Sunday, November 29, 2009

OEX OPTION TRADING EXPERIENCES! - No. #5 posting





NUMBER #5 posting on this BLOG

We have switched from the paper trading, ( using BIG CHARTS option Chain ) to a monopoly money, BROKERAGE VIRTUAL ACCOUNT, supplied FREE by OPTION HOUSE in Chicago.! The idea to familiarize ourselves with the order form layout Option House use on the internet. We are also still in testing stage of the method and gaining more experience. We expect to make 50% on the account, by February, if not sooner?

The general plan is to make 50% on this $5000 experimental account in real time trading through a broker, then move into a REAL MONEY CASH account.

We have wireless DIAL UP in our retirement home in the foothills of the Belize Alps. The maximum speed is 115 kps, which is VERY SLOW! We've found we cannot easily access OPTION HOUSE, nor the market time - OPTION CHAIN. However, what we have for home based internet is the best we can get. So we will work with it, as best as possible. It wouldn't be practical for day trading speeds though.

I'm using one of the family homes in Texas as a home address in the USA and of course I have USA bank account and Credit Union account. So sending a cheque from here consumes a bit of time. Mail delivery to the USA, takes about 4 days to 3 weeks, depending on diverse factors. I do have modestly, well off, grown children in the USA, who can usually mail a cheque for me to pay bills, that are in a hurry. Mostly my wife and I live in Belize and travel a lot in Central America and South America, our favorite traveling grounds.

The plan is to trade options for fun and profit. The profit ( if any ) will be donated to our favorite charity, for educational purposes. THE SAINT RAYMOND (non profit ) CHARITABLE, BENEFICIAL TRUST This TRUST is intended to supply GRANTS for educational purposes for Belizeans and their descendants, as may be. Since I'm 72 years old, I'd like to get a million dollars in it, before I kick the bucket.

For further information of a personal nature look up on GOOGLE, "retirement in Belize" ( an informative website ) and also "Western Belize Happenings", another BLOG I update, a couple of times a week.

AMATEUR OEX TRADER ADVENTURE INTO TRADING! - number #4 post

** You are supposed to be reading the trading data below, not looking at this pretty girlie photo!

Tuesday, November 17, 2009

NUMBER #4 POSTING

AMATEUR OEX TRADER ADVENTURES INTO TRADING - RESULTS!

( Two month results - 2 months, paper trading - 64% return of the total account at risk! -- The single biggest trade, made 104% return on paper money actually used )

Method chosen: KISS ( Keep it simple stupid! )
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PHASE #1
Start time in design and experimenting of trading system. Mid June, 2009.

PHASE #2

Paper trading start of methodology Sept. 12, 2009.
Number of trades: 8 trades
Result 64% return on capital in two months ending November 16th, 2009

PHASE #3

Switch to VIRTUAL TRADING PRACTICE WITH LIVE BROKER IN CHICAGO PITS.
Restart FRESH experiment with live practice, $5000 funny money FREE ACCOUNT!
( Result so far - 1st weekend up 6% )

PHASE #4

Switch to REAL MONEY ACCOUNT with original $5000 of CASH deposit.
( As of Nov.16th, 2009 this writing - this phase has not been reached. Expect to reach the REAL MONEY trading phase #4 around March, 2010? )
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PROGRESS REPORT ON THE FUTURES/HEDGE FUND TRADING

( Searching for an adequate description?) - The rational is; that I'm losing money with SAVINGS in USA money market, savings account and Certificate of Deposits at current interest rates and with INFLATION in the USA at 7% thereabouts. Living on a FIXED INCOME is seeing my purchasing capacity declining. Must do something?)

Hectic morning on the trading for the Futures/Hedge Fund being used to balance out the very low, Money Market and Certificate of Deposits miserable returns in the USA. These are losing money at the purchasing power rate of 7% a year to inflation. My savings CD comes due this month November and I'm cashing it out and putting it in money market to feed slowly into the Hedge Fund trading eventually in PHASE #4 if we reach that far successfully? Expected to be around February or March, 2010.

