of Pending Orders:
• Buy Limit - Order to buy (ask price) at a strike price below the current market price (MP)
• Sell Limit - Order to sell (bid price) at a price above the MP
• Buy Stop - Order to buy (ask price) at a strike price above MP
• Sell Stop - Order to sell (bid price) at a price below the current MP
• Trailing Stop (TS) orders will run as long as you’re logged into platform. If you leave before market moves in your favor,  TP won’t be placed. If it starts running, it won’t trail if you log out. This doesn’t align with any of my strategies so far, still very important.
• View Contract Specs before entering trade - Right click in Market Watch Window, Select Symbols, which instrument, and Properties

• In MT, 1.0 = 100,000 units and .1 = 10,000 unit

• Use Trade Tab in Terminal window to manage open and pending orders
• Right click in there to add trailing stops quickly (at least 15 pips)
• You can use the Multiple Close By menu option to close opposing positions
• You can modify pending orders too.
• Set alerts in the Alert Editor tap of Terminal window

That's a good start. This is a lot of information without application, so I'll be working on setting a trade next, using one of the strategies from my last post.

Mes Cinq Stratégies

Before getting to my five strategies, I'll hit the most interesting points I gained from the rest of the book, 17 Proven Strategies... I finished tonight.

Fundamental analysis - important news / interest rates
Technical analysis - charts and indicators.

The book provides strategies for day traders, swing traders, position traders, and mechanical traders. I'm only talking about the ones I'll be doing as a swing trader (1 day to a week long positions).

Important news and things to notice

When (1) interest rates go up, (2) the GDP goes up, (3) NFP (released 1st Friday of each month) goes up, all can cause a currency to strengthen. (4) Trade Balance Figures (imports/exports) effect the currency strengths. (5) Consumer Price Index (CPI) goes up = interest rates go up. Finally, (6) Purchasing Manufacturing Index (PMI) can provide info on currency pairs.  

All of that was great to know, but I need to know when these reports are released and where to get them.  Trading has to happen minutes to hours after the release of the info to take advantage.

Rule of 20: "If actual exceeds forecast by 20%, trade in that direction." That's with all numerical predictions except PMI (use .5%, and .2% for interest rates).  Fyi, .01% = 1 basis point.

Trading Strategies

Disclaimer: I've read plenty of strategies up until this point. I'm picking the ones from this book because it's time to practice. If I read of others later on, I'll adjust accordingly. THIS IS IT for the next few months.

Gawk the Hawk - M15/M30 charts. Go long or short immediately after news release.  Prepare beforehand.  After entry, set 20 pip stop loss. Set targets at 40 or 60 pips above. That's risk:reward of 1:2 and 1:3.  This is actually a Day Trade strategy I like. I'm writing it here just to remember it later.

1. Trend Rider - H1/H4 charts. Indicators: 

• Exponential Moving Average (EMA) with period 12 [EMA 12]
•  EMA 36
• Average directional movement index (ADX 14)

Going Long: Once EMA 12 crosses above EMA 36, enter when price comes back down to EMA 12. Set stop at EMA 36 (>30 pips).  Exit when ADX 14 goes above 40 and hits it again. No predetermined profit.  The same goes for going Short, mirroring EMA 36 and EMA 12.

2. Trend Bouncer - H1/H4 charts. Use Bollinger Bands MA 12, 2 standard deviations. Once price touches the band and retraces, enter.  Stop loss is the other band.  1:2, 1:3. Easy day, right?

3. 5th Element - H1/H4 charts. Fast EMA: 12, Slow EMA: 26, MACD SMA: 9. Apply to close. Wait for 5 positive bars on MT4 histogram (MACD minus 9-day SMA of MACD) to indicate upward trend, 5 negative for short. Set stop loss at last histogram low. 1:2, 1:3

4. Power Ranger - Using oscillators RSI and Stochastics.  >80 overbought (sell), <20 1:1="" 1:2.="" 1st="" 20="" 75="" a="" and="" as="" at="" be="" below="" buy="" cross.="" crosses.="" draw="" enter="" erforming="" et="" for="" from="" go="" i="" irror="" is="" it="" lines="" long="" look="" loss="" m="" mirrored.="" must="" nbsp="" of="" or="" oversold="" p="" price="" profit="" range="" resistance="" s="" set="" short="" shorthand.="" shorting.="" somewhat="" speaking="" stop="" support.="" support="" target="" the="" then="" they="" to="" trade="" uptrend="" when="">

5. Pendulum - In ranges, trade at 10% and 90% of range from support to resistance with profit targets at 50%. Look for retracements. If range is x pips, buy at .1x above support, sell at .1x below resistance. Profit 1 is 50%, profit 2 is 90%.

