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Success With Options - Monthly Review, Issue #91-- October 2017 Edition
September 30, 2017
Hello,

Welcome to the October 2017 edition of this newsletter!

This is a monthly newsletter packed full of tidbits not found on the website. This is my attempt to stay connected with those who find value on the the website and want more.

Since this newsletter is published (nearly) every month, you are always up to date and empowered to be a better trader. That's because I'll be sharing lessons I've learned over the prior month, answering questions from other viewers and providing a spotlight on useful websites and trading tips. If you find this newsletter valuable, pay it forward and send it to your options trading friends.

To access previous issues of the newsletter, click here.

Having a Trading Plan - October Newsletter

Happy October! Have you noticed that the year has flown by? For me that's the case anyway. I've had a lot going on over the summer and before I realized it, the year is almost over.

How about that market? Just when you thought the rally was over, it seems to be on a new streak. Can we expect more bullishness into the end of the year?

We'll explore that question, start a new topic on options strategy, answer your trading questions and more. For more details, read on...

I'm always interested in receiving feedback on the newsletter. If you haven't done so recently, please consider taking a few minutes to visit the newsletter feedback page and let your voice be heard. This can be done anonymously so please consider how you can help make the newsletter better.


In This Issue

1) Options Strategy Focus

2) Answers to your questions

3) Options Outlook

4) Featured Products



Options Strategy Focus: Having a Trading Plan and Rules

This section of the newsletter will focus more deeply on the details of some of the options strategies I use in the tutorials and other topics related to options trading.

For the past 6 or 7 issues, we've focused on components of the trade entry. For the overview, check out the Feb, 2017 article. A great follow-up to this discussion is to now focus on the importance of trading rules and a trading plan. I believe I've made this case before. However, let me put what we've recently covered into context of how you'd use this information in a trading plan.

The overall goal of the trading plan is to provide a sort of recipe that you can follow consistently in order to generally see the same results over time in your trading. Your trading plan might consist of what instruments you trade, what strategies you trade, how often you review the market, etc. One important component would be the trade entry. That is, the process we discussed over the past several months.

Very closely related to this are the trading rules you'll use. This is more about the routines you employ, what you'll trade, when you'll trade, when you'll exit, etc. The way to think of this that the trade rules drive your overall trading, which may include a variety of strategies. You may then have a trading plan for each strategy you employ.

Why is it important to have trading rules and trading plans? Because it's easy to forget your process, skip steps, add steps, or modify steps over time. The risk then is that you experience inconsistent results. One aspect that I've realized recently that I've not been consistent on is the frequency of doing market analysis and considering trades. Most of the other steps I've gotten to the point of doing mechanically and consistently. However, because I've not been regularly analyzing the market and making trade decisions, I've missed some good opportunities and had some trades lose that I should have just exited.

You may have different areas where you are inconsistent. No matter what it is, you may find that the result is inconsistent returns in your account. How can you know how you are doing? Look at your trade log. Do you have a trade log? If not, you should! It's your window on your overall performance. Are you making progress or not? Do you have consistent gains? Are you consistently losing? It's hard to know without a trade log.

Similarly, having a trade journal is important. It's especially critical in your early days. It's what allows you to review and determine whether you are following your trading plan consistently. The trade journal entries can also help you review your trading plan to determine if changes need to be made.

I hope I've been successful in convincing you of the importance of having a trading rules and plans. If you don't have them, get going now! Don't wait. There is no "perfect" time to create them... except now.

If you have them but aren't following them consistently, make a commitment to start now. Start wherever you are at. Be sure to use trade log and trade journal and I'll bet you start to see more consistency in your trades.
 
For more detail on trading plans and trading rules, check out the trading plan and trade rules pages on the web site. Also, take a look at some of the other important topics related to option trading systems, including money management, trade journal and trade log.

As always, please send me feedback with any requests for topics or thoughts on what has already been published.

Happy trading this month!

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Answers to Your Questions

I frequently receive email from visitors to the site with questions that aren't answered directly from content on the site. Many of these are great questions and I think the answers would be valuable to all readers. Each month I'll be posting one or two questions, so stay tuned!

No questions came in this month, so here's one from some time back.

Q: I'm trying to find an easy way to back test a strategy that I'm considering. What is the best way to do that?

A:
First of all, kudos for considering back testing before beginning to trade the strategy live. There are actually a number of different ways to back test. There are some platforms out there that let you write entry and exit rules using a programming language or scripting language. The trouble is that many people don't have that kind of background.

In my opinion, there are at least two ways you can back test using the Thinkorswim platform.
  1. You can use ThinkBack. ThinkBack is a feature that's been available in the platform for quite a while. With ThinkBack, you can take advantage of historical closing prices of stocks, ETFs and the options on them. That means you could select a date for trade entry that's in the past, enter the trade based on your entry rules and quickly spin forward to the point where you find your exit triggered based on your rules to find out how the trade resulted. You can then log that information in a spreadsheet for tracking. The one limitation with this approach is that the charts are still based on the current point in time so to get an accurate picture, you'd have to zoom in and adjust the chart to make the right edge reflect the individual days. Another limitation with this approach is you can't set up limit and stop orders to close the trade automatically. The nice thing though is the data goes back quite a ways in time. You can use this feature on either the live platform or the paper money platform.

