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
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
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
feedback page and let your voice be heard. This can be done
anonymously so please consider how you can help make the newsletter
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
For the past 6 or 7 issues,
we've focused on components of the trade entry. For the overview, check out
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
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
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
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
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
already been published.
Happy trading this month!
Back to the table of contents.
Answers to Your Questions
|I frequently receive email from visitors to the site with
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
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.
- 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
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.
- 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
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.
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
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
Back to the
table of contents
|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
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.
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
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
rules for entry and exit.
on technical analysis.
Options strategies I use
Be sure to take time to
feedback on the newsletter.
Back to the
table of contents
|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.
more information or to purchase the video.
Short Vertical Spreads
The focus of the video is on one specific strategy, including all
aspects of of the process. This includes:
I'm excited about this project. Many know this is my go-to strategy for
After watching the video, I'm certain you will understand why.
- Understanding the
construction and how the trade progresses
- Selecting the long & short strikes
- Planning entry & exits
- Managing the trade once entered
- Back testing
- Creating a trading system with the strategy
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
table of contents