So that's it. They will all require some practice and familiarity with MT4. I was excited to hear the author speak about doing all this on MT4, securing my resolve to learn these strategies.

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Interest earned or owed on currencies during open positions are called swaps. Positions held after 5pm (EST) are rolled over, subject to swaps.

Forex books 3 days of swaps Wednesday night, so think twice of holding that night.

When oil prices are up, go long on CAD/JPY.  When China GDP goes up, AUD goes up (weeks to months later).

"If I can't, I must. If I must, I can."

*********************************************************************

Lastly, I started a new book, the MetaQuotes User Manual that is.  It's going through the entire platform from toolbars to charts, managing orders, setting up stops, expert advisors (automated trading), and a lot more. As I learn the strategies, I'll be working more on the desktop application as time permits. Exciting times.

I still have to get better at calculating position size. This post is almost an hour late. I'm going to bed.

Forex Players and New Trade

Notes from 17 Proven Strategies...:

When interest rates go up (from central banks), inflation goes down, which strengthens a currency. When interest rates go down, it weakens a currency (sell).

Banks buy and sell trillions of dollars, or other foreign currency to maintain stability within their economies.

Reserve Requirement Ratio (RRR) is liquid currency to pay for mass withdrawals, held within central banks.

Deutsche Bank (a commercial bank), is the world's largest forex trading bank.  Commercial banks are profit driven (big surprise there, who isn't?).

Proprietary desks (prop desks) exist within commercial and investment banks just like in stock market trading firms. They are profit driven and poorly regulated it seems.

Companies that do a lot of exporting hedge their risk using the forex market.  When the value of the currency in an exporting country changes, contracts can take on fluctuating values.  Therefore, companies go long to lock in profits.  That was pretty cool to read about.

24hrs/5 days a wk, forex market open, not 24/7 like I said in a previous post. Here are forex times:

Most liquidity exists when markets are open. 3 factors affect the price of commodities:

1. Supply and Demand

2.Value of USD

3. Speculation on futures market

When USD goes down, commodities go up.  

"When you fail to plan, you plan to fail."

**********

Next chapter was on trading styles and strategies. Based on a quiz in the book, I'm more of a swing trader or position trader.  Typically, swing traders risk 50 - 150 pips per trade. An example holds a  50 pip stop and 150 profit target.  This is a risk reward of 1:2 to 1:3 and up.  Swing traders look at H1 and H4 charts (1 hour and 4 hour charts), and the trades last 1-7 days.

I wouldn't mind being a "mechanical" trader, which is basically one who automates everything.

*******************************************************************************

How does this help me make money?

I felt energized after this day's studying.  All the info leads me into understanding what to watch in the news when implementing strategies. For example, I need to know:

1. Interest rates from central banks of each currency

2. The biggest exporters

3.  A lot of info about commodities.

Just those are a handful, so I'll be on the lookout for websites, articles, etc. that will make that research easier.

So far I do my trading early in the morning and at night, which means I can catch Tokyo and Germany at night, and catch London and may be New York in the morning.

Next few chapters, I'll be learning actual strategies to enter and exit trades. Then, I'm going to practice particular ones (and explain them here) until I know them in and out, and see how they work for me for the rest of the year on MetaTrader.

***************

Finally, I read about these reverse ETFs for commodities today; an alternate way to short stocks since it's not offered on RobinHood.  Based on the looming potential recession, and dropping oil prices, I went ahead and bought a couple shares of ERY for $58.85. We'll see what happens. I plan on holding it for just a couple days.  It's been rising for the last few months, so I'm doing what I've read not to do and that's "jump on the band wagon" with rising stocks. I just want to stay active, but it's true, I have done NO research on this ETF. Later.

Reflections on Forex and Options

I listened to some of the "Options Alpha" podcasts this morning, and the host discussed spreads in options trading.  The term "slippage" was used in regards to the costs of doing a round trip (open and close) trade.  These expenses are clearly seen when it comes to options.

On the MetaTrader platform, when you open a position, it starts out negative because of the spread.  If you buy 1 lot with a spread of 30 pips, using leverage of say 1:100, that's like -$30.00 or something.   Remember, lots in forex are $100,000, while lots in options are 100 shares.

