Wednesday Update: Am I Doing This Right?


"Am I Doing This Right?"

Based upon a number of "Am I doing this right" questions, a review of the system. There are some hefty returns on the trading table, while some individual trading results are coming in way below those numbers. That doesn't equate to trading the system wrong, it equates to trading the system right. Let me explain.   

The column on the the Table Table Summary with the heading "Best Return" represents the highest and best return that was seen for that option since the date the trade was triggered. The trading system does exit the trade at that level because we only know that level in retrospect. Each trader sets his or her own profit-taking exit per trade and then exits the trade at that level, either in its entirety or leaving a smaller amount "on the table" for further gains. Those further gains can either be set at a higher profit taking target, or, held to that option's expiration.

Profit Taking

Early in the service I was recommending using a +100% profit taking target against a 50% stop. For new subscribers I recommended an even lower profit taking target, 50%. As the system stumbled in mid-year, that turned out to be the better target. 

As you can see, once the bear market took hold, the +50% profit taking target was missing a whole lot of gains. Even the +100% targets were missing some huge returns. For January expiration 19 out of 19 trades have hit +100%, while 17 out of 19 have hit +200% and 11 out of 19 hit +300%, or better. The current SPY has hit +891.78% on December 24th. 

We will now start using February/March for new trades and with the best of the bear market still ahead (Wave 3 of 3). Using +50% still will work fine, but it may exit trades way too early. Remarkably, the same can be said for +100%. We are in a still developing bear market that should produce more months like November and December's trades which are the ones using January expirations. 

Suggestions For Increasing Net Returns

(1) Diversify profit taking targets. Use a combination of +100% to +200% targets, or anything in-between, or even above, or below;


(2) Leave a little more on the table, i.e. take half off +100%, making it a risk free trade, and manage the half remaining (which is actually the original amount of the trade) using the same or another profit taking target. 

Most of all, keep your trade management as simple as possible while attempting to increase net returns. If you want to still take only 50% per trade, you still are trading excellent, yet simple trading system.  

While early to mid-2018 was a challenge, as Bob Dylan observes, "Things Have Changed.

Trading Table