  2. You could also use OnDemand, which is a cool new feature of the platform that allows you to turn your entire platform into a time machine. What I mean is you can pick a point in history (currently only as far back as 12/6/09) at any time of the day and begin re-playing the data. This gives you a live feel to the trading. When you go into OnDemand mode, it affects nearly every feature of the platform as it will adjust the charts, analysis tab and everything. To keep from confusing yourself with your real trades, they disable real trading and you enter a kind of virtual environment much like paper money. Not everything is quite hooked up to this yet. ToS charts are available but Prophet charts aren't. While you can't go back in in time before Dec, 2009, the overall feature set is nice because you can trade tick by tick intra-day just as if you were there. So, you can re-live the 'flash crash' of May 25 and see how you'd handle it. The advantage of this approach is that you can set up closing orders (limit & stops) and test them.
There are probably other ways to do this and lots of variations on that theme. If you know of some other ways to do back testing feel free to contact me and I'll post them in next month's newsletter.

To learn more about the Thinkorswim platform, you can visit my broker review page.

If you have any thoughts or suggestions on topics that should be added to the web site or topics that should be covered in video, please use the feedback link or contact me link to let me know.

Help me ensure we have an interesting (and fresh) question or two to respond to next month. Submit your questions at this page.

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Options Outlook

In concluding this newsletter, I want to provide a brief outlook for what I'm expecting for the next 20-40 days. Before I do, I need to insert the following disclaimer.

 
This is not a recommendation to buy or sell stock, ETFs or options. It is simply my opinion of what I expect and how I plan to trade. As such, expectations may change if the charts indicate something different during the month.
 

September has seen pretty much of a rally since the early part of the month.

In the September newsletter, I summarized my outlook as follows:

"I'm still a bit cautious heading into fall. There has been a history of selling in late summer into the early fall timeframe. That coupled with the fact the the SPX is back near all-time highs suggests caution is called for. If the resistance levels near $2480 hold and we see another retreat, we may see that selling soon. If we can get a solid break above the highs established back in July, then we may see a fresh rally into the last few months of the year..."

Here's how September played out.



The rally we saw played out almost in classic fashion as we look at the overhead pressure of resistance at around $2484 and the up-trending support of the moving averages. The SPX initially re-tested the high, pulled back to support and then ultimately bounced to break out of the overhead resistance. Then, we saw a bit of a pullback to test the resistance that became support. In the process of this there were some really good entry opportunities.

This recent move makes me quite a bit more bullish. The move over the past few days has established a trend of higher highs and higher lows - classic bullish behavior. There are a couple of factors that will likely act as headwinds though. One is that the current value of the SPX is about $50 above the moving average. This will add tension, creating the possibility of at least a pause. The second is that the VIX is pretty low right now.

All of these factors cause me to look for pullbacks as good bullish entry opportunities and any extended pushes as opportunities for neutral to bearish trades that are short-term in nature.

As always, do your own analysis and whatever trades you enter, use good money management and have exit strategies in place in case you are wrong in your analysis. It's a good practice to be prepared with trades in either direction but not to act without confirmation.

Remember to stay nimble and alert. Make a point of doing market analysis every day, especially if you have open trades. If you choose to enter any trades, be sure to do your own analysis and follow your rules for entry and exit.

More on technical analysis.

Options strategies I use

Be sure to take time to provide feedback on the newsletter.

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Featured Products

I'm adding a new section to the newsletter. Feel free to disregard if you aren't interested in product information.

One of the more recent additions to the portfolio of services and products is the Live Web sessions. These sessions are recorded and and available for a very reasonable price of $12 per session. I've created a Newsletter Special. If you add all 4 sessions to your shopping cart, you can get 4 sessions for the price of 3 by using the discount code: WebEx4Pack

Some time back, I released the second for sale video. The title of this video is "Mastering Short Vertical Spreads". I now have a total of two strategy training videos for sale . Here is a quick summary of each.

An Introduction to Options Spreads
This video provides a good coverage of the basics of options spreads, including why they are preferable to other options strategies like buying options and selling naked positions. What I believe makes this video valuable is that it combines presentation with interaction. Once you have the basics down, you will be well-prepared to start digging deeper into some of the options strategies employed on this website.

For a relatively small cost of $29, you can own this video, which offers over 40 minutes of material. This package is very easy to install and use.

For more information or to purchase the video.

Mastering Short Vertical Spreads
The focus of the video is on one specific strategy, including all aspects of of the process. This includes:
  • Understanding the construction and how the trade progresses over time
  • Selecting the long & short strikes
  • Planning entry & exits
  • Managing the trade once entered
  • Back testing
  • Creating a trading system with the strategy
I'm excited about this project. Many know this is my go-to strategy for options trading. After watching the video, I'm certain you will understand why.

For more information or to purchase this video

Special Discount offer:
If you'd like to own both videos, you can do so for a bulk discount. Simply add both videos to your shopping cart and then enter the discount code 'combo10' to receive $10 off your shopping cart total.

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