Oh, regarding the terms associated in the MetaTrader platform! Here's a good link to explaining what I'm talking about right now: luckscout

Margin Level is (Equity/Margin)*100%.  It basically gives you an idea of how close you are to "maxing" out your leverage.  The demo brokerages on MetaTrader4 are all a little different. Some charge fees for each spread in addition to the fees for the spread.  Others don't charge anything for the transaction, but only for the spread.  It's official, small spreads = huge liquidity, which is what we want.

I learned about how some forex platforms don't charge commissions, and others do, so it literally pays to do your research before throwing money into one.  I started an article on investopedia about how to shop around.

Right now I'm working on the players in the forex market, so more on that tomorrow probably.  Terms for MetaTrader, check.  I'm still in a trade, and I have yet to do more on RobinHood. We're getting there!

17 Proven Strategies... - Forex is a Game

I got a little further in the same chapter. Instead of quotes, here are the ideas:

In the exchange rates, it seems like the base currency is usually the stronger one.  That is the say, the ratio (base currency)/(counter currency) is greater than 1.  This seems to be the trend on MetaTrader. I'll look into it.

The charts can be displayed 3 ways:

Lines - just the closing prices within the specified time frame (5min, 15min, 30min, 1hr, daily, etc)
Bar - provides open, high, low, and closing (OHLC) prices for each time period
Candlestick - same as bar, but easy to see if buyers or sellers are controlling a period.

These charts are used in all the markets.  This chapter mentioned three market segments which also seem relevant for viewing all markets for trading:

Trend (upward or downward), range (sideways with resistance above and below), and breakout (breaking through resistance).  A different segment can be seen based on the time frame you are trading, so be careful.

Unlike the stock market, the # of contracts bought = # sold in the forex market.  Prices move because of emotion just the same.

I have to list the strategies I will take.  For example, "When I see conditions a, b, c, d, e, and f, I will trade with strategy A."  One of the 1st books I read on trading talked about the use of post it notes put on the screen to remind the trader what to do.  This reinforces discipline in trades so that we won't fall victim to acting on a whim.  By being consistent in our trading strategies, we can conclude what works and what doesn't.

I found out that spreads are lower for more liquid pairs of currencies.  Thinking of stocks, this seems to be what I want within any trade; liquidity - the ability to go from trades to cash easily.

One reminder: "For short positions, trades execute on the bid price, exit on the ask price."  The reverse is true for long positions.

In the MetaTrader app, my last position (17.32 -> 17.02) selling 4.0, I made $1200.  I'm down -$180 on my current 'buy' of 2.0. So that means I entered on the ask price, and I'll exit on the bid.

A few things I noticed in MegaTrader: Margin + Free Margin = Equity.  Margin Level makes no sense. I still don't see how my leverage is being incorporated into my trades, so I'm going to start another demo with $100,000. May be the round numbers will help me figure it out.

Making L'argent in Forex

Coming from Chapter 2 of 17 Proven Currency Trading Strategies (2013), I learned a lot more about currency quotes.  Some good quotes and commentary:

"A buy trade is termed a 'long position' in the forex market... A sell trade is termed a 'short position'."

"When you execute a position, there are essentially three points in every trade: entry price, profit target, and stop loss."

The book provides good examples with pips going up and down from the entry price to the stop loss or the profit. I have yet to figure out how to put in stop losses using MetaTrader 4, if that's even an option.

"Whenever a trade reflects an equal distance between the entry price to profit target and between the entry price to the stop loss, the trade is said to have a risk to reward ratio of 1:1."

Stop losses are very important to managing risk. The more I use MetaTrader, the more I see this as a reality. When I watch my open position go deeper and deeper negative, I'm telling myself to just ride it out a little longer. My last one was 3 days long, and I cut my losses at -$80.

Forex prices are actually two price quotes: "the bid price and the ask price. The bid price is the price at which the trader selects to sell.  It is also the price at which the broker is willing to buy. The ask price is the price at which the trader selects to buy.  It is also the price at which the broker is willing to sell."

"The difference between the bid price and the ask price is known as the spread."

"The spread is the only transaction fee incurred when trading on the broker's platform... The The spread is charged for every 'round turn.' This means that only 2 pips are charged for a complete transaction of buying first and selling later or selling first and buying later."

Here's a pic from the text. Note the typo I caught.  The positions show how profit comes from movement in the quoted ask or bid price. Here I was thinking that it was all about the spread.

"The smaller the spread, the less the market needs to move in your favor to register a profit."

In terms of MetaTrader, the red quote is the bid and the blue quote is the ask.

Regarding a country's currency, "the current account is made up of three components:

Current account = Trade balance + Net income + Unilateral transfers"

"On average, more than 90% of the daily trading volume in the forex market is speculative in nature."

