Strategy design, Mr France & options trading

This blog post i am writing at Cafe 1001 on Brick lane. Saturday morning 9am. Stopped for my double macchiato on my way to the office.

The week ended up being ok. I fairly much worked according to my plan for Tue to Thu.  Tue i took time to look at the post-news strategy that i have had on my list for some time. And managed to park it for now.

The rest of the week i thought a lot about, and played with the idea to refine the EMA-based strategy that i have been trading for many months (which was not profitable). The idea is to merge that strategy with the use of technical patterns for setups.  At the same time I was spending a lot of time monitoring and analysing the charts of Cable, DAX and Oil – mostly on the lower timeframes (5M, 15M and 1H). I was going to posted some of the charts below so that you can get an idea of my analysis – but then I decided it was too much work to do that, and I already have too much other work to get on with.  What I will say is that i have removed all the indicators at the moment (other than moving averages).  Something interesting I heard recently (from Phillip Konchar) is that the 200 simple moving average (200 SMA) seems to work really well on all timeframes, simply because all charts on the Bloomberg terminals (which are used by a huge number of professional traders) have the 200SMA as a default setting – and most traders have not bothered to remove the setting from the charts.

So it seems that on the basis of this work i have narrowed my strategy selection to this, and will therefore continue my work on this next week. Now bear in mind, if i was working as a trader for a fund, i couldn’t just sit on my butt and refrain from actually putting on trades, whilst i adjust the way that i trade. I guess that’s a luxury of working for myself, however that can also be a drawback as I could analyse, plan and design for weeks or months on end without actually trading.  So, on that basis, my goal is to be back placing trading in the week after next. This will put some pressure on me to perform and work productively this week (and the weekends?).

Certainly my position right now must be 100 times better than a week and a half ago, when I was sitting on the couch, staring out at the window, being completely clueless about what to do next, and being mega-depressed!

Mr France

We have decided on “Mr France” as the pseudo-name for the trader to whom I have provided some trading capital.

The last three days Mr France and I talked for a good 2-3 hours at the end of each trading session – discussing risk management, chart analysis, market characteristics and some options theory.  This is proving to be very beneficial for both of us – since both of us are learning from each other and benefiting from the fact that our strengths and weaknesses are in different areas.


(“Options” are leveraged instruments, often referred to as “derivatives” because they derive their value from another instrument – e.g. Amazon Call options fluctuate in value as the Amazon stock price changes.  If the stock goes up, then the value of the call option goes up.  However the value is also driven by the time remaining to the option’s expiration date, and the anticipated volatility in the Amazon stock price until the expiration date)

Regarding options theory – I was looking at the idea of using options to act as part of position management – in particular parlaying/converting an existing CFD (contract for difference) position into an options trade to give myself for more upside potential whilst limiting the downside risk.  We’ll see how that goes. Note I am in no way trying to encourage retail traders into the use of options. Although they are portrayed as a great investment tool, they are a complete minefield – much more difficult to understand than trading in the spot/CFD market. They are an awesome tool for brokers or professional traders to “rip off the faces of their clients”, unless the client has really done their homework. (Using traditional 80s Wall Street jargon here – see FIASCO a fantastic read).  Remember I have spent about 12 months trading US equity options as well as 7 months working with market-maker for options on Euribor futures (this is the futures contract that institutions and corporations use to hedge the interest rate risk on Euro-denominated assets, liabilities and transactions).  So my view on options comes on the basis of this experience, but don’t take my word for it – feel free to try it out for yourself & good luck LOL.

(Oh did I mention that ORE Technology actually flew me out to Macau in early 2014 to give a retail trader’s view on FX options? So clearly I must know something, right? LOL!)

Right, coffee is finished. Off to the office I go.

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