Report #31, Trades status TEST SPREADS

REPORT #31 TRADES STATUS UPDATE

MAY 21st., 2010 May Expiration Friday for options.

Number of trades to date: 16

Number of winning trades: 16

Number of losing trades: 0

Open trades pending working: 0

Percentage of wins to losing trades: 100%
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THE LOWEST RISK, EVOLVING TRADING SYSTEM

I was looking for the lowest risk trading system possible. In ten months, we have tried numerous things and discarded anything that had regular losing trades as part of the methodology.
What is evolving is a LOW RISK, TRADING MONEY MAKING MACHINE!
What is the actual risk I am not yet sure? We haven’t lost anything yet.
Some statistics can be extrapolated from trading so far:

1) The trading method is earning an average of 4% on invested capital / per month.
2) That means $10,000 will earn $ 400 gross profit return per month on average.
3) Dependent on the size of your account, you can judge whether you will have enough money on a monthly basis to use as an income flow.
4) This is gross income, and I have not yet found an accurate figure for income tax payments. But these seem to be between 28% and 30% per year off the gross income.
5) Annual income would be on average, 48% per year of capital invested. Income tax would reduce this to a gross income of 48% per year, to a net income FLOW OF 33.6% of capital invested, return on capital.
6) There are several things involved in RISK MANAGEMENT. To get the lowest RISK PROFILE, the available account capital to trade on a per month basis is divided into 8 trades. This is called diversification. The individual return on capital per each trade varies, dependent on the part of the month the trade is implemented. More diversification of trades can lower the 4% gross return on capital invested somewhat. Concentration of trades into fewer choices increases the profit profile but increases RISK. Some months; the opportunities only allow 6 trades, leaving some account money unused for that month with which to trade. This lowers the return slightly.
7) INCREASING THE PROFIT monthly profile, requires changing the risk profile and increasing RISK.
8) There are two ways to increase the PROFIT PROFILE. The first is to consolidate the 8 diversification trades into only 3 trades per month and place these at the early part of the monthly trading strategy, when the premium gap is largest. You can get increased profit return, over 5% per trade this way. This of course increases your risk of loss from concentration.
9) The other way is to increase your number of contracts traded on a per trade basis. Or more selectively throughout the month. We are working on this study.
10) It would seem that $250,000 would be a comfortable trading account to work with? The particular market I am trading, which is the OEX CASH INDEX is very liquid and can absorb this amount and the gross return would be $10,000 per month. Or $120,000 per year, GROSS.
11) For larger amounts of money, you would have to go into parallel cash indexes, or stock screening and run a number of parallel operations at the same time.
12) This cash machine utilizes ALL your capital each month. It is a monthly / weekly trading system.