*********************************************************************************

Alright, how does that stuff make me money?! Well, understanding the spread, risk reward ratio, and stop losses directly translate to using the app.  The other information about currency accounts gets into researching and following currencies to forecast where they're going.

Btw, a reminder that forex standard lots are 100,000 of the base currency, while options have a lot size of 100 shares of the underlying asset/stock.  Speaking of research, when I feel confident in my understanding of the fundamentals, the key will be researching options, currency, and stocks.  The method to that research will be key to entering the right trades, and I'm reminding myself of that each day. Alright, time to jump into another trade.

Options D'achat vs Options De Vente

Alright, for time's sake, I'm listing noteworthy quotes and ideas from the 4th chapter of The Complete Guide to Option Selling 3rd Edition by James Cordier and Michael Gross.

****************************************************

Speaking about time decay, if you bought an option one day, you could watch its price decrease even though the underlying stock or futures contract stays the same.

"An option is said to have intrinsic value if it is in the money.  If it is not in the money, it cannot, by definition, have any intrinsic value... Therefore, selling the option back to the market would be worth more to the owner of the call than exercising it."

"When somebody refers to trading options, they are generally referring to the buying and selling of the options themselves.  They are actually speculating on the option prices and not on the underlying stock or commodity, although the price of the underlying stock or commodity will have a large bearing on the value of the option."

"The three factors that make up the value of an option are intrinsic value, time value, and volatility."

"When a trader sells an option, he is selling the buyer that right and therefore issuing the obligation to take the other side of the market should the buyer of the option exercise the option.  In other words, he 'grants' the option buyer the right to buy or sell the underlying market at the specified price (strike price). This is why option selling is also known as option granting or option writing."

"Buying a call is for bulls.  Buying a put is for bears.  When selling options, the opposite is true. Selling a put is a bullish strategy.  Selling a call is a bearish strategy."

When you give up the chance to make a large gain on a big move upward, you can be increasing your chances dramatically to make a profit on the trade.

"Sell an option that is far enough out of the money and with low enough volatility that the market can move a long way without greatly affecting the price or margin requirement of your option."

Selling options should be a very slow-moving investment.

Volatility is measured by the option's delta.

"If volatility is high, conditions may favor option sellers because they can get more premium for the options they want to sell. If volatility is low, it may favor option buyers because they have to pay less to purchase their options... We generally recommend selling options with low deltas in slightly volatile markets... the delta is not low because the market is not moving: The delta is low because the option is so far out of the money."

You handle risk in option selling by buying back your position prior to expiration.

Leverage that applies to selling options is in futures contracts. I'm not sure if that's true in stocks. I mean, can I use leverage on RobinHood?  We'll see, won't we?

"A delta of .1 means the thing has a 10% chance of going in the money. Sell that option and it has a 90% chance of expiring worthless. That is mathematical fact that cannot be disputed."

**********************************************************

Yeah, so it's clear how this info can help me make money. It's the nuts and bolts of options buying and selling. I'm still enjoying this book 4 chapters into it. There's little filler, and I'm absorbing a lot of ideas.

I put the quotes in bold because I immediately got the picture of seeing options charts moving asymmetrically to its underlying stock. How much priority I give to the underlying will be very important. Thanks for stopping by!

Forex Vocabulary

Today was busy on other fronts, and I only got one chapter in from 17 Proven Strategies to Trade Forex. A quick summary of things learned:

In each currency pair, like USD/EUR, the 1st current is the "base currency" (USD) and the 2nd is the "counter currency".  The exchange rate is read in relation to the 1st.  USD/EUR = .6 is read "1 USD is worth .6 Euros."

A pip has to do with the number of decimal places the currencies go out.  Usually it's 4, like 1.3232, and one pip is .0001.  To get the value of a pip, you put it over the exchange rate (.0001/1.3232).

The top currency pairs were listed as of 2010 stats.  The regulatory organizations were listed though I only remember BIS, forgetting what it stands for at the moment.

Leverage and margin were discussed as well in regards to lots. I didn't know a standard lot was $100,000. Mini, micro, and nano lots divide the standard size by 10, 100, and 1000. Margin is the amount you have to put up to buy a lot.

How does this help me make money? MetaTrader displays Balance, Equity, Free Margin, Margin Level (%), and Margin. I'm still trying to fully understand where these numbers are coming from.  I'll be looking at my order size and see how it relates to a lot tomorrow.  Chapter 2 is next and it's even titled, "How you Make Money," so yeah, I'm enjoying the book as it supplements my paper trading.