Graduated Friday last, to the Virtual Trading platform, with $5000 usa of their funny money, FREE GRATIS! Got out of that trade I made, with a 6% gain, or + $330 this morning

My hypothetical paper trading is now at an end. Made over the 50% I needed to graduate into the Virtual BROKERAGE money trading with my KISS OPTION TRADING METHOD. I see I started paper trading Sept 12th. 8 trades in all! Lost at the very beginning though! Trying to use a method that has no losses. Very restrictive! I made three mistakes in the 8 trades over two months. The first loss was due to my second guessing the methodology and tweaking it with an entry that was too early. Another lower returns trade than was expected, was experienced by a second bad entry, second guessing the mechanical system. The third error was leaving on the EXIT signal too early also, and taking less profits, due to impatience and fear! Once I settled down to trusting the methodology ( KISS ) things went better with fairly mechanical ENTRY and EXITS about 95% and roughly 5% a final judgment call as to TIMING on EXITS.)( I'm learning to exit on volatility ballooning of premiums - I think? )

That paper trading in 8 trades netted me 64%, or a balance that started with $5000 usa and ended up with $8230 this morning, Nov. 15th, 2009. When I exited the remaining 3 trades that were running.

So my intention to switch from hypothetical paper trading, to virtual trading with the brokerage account worked out well, even though it was a weekend premature. The next step is to move into real CASH trading when this virtual account does 50% as a gain. Step by step, slowly, slowly! Trying to master and get control of the emotions of GREED, PANIC and FEAR. Let the system prove itself first as we go along. THE KISS MONEY MACHINE! ( laugh )

12 Sept made +$750 for balance starting with $5000 of $5730 ( -$20 commissions )
2 Oct lost -($1620) balance of $4090 in account
6 Oct +$580 with ending account balance of $4670
8 Oct +$320 with ending balance of $4990
21 Oct +$380 balance now of $5350
29 Oct + $1070 balance now of $6400
4 Nov + $1510 balance now of $7890
11 Nov ( my birthday - 72 years old ) +$360 with an ending balance of $8230
( $20 commissions deducted for each trade, which may skew the balances here )

END OF PAPER TRADING

Switch to brokerage virtual trading with funny money. Current balance $5330 starting with $5000 6% gain Nov 15 over the weekend. Nervous about the sideways action and EXITED early on a 5% methodology JUDGEMENT CALL, before actually getting an EXIT signal.
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Started the methodology experiments back in mid June/2009. Took about 3 to 5 months to work out the methodology and learn it and learn to trust it. My first loss, was because I didn't trust what I had done. I second guessed it and screwed myself.
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Going to have to buy a generator. The BEL electricity in Western Belize went off this morning in the middle of a volatile opening session. I couldn't follow it. When the electricity came back on about an hour later, the market was running away from me and the volatility and ballooning was very high. I couldn't get my websites loaded again. I got the DOW numbers off the cable TV while doing breakfast. Darned electricity nearly ruined everything. You have to sell into ballooning volatility. You get inflated premiums.
Even so, the market had started leveling off and the collapse of the premiums was already evident by the time I got into the web site, after the electricity came back on. Sold my virtual trade first. It dropped about $20 while I was trying to get it all together. With the slow dial up wireless internet, ( 115 kbps ) everything lags and takes precious minutes. ( going to buy a generator in Belmopan I guess? ) Then I exited the three paper trades I was holding to collapsing volatility ballooning. Lost something, but overall did well.
Am now into phase three, which is the move from methodology research and testing, to paper trading and now into the ( Phase #3) - Virtual Trading. Next step phase 4, will be real cash trading. Probably by March? Maybe even February?

Goal is $250,000 in two years starting with $5000 and putting additional $5000 capital periodically on a money management formula I have designed. Lots of fun, to see how we do here? ( grin! ) Hell I'm alive the adrenaline gets running and feels good mon! An old retiree needs some mental challenge!
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Informative web sites of the author trader here: "Western Belize Happenings" webpage ( use GOOGLE ) ( Over 600 reports of retirement in Western Belize, ( ETERNAL SPRING weather ) with photos. ) Also check out RETIREMENT IN BELIZE, webpage, and my home in the foothills of the Belize Alps. _______________________________________________
Posted by Western Belize Happenings! at 2:04 AM 0 comments

OEX OPTION TRADING PRACTICE! - No. #3 posting

NUMBER #3 posting

November 8, 2009
OEX OPTION BUYING TRADING PRACTICE!
*** This is me trading OEX Options some 18 years ago. Been out of it for a long while and have had to re-learn everything. Takes time! The market has changed also. Back then, it cost me $150 usa to $300 usa just for commissions, versus the $20 round trip commissions of today. Don't remember, but think the SPREAD between BID and ASK prices is wider today, taking up some of that possibilities for profit. A lot of indicators take the place of bar chart reading we used to do back then as well. Though I'm finding those skills are still good and effective. Indicators are lagging and rarely useful in real time trading. The chart bar reading is better and have selected two excellent patterns for trade signals, then backed up by computer indicators, which can warn you of the trend, or potential changes.