Apprenez les Plateformes

MetaTrader:

I closed my 3rd trade for a net of $0. This was interesting because it happened when the exchange rate was one to one.  This changes my perspective of how important the spread actually is.  You're betting on movement in a particular direction.  I'm still monitoring XAG/USD (silver) and as I type, I've opened up another sell position at 16.95 --> 16.99. So the spread is 4 (4 cents that is), and I'm selling 4 lots.  That puts me down ($.04)*100*4 = -$160.

The price has to go down 4 cents for me to break even, then I'll be on the positive end, and that's when I'll close. I'm still unsure as to how the two prices come about, but for now, at least I understand a little more of what I'm looking to happen. I've looked at the chart going back for the last few years, and I'm looking for some reversion. The indicators (RSI, MACD,..) will come in handy soon.

RobinHood:

I accomplished a lot of disclosure readings for options.  As I heard in a blog, it's true that brokerages have to assign you a level for executing certain types of options trade.  RobinHood assigns level 2 and gives you ability to execute long calls, long puts, covered calls, and cash-covered puts.  It was a quick process and I was able to apply for and be approved in minutes. Here's a link:

https://support.robinhood.com/hc/en-us/articles/360001227566

I opened up an energy stock and looked at the trading options.  Contract volumes were from 0-6 for most puts to sell.  They also show all the greeks including delta, gamma, theta, vega, and rho.  All the information's there, and it's free to use.

As per the "Characteristics and Risks of Standardized Options" disclosure  available on the RobinHood site,

Premium

The premium is the price that the holder of an option pays and the writer of an option receives for the rights conveyed by the option. It is the price set by the holder and writer, or their brokers, in a transaction in an options market where the option is traded. It is not a standardized term of the option. The premium does not constitute a "down-payment." It is simply and entirely a nonrefundable payment in full - from the option holder to the option writer - for the rights conveyed by the option.

The premium is not fixed by the options markets or by OCC. Premiums are subject to continuous s\change in response to market and economic forces, including changes in the trading conditions on the markets where the particular options are traded.

Long and Short

The word long refers to a person's position as the holder of an option, and the word short refers to a person's position as the writer of an option.

Covered Call Writer

If the writer of a physical delivery call option owns or acquires the amount of the underlying interest that is deliverable upon exercise of the call, he is said to be a covered call writer. ... A call option writer who is not a covered writer may hold another option in a spread position and thereby offset some or all of the risk of the option he has written.

**********************************************************

Alright, that's it for today. More reading and trading to come.

Deux Livres

The Complete Guide to Option Selling - James Cordier

Written in 2015, I find this book very interesting so far. Some quotes so far:

"If you are serious about making your money work for you, about making real returns in a consistent manner, regardless of what direction markets are moving, you are about to get some good news."

"Professionals are more interested in playing odds."

"Using strategies such as spreads, swaps, and arbitrage, pros can increase odds of success without betting on outright market direction."

"If you sell an option, the market can move in your favor, it can remain stationary, it can even move moderately against your position.  In any of these scenarios, it still expires worthless. You still make money."

I believe the following is true in RobinHood, but I'll confirm as I study the site more: "Even online brokers make it harder to sell options than to buy them, making you qualify for different 'levels,' and charging higher than minimum exchange margins."

"Surprisingly, most of our clients saw selling commodities options as a way to target high returns on their invested capital or to grow their net worth-as opposed to generate income."

"Knowledgeable option sellers bet that the storm will not make a 180-degree turnaround into the wind. That's all. They don't play the game of guessing where the storm will hit. That's a low-odds game. Guessing where it will not hit is much easier."

"When you become more skilled at selling options, you will be able to identify option selling at ridiculous strike prices, in which you will be able to take advantage of traders willing to bet on the market going to these levels. A little fundamental knowledge can go a long way in this regard."

"If your goal is to make consistent 25%, 40%, or even 50% annual returns in a responsible manner, option selling, especially futures option selling, may be for you."

That last one made me laugh.  Yeah, that's me alright.  So far the book has kept me interested. It's been more anecdotal so far, and I'm more interested in the strategies.  The picture is coming together.  Speaking of strategies, I found a good book on forex too.

17 Proven Currency Trading Strategies - Mario Singh

This one is from 2013. I just got through the Preface. Anecdotal of course, providing a framework for the chapters to follow. It feels more like a forex introductory textbook so far.  After reading Samurai Revolution late last year, I appreciate the author mentioning this in the Preface:

 "Kaizen is the Japanese word for improvement. When we embrace kaizen in any endeavor, mastery is bound to be the result. My kaizen approach to forex trading has enabled me to be a consistently profitable trader."

Most books I've read all have these optimistic tones to them.  The difficulty is to deeply absorb those things that I can immediately implement.  My expectation in this book is to get a clearer picture of the moving parts in forex trading while papertrading.  I expect to be much more confident after finishing both these books.

In MetaTrader, I made another $60 with another sell of silver (not gold as I said in my last post).  Gold is at $1460ish while silver is at $17, so my portfolio of $3300 is not equipped to take on Au just yet.  With that, I'll leave you. Make it happen.

Platforms

Familiarizing myself with the platforms used to trade is paramount.  I opened and closed by first trades on MetaTrader.  Overnight, I made $200 play money with little understanding. I read that commissions are built into the spreads.  It's all forex, and I still have to pick literature to study on the subject. I've placed my second order on it a few hours ago.  There are a lot of analysis tools.

In Robinhood, there's a good bit of info on options trading. Straddles, strangles, iron condors, debit/credit spreads. I'm beginning to understand them more, but I need more examples. Being "assigned" is clearly something to avoid when more than one position is open.  I remember seeing illustrations in one of the books I read.  Alright, I'll expound later this week when I'm not working 12 hrs/day.

The Innovator's Dilemma

I scanned the book last night. It reminiscent of John Collin's book, Good to Great.  I prefer the later. The Innovator's Dilemma introduces good companies that have failed due to innovative technologies.  Copyright 2003. A lot has changed.

A few takeaways: Watch the markets and management of companies.  Technologies can take a long time to be implemented into the current infrastructure.  Understand the resources involved in creating new products, and think on the sustainability of the technology.  "Plan to learn versus plan to execute" - this was mentioned in relation to disruptive technologies within the management and operations of a company.  When invested, plan on adjusting rather than sustainability based on current projections.  Finally, products that aren't useful today may be useful tomorrow, so understand how the needs of customers will change.

How will any of this help me make money?

Barely, that's how.  The book reminded me to research sectors. Forex, Energy, and commodities are where I want to put my focus.  By doing so, I'll be able to better forecast markets bulls and bears and trade accordingly.

Onto the next book, I'll let you know what it is.

MetaTrader4

I now have the mobile app as well as the desktop version. It's for trading forex.  Utilizing the demo account is going to be great. MetaTrader5 seems like trash at this point based on the reviews I read and downloading the app for all of 15 minutes. I have an android btw.  Since forex is open basically 24/7, it beats US markets like NYSE, AMEX, and CBOE, based on my busy schedule.

Desire was strong yesterday to make ground and have something to report, and working 10+ hours a day (12 last night) makes that extremely difficult, but not impossible.  The app gives the opportunity to display multiple technical indicators and buy and sell instantly.

Traders constantly write about which indicators are important, which they swear by. There's a constant debate on their usefulness. Some like to keep it simple, some use a combination of them along with the intraday charts to indicate times to enter and exit.  I started my demo account with $3000 play money and a 1:5 leverage.

So this week, my goal alongside reading is to do some buys and sells. Info on the forex markets will be crucial going forward for forecasting and confidence in my trades. Gold appears more volatile than any of the other currency pairs. We'll see what happens. I like the mobile app so far.

GARP

"Ey, I'm tryin' to network over here!"

From LinkedIn, to old high school friends making it in corporate America, to licenses and certifications, to Financial Risk Manager.  Let's take a look.  The Global Association of Risk Professionals.  I like it so far...

The certification of Financial Risk Manager is likened to a Master's Degree based on its specific and comprehensive curriculum, the website explains.  Alright, let's look into the requirements.

After 50 pages of the Learning Objectives, I take them at their word.  With the download right next to me, let me sum up the 2 Part Exam by sections.  Btw, the pass rate is around 40% for Part 1, 60% for Part II, and you also need 2 years of "applicable" experience after that.  Still, I wasn't discouraged in the slightest at this point.

The subjects are broken down by books and relevant chapters.  I thought, "alright, I can just adjust my upcoming books to these."

Part I:
Foundations of Risk Management, Quantitative Analysis, Financial Markets and Products (I'm still loving it at this point), and Valuation and Risk Models (hold on...).

Part II:
Market Risk Measurement and Management, Credit Risk Measurement and Management, Operational and Integrated Risk Management, Risk Management and Investment Management, and Current Issues in Financial Markets (my favorite section)

The texts range from 2005 to 2017 including books and short articles.  The objectives break down key concepts, questions, and interpretations to be drawn from the literature.  I saw a lot of familiar topics, and I was sincerely interested for probably a whole hour after reading.