OEX TRADING DEVELOPMENTS

Am running about one month behind schedule. Due to the difficulty in getting the internet connection out here in Hillview, in Western Belize. Finally got it. Now we can trade via the internet. To sum it up, have been paper trading and studying since June of this past summer and it is November now. Figure I'm ready and signed up for OPTION HOUSE at the CBOE exchange. This is an electronic trading platform. For the next two months plan to VIRTUAL TRADE, using their FREE trading platform. Come Monday, I will try and get into their setup and learn how to use it. Option House give you a fictitious $5000 account to practice on. Paper trading and real money OEX option trading, or the SPY trading is different when you use real money. I'm hoping the VIRTUAL trading platform will overcome the inhibitions and lag time on MARKET FILLS reality check. As you can get a slide on the prices you want to buy, or sell at. This differentiates between paper trading and real trading. Also I get real time data, so want some practice with that. I've been using BIG CHARTS, which is FREE, but half an hour or more DELAYED data. Okay for learning on, but not so good when you are trying to get FILLS for your orders.
Have given up this week on the DAY TRADING trials. I wanted .50 cents, but the market doesn't move enough to give me that. Sure, the market on a daily bar can show an 8 point OEX move for the day, but most of that is early morning orders that are very volatile occurring in 30 minutes with BUY or SELL on OPEN orders. The prices smooth out and lose the volatility by 10 a.m. The volatility and SPREAD between the bid and ask prices can run .30 cents to .80 cents, or about 2 to 3 OEX points and that has been impossible to accomplish this past week. Was reading about some guy making a $100 a day net, doing several trades a day, just going for .15 cents on the SPY index. Will probably look into the practicalities of that later. I notice last week, the best I could get on BIG CHARTS which is delayed data was .30 cents. Not likely in real time, with real money?
My POSITION trading is working well and since these run a week to three weeks, better suited for my temperament. The plan is to move into a REAL MONEY trading account January, or February. I've chosen OPTION HOUSE as my brokers here in Chicago. A missed .10 cents, or .20 cents is not critical on POSITION TRADING with the slide for bad fills, over a longer time frame, the blogs are reporting on the Chicago Board of Trade Exchange. We'll see how it all works out? I'm kind of working on the premise of attempting to trade with no losses, which requires good market timing directional skills. Think we have that now?
Posted by Western Belize Happenings! at 1:29 AM 0 comments

OEX OPTION TRADING PRACTICE! - # No.2 :Posting

Thursday, October 29, 2009
OPTION TRADERS NEED NERVES OF STEEL!


NUMBER #2

OEX OPTION TRADING WITH $1500 to start!

What kills amateur option traders is the practiced skill lacking in being able to sit through a SERIES of whipsaws, during a movement. Fear and Panic overwhelm them in the gyrations of the prices when their limited cash is disappearing fast in a whipsaw. Which happens all the time! You have to have conviction in your system and indicators and obey the RULES you designed to trade.
What kills amateur traders in options is they spend a lot of time devising a system, or methodology and then violate that system by disregarding their own rules when FEAR and PANIC come in whipsaws.
CAN YOU START TRADING WITH $1500? The answer is YES! The probability of your succeeding is very LOW. The reason is that you are not able to practise MONEY MANAGEMENT. You cannot take a LOSS, not any loss, as you are trading with 100% of your capital. $5000 is a better starting point and you start with just one option. That way if you lose, you have enough money left to win it back. Even at $5000 you are high risk, because you can only swallow ONE LOSS and come back, so the ratio is roughly 25% of your capital is tied up in one TRADE, or BET on market direction. Futures traders like to gamble only with 2% of their capital. A minimal bet in OPTION trading on the OEX is around $1500 or a little less. Just for one option.
The second thing that hurts amateurs is taking profits too soon. Instead of riding a trend for maximum gains. They tend to take a loss on the first whipsaw, or cash out at the first consolidation instead of riding it through. It is partly emotional and partly inadequate experience that causes would be amateur traders to lose. Taking small profits, instead of triple the amount what you won, is another killer for amateur traders in options. Small profit taking, pushes the odds against you, for the inevitable loss you must endure. You need larger profits to offset the inevitable unexpected loss. Ideally you want to devise a trading system that is 100% a winner, all the time. No losses at all. When you do that, you GOT IT!

Trading from my retirement home in Western Belize in the foothills of the Belize Alps. See "Western Belize Happenings" blog for over 600 articles and photos on life in this laid back part of the world. ( author of half a dozen books on OEX Option Trading. )
Posted by Western Belize Happenings! at 4:14 PM 0 comments

No.1 OEX OPTION TRADING VIEWS, Sept. 2009

*** Ray Auxillou potting nuisance pigeons with a slingshot, in his retirement garden, in Western Belize ( Sept. 2009 )


Wednesday, September 23, 2009
OEX OPTION TRADING VIEWS, Sept. 2009


NUMBER #1

OEX OPTION TRADING VIEWS

It’s been 20 years since I did OEX index option trading. I even wrote several books on it. Mostly I wrote them as references and reminders to myself. Then I went out of the business. Some libraries have the books. I made some money in stocks. That though was too slow and the annual returns too low for me. The game is sweeter if you can do it faster. Options are attractive because there is limited risk. When you lose your capital, that’s it baby. The end of the game. Whereas in futures and commodities, you have unlimited risk. You can lose your shirt, house, car and wife. I’m in retirement and it wasn’t either by trading options, or stocks, though both helped. It was real estate that we got our family nest egg for retirement. Real estate is a very slow game. Not exciting at all.
Options are harder to trade than futures, currencies and commodities and they take a different style. The attraction is ‘limited risk’.
That said; the statistics show 90% of the people who try option trading, go bust with their account. Only 10% make a professional living at it. Of the 10% that do make it, only 2% actually make big money. The rest make mediocre earnings. I’ve known a couple of traders that regularly made $75,000 a year, off a $50,000 starting stake each year. You probably can make between $75,000 and $150,000 if you are in the top 2%. Only the top trader in OEX index options is a GOLD MEDAL OLYMPIC QUALIFIER though.
The attraction with trading OEX index options is limited risk, the challenge of going against the best. There are probably no more than a thousand active OEX option traders at any one time? Lots try it and go bust and leave.
So what is involved with trading options? There are lots of choices, lots of indicators, lots of strategies, prices galore. Options are about TIME DECAY, MARKET DIRECTION, the SPREAD between the BID and ASK and the commission costs. In a nutshell that’s it. You can forget all the strategies. I’ve tried a lot of them. There are three things in options, and this is mostly MARKET DIRECTION. Now market direction is either UP, DOWN, or SIDEWAYS. No matter which direction you guess, the ODDS are going to be TWO to ONE against you. Your BREAKEVEN COSTS alone, mean you have to get the MARKET DIRECTION guess right, and the cost is usually around 3 ½ OEX index points of a move. Lots of times the MARKET DIRECTION can be right, but the move so slow, that daily TIME DECAY eats you up, before you move enough to break even.
If you experiment and try all the strategies, it always comes down to MARKET DIRECTION. Now this is not hard to guess. What is hard to guess is the TIME DURATION of your guess. We never know how long the market will go, or how far and how fast in a given, of the three directions.
The people who make money consistently in options are the sellers. They do better than the buyers. The buyers though, can make more money IF THEY CAN GET IT RIGHT!
If you are a gambler then it behooves you to BUY options. Buying has it’s own string of problems, not the least of which is the ODDS are TWO to ONE against you before you start. To win at BUYING you have to have the TIMING correct 100% of the time. Losses will whittle down your stake in quick order among other things. You lose to the loss and contrary market direction, you lose to time decay and you lose to the spread cost between the bid and ask, you lose to a market moving too slow and shallow, and you lose the cost of commissions. LOSSES are verboten! That said; a volatility day trader friend of mine, starts off with $50,000 each year and can have drawdowns ( losses ) that can drop him as low as $15,000 before he gets himself under control and turns it around. By the end of the year, he always seems to make his $75,000 profit target though. I couldn’t do that at all. Not in my character makeup.
So, how do you BUY to get a 100% correct TIMING DIRECTIONAL GUESS? There are oodles of indicators out there, and a few hundred trading systems. Most of which will work in one fashion or another. An example would be a simple moving average. Crossovers would tell you when to enter and exit. The problem is the other variables and nuances your brain must compute. One warning about technical indicators, they are based on historical data and inaccurate, usually about half a cycle back, which can be six or seven bars, of whatever time period you are trading. The future events corrects those indicators in the past as it happens, which doesn’t do you any good, because you must trade only by price, in the present moment. Only immediate price action counts. You cannot forecast the future from indicators.