"Information Gluttony"

I love to research and learn new things.  When I read about options trading, I want to trade options. I want to perfect my iron contours, my straddles, my calls and puts. I want to utilize all the lingo. I want to be able to write the same story the author is telling me, but better. I want to understand volatility vs. implied volatility. I want to know my delta, gamma, and oh yeah theta (time decay) for all my stocks.

When I read and listen to value investors I want to do it better than them. I want to catch up with them, understand financial statements better. I want to be able to laugh at Benjamin Graham and say his strategies are out of date.  I want to COMPETE. It creeps up on me after everything I read.

When I read about automated trading, I say, "yeah, I'll go ahead and dedicate a year to analyzing data, creating models, tightening up my programming... Yeah I don't understand half the vocabulary here, but surely, I can do it.  It's all a matter of time."

When I read about healthy eating and marathon runners. "Yeah, I'm going to go ahead and train for this stuff." I actually have done a lot with eating plant-based, and I broke 100 miles in a month (102 I think) after doing more and more each month for the last couple years.  I do love jogging.  The point is the same:

The journey has enticed me to the point that I've changed direction to satisfy my desire to learn or explore until the newness wears off.  Besides my physical and mental conditioning, all explorations into subject matters have had this effect on me.

When I read about retiring in 15 years ("How to Retire Early"), I developed a spreadsheet and started filling in goals and current information to keep moving in that direction.  I'm thankful for the availability of information and my passion for learning. It's brought me to this point of realizing that I've been greedy and less focused due to the information overload of our time.  The fault also lies in my own propensities and predispositions, to be clear.

"Trader"

After my reflections on the certification, I edited my LinkedIn profile to the simple title, "Trader".  Who's my audience? People who want the things I want and feel the way I feel.

Fuck the information if it's not bringing me closer to my goal. I'm the reader who doesn't have to finish a book anymore (There's still a little hesitancy when I say that).  What's my goal? To make money. To be self-employed.  To match my salary with capital gains in the next 2 years.  What's going to get me there? Actions, not simply reading.  

Filtering information is like a mouse going through a maze.  Anecdotes, key words, authors, credentials, and results are all indicators I use to keep going in one direction or another.  I can spot a wall coming, and I tell when I'm going in circles. I have to be critical with the authors and with myself.  Instead of getting caught up in the anecdotes, digging holes in the ground, remain agile and tread softly, plant intentionally, and keep it moving.

I fight the urge to compete, knowing that in a marathon, sometimes you slow down and enjoy the scenery, sense the world outside of yourself, smell some flowers, converse with someone along the way, notice the sunrise, sunset, feel the breeze, whistle a tune because you're not out of breath.  

So yeah, I'm joining the race of traders.  Financial Risk Manager sounds nice, but it sounds like a lot of things I'm not trying to do right now.  What I will do is mark a few of those publications and books to read later this year. 

"The Innovator's Dilemma"

-Clayton M. Christensen

This is the book I'm starting this week. It's been on my shelf for months now, which is too long. I'm excited to share this with you.  I go pretty fast through texts nowadays.  I expect to get a few managerial tips, learn about some famous people, and who knows what else.  Following this text will be more focused literature on options trading I'm thinking.

Meanwhile, I'll also open up MetaTrader this week and get back to it.  So that's it for today, thanks.

L'esprit Supérieur

17Jun19

A counterpart to self; a complementary mastermind.  Moving forward in word and deed, I will speak of the movement as it develops.  “Slow motion better than no motion,” and “Slow is smooth, smooth is fast.”  

Since returning from cruise, one month ago today, I have slowed in some areas of my study. I am 21 books into my year’s goal of 44 before starting to implement a trading strategy.  The texts have been eye opening in many areas. Multiple exchanges and markets, forex trading, market strategies, financial markets, day and swing trading, technical analysis, retirement planning, and my passion, the energy market.  

Touching on multiple areas, I plan to revisit energy later this year or next year with a greater understanding and actionable items for 2020.  Next year is right around the corner and financial goals are being formulated.  Essentially, my goal is to match my current salary.  I’ve at least heard of capital gains taxes, and I’ll get to experience the 20% or so of it by that time hopefully.

My other actionable item before next year is to become familiar with trading software that can allow for higher speed buys and sells. MetaTrader4 and Plus500 have good reviews from my reading.  I’ll be paper trading for the rest of this year.  Meanwhile, I’m increasing the balance in my Robin Hood brokerage account.

Beyond these items, my life is consumed with family, work, and school.  Spirituality is reemerging and I’m finding solace in the simple things once more.  The big questions are: 

What are you trading 01Jan20?

How often will you be holding your trades?  

21Jun19

In the spirit of thinking outside the box, this entry will include vocabulary I’ve picked up so far mostly, with insights into my planning ahead. I have had little time to read in the last few days. I understand compound interest – P₁=P(1+i)^N. With our 15-year retirement goal, starting with $20,000, 30% is our golden number for i. With my personal account, starting with $1000, i=45%. So those are my realistic goals going forward.  This means that each month when I start trading, I should be getting greater than 45% returns.  However impractical it seems right now, it is my goal.  

Terms I’m becoming familiar with include volatility, trading exchanges, technical indicator, delta, gamma, MACD, RSE, ADRs (I want to acquire them… was thinking about Nikon, learned they were a Japanese company), multiple Net Value terms, balance sheets, 10K, quarterly and annual reports, NASDAQ, AMEX, NYSE, TYO, Chicago Exchange for commodities, P/E ratios, basis points, automated trading strategies, options, futures, forex, bull and bearish markets, seasonal trends are big to me, opening and closing prices. 9:30 est, 24 hour forex, bonds, securities, derivatives, OTC stocks, longs and shorts, limit orders, stop orders, DOW, small, mid, and large cap, dollar-cost averaging, equity, REITs,

The application of these concepts must be secure.  The structure of the market sectors is a key picture I’m working on developing. Parent companies and all their children can drastically increase the strength behind trading decisions, especially within the energy sector. “Money today is worth more than money tomorrow,” so I need to put my dollars to work asap.

03Aug19

A failed grad class later, evaluating my moves, I am at only slightly hopeful.  The trader is yet emerging, and as a baby cries as his 1^st teeth push through his gums, pain is a daily occurrence.  Timing hindered my success in my summer grad course. A slower, more concentrated effort now takes school’s place. I have downloaded MetaTrader4 and used it only twice so far.  

I have also opened a LinkedIn account and will begin to build my resume and network.  2 books more have been completed, and I’ll list them at the end of this post – January to the present.  I’ll begin my blog anew with this post also.  I feel as though my life is academia is over. Acquiring a bachelor’s degree was a personal goal to prove something to myself and others.  Pride guided my next decision to get into a graduate studies program at a more well known school. I settled on Purdue and spent days and then weeks on the leg work. After successfully completing one class, losing count of the sleepless nights, I waited a year to take the next one.

My oldest aunt passed during the middle of the class. I packed up the family and we made the funeral.  I fell back in the class, and it hurt for a week or too. Now that it’s over, I look back and take the L. My goal has never been to get another job working for someone else.  Academia in many ways prepares you for just that.  My work and family do not permit me to take on the responsibilities of a time-critical graduate level course.  This is the perfect season to continue studying independently; a perfect time to network and apply information from my research.

Books so far in 2019:

1. Energy Trading and Risk Management // Mack, Iris
2. How to Day Trade for a Living // Aziz, Andrew
3. Power System Economics 2nd Ed. // Kirshen, Daniel
4. Day Trading University // Ken Calhoun
5. The Guide to Stock Market Investing // Jason Kelly
6. Profitable Day and Swing Trading // Harry, Boxer
7. Keene on the Market // Andrew Keene
8. Money: Master the Game // Tony Robbins
9. The Playbook: Inside Look... Think like Pro Trader // Mike Bellafore
10. Digital Decarbonization // Council of Foreign Relations
11. Secrets of Antigravitc Propulsion // LaViolete
12. Automated Options Trading // Izraylezich
13. Using the Financial Pages // Romesh Vaitilingam
14. Essentials of Forex Trading // James Chen
15. How to Retire Early // Robin Charlton
16. Naked Forex // Dr. Walter Peters
17. Insider Buy - Superstocks // Jesse Stine
18. Commodities for Dummies // Amine Bouchentour
19. Seasonality in the Stock Markey // Jay Kaeppel
20. What Works on Walstreet // O'hannessey
21. The Investopedia Guide to Wall Speak 
22. Trade Like an Oneill Disciple // Gil Morales

Some of these were amazing, others were boring the entire way through. Something was gained from each of them. Often I liken research to putting together a jigsaw puzzle, which i love to do.  The more pieces you have, the more intimately you understand what picture you're putting together.  Experts would attest to this slow approach.  Besides, I love research.  More to come.