Newbies always think if they had a set of rules and a system, that some winning trader had, they could get rich. Nothing could be further from the truth. Trading is not about a system, or rules, though both items are necessary to have. The battle in trading is with yourself.
EGO is probably the biggest problem. When you win a series of trades and are feeling like a rooster, ( crowing away and patting yourself on the back ) you start to make other mistakes. You get a swelled head and the market will turn against you. You become your own worst enemy. There is also the problem of RUNS. Runs come in winning and losing streaks. The SECRET is to find just one SIGNAL, or pattern, or indicator, or something you instinctively recognize, the moment you see it. A signal that says the market is going to go in one direction, or another, then you can pile it on and trade it and make your fortune. It only takes one signal! The problem with this is; it is boring waiting for the signal. Turtle traders in futures trading will tell you, they sometimes have to wait 8 months to get a viable trend signal in the Turtle Trading system. Its worse than the army, where you have short moments of rushing around, and lots of hours and days of waiting before hand. ( HURRY UP and WAIT! ) So IMPATIENCE kills a lot of traders. They overtrade, take too many shortcuts and try dubious things in their hurry to get rich quick. What they get is going broke quick. Your private price signal should give you two things. The direction and the probable strength of the move, meaning in the amount of index points covered and in the probably time frame. Option buyers are fast traders when they trade. The time frame is usually short. How short? Can be 7 minutes for a day trader, trading a volatility signal, or ten days in a position option trader. Or somewhere in between.
There are too many variables for me to discuss them all in this short piece. Like learning to play the guitar, or type on a keyboard using all your fingers and thumbs, or do a double back flip off a swimming pool diving board, only practice will make you skilful in the top 10%. Things you have to learn to control are GREED, PANIC, FEAR and second guessing yourself in whipsaws. That is the real secret in trading, not the methodology and rules. The latter are necessary and help, but not if you don’t control your emotions.
As you can guess, I’m getting ready to dip my toe in the water once again in my old age. Retirement is boring without a challenge. Don’t need the money, but do need the mental challenge! The money is only the measure of how successful you are. I’ve been in the top 10% before, but never in the top 2% and somehow I’d like to get there. To give you an analogy, as a youngster I was a long distance marathon runner. Often got in the top half, or the top third, and even occasionally in the top 15%. In option trading that is not enough skill, or stamina. Another analogy is learning to play the guitar. Can’t remember how many times I’ve relearned to play a half dozen musical instruments. It just is not my vocation. I lay off for a year or two, then have to go back and relearn all the old chords and songs again. What you need is constant daily skill and practice in option trading. As a newbie, I recommend you do a month diddling with historical data on a daily basis, picking out your SIGNAL to enter and exit. Then spend a minimum of three months paper trading. I’m just coming near the end of my new paper trading session. Longer practice is better, if you have the patience. Your skills have to become intuitive from built up practice and confidence. Only then move into real money. The game totally changes when you go from paper trading, to real money and losses and mistakes become real money. It is not funny to start with $10,000 and lose $7000 in two or three days. Very damaging to the EGO. The emotions kick in and turn you wild with adrenaline. The enemy is NEVER the market action, it is always YOU, the control of your emotions, if you picked your signals right. In any given month you can get four to eight signals to buy. Of those, only one or two signals will be the correct ones. Then the problem becomes dealing with the trade. Can you confidently sit through an unexpected reversal, while watching your money melt away? Will you grab profits too soon, instead of maximizing, where the riches really are? Sure, anybody can tell you when to enter and exit. Or sell you a trading methodology. Only YOU developing intuitive experience on the job, hands on, can turn you into a successful trader though. Otherwise you will end up in the 90% who tried and failed. NEVER use money you cannot afford to lose!
This is my second time around at catching the brass ring. For me this is FUN! Which of course is the real goal here, when you turn 72 years old. There isn’t much you can spend money on, to have fun, when you get old.

Ray Auxillou, email: hillviewhacienda@yahoo.com
Posted by Western Belize Happenings! at 1:01 PM 0 comments

Trial entry on new OEX OPTION TRADING EXPERIENCE BLOG

Testing beginning of BLOG on OEX OPTION TRADING EXPERIENCE