New Year Resolution

Looking back 2020 was eventful year, yet taught me many valuable lessons.

I started to learn option trading in the early this year.  Attending the options classes, watching online video and reading many books , yet made many mistakes and incurred loss especially during March melt down.  

Those learning turned out to be essential parts of my trading journey.   I start to realize the importance to determine the suitable trading edge, trading strategy, then trading plan and trading journal. Like all business, without plan, is plan to failure.   In the process of developing plan, one is able to find out the way that is best suitable to him/her

In July, I started to develop my own trade strategy, and business plan, following the detailed trade journal , I was able to see which strategy work best for me.

As the year ends,  I am happy to see the fruitful year of learning. I currently manage two accounts, the following shows the performance of 2020.

Now at the first day of 2021,  I plan to make the following resolution.

1.  Further fine turn the trading plan and strategy;  to focus on the strategy selected
2.  Aim for 10% annual return.$3000/per month income from trading.
3. Aim for scaling up by teaching others to learn the same process and strategy
4. Make time for exercise and writing. 
5. Make time for children.

Wish 2021 to a blessed year for All

BABA Case Study

 On 24 Dec, BABA had black Swan News effect.  With antitrust probe news, BABA stock price falls 13%

Such news effect to the single stock, it is like Black Swan event.  That is reminder for all traders to have small allocation for single stock.  

Even with black swan event like this, BABA price level falls at 120% oversold level.  I have a position, 

Sell Put @ 245 Expire on 8 Jan.  the original premium received was $4.00.

After news and market selling off, the same put price was up to $31.00.  Some of traders in my trading group had decided to bail out, took 28K loss on the single contract.

I decided to hold BABA position till expiry, if assigned, I will take shares and sell OTM call to low the cost base.  I do have bullish bias for BABA in the long term.

I will keep update this position as the event unfold.

Updates.

30 Dec, 2020

The second day after news release, BABA had strong rally back, I entered bullish put spread was 50% profit after just 2 days.  The long term look it may fill the gap and return to 246 level.  I have also entered long butterfly and Iron condor for long term play.

Lesson Learnt

1. Always allocate your investment carefully, not more than 2% of your total capital in any of position;

2. Keep at least 30% in cash and free up buying power to maneuver the unforeseen event; 

3. Don't panic exit your position, following the trade managing rules, for event like this, while many other traders may exit their positions, it may be good opportunity to enter contrarian trades.

4. Always place some form hedge when there is no danger to be seen.

Option Trading Education

Today's internet has provided vast recourses for self-learning.  It seems that you can learn all kinds of things by yourself.

As new option trader, I have certainly benefited from many useful educational sites (most of them are free of charge).  I will share some of thoughts on self learning on Option Trading.

1.  Start with basic concepts

When you start to learn Option Trading, I would advice that one should take learning seriously.  

Option concept is not easy in the beginning.  There are Calls and Puts, one can be Buyer or Seller;  So understand each and every combination is like laying the firm foundation for future trading. it is very important to get basic concepts right at the very beginning.  

there are so many free recourses ready available online, I will recommend a few:

Option Alpha

This is one of most comprehensive course for beginners.   You can learn almost all Option Strategies from Kirk,  it provides round knowledge basis for option trading.

TastyTrade Mike and His whiteboard

This is also very good for beginners.  Mike uses slight different visual from Kirks, it's good starting points.

You can also search many useful youtubers, who constants adding their channel with useful and educational contents.

2. Study various strategy

The beauty of Option Trading is very versatile, you can make use of of many different strategy.  As the start, you should learn as many of strategies as possible, but one should find one or two strategies to focus on.  

To decide which type of timeframe suits your best.  To know it, of course, take time and trial and error.

That leads me to next most important point for Option Trading.

3. Paper trade first with your defined account size

I made this mistake.  When learning something new, we naturally get very excited.  I was very eager to try out what I learnt.....and it paid big price.

I strongly recommend PAPER TRADING first.

1). Using paper trading to get familiar with trading platform

In any trading platform, you will have to learn many technical points of order process, order types ; charting, scanning, and analysis so on.  Paper trading provides needed preparation for all of those.  It has nothing to do with Option Trading, but it will definitely affect your live trading, if you are not familiar with any of technical perspective.

2). Using paper trading to test and find out which strategy you would like to use

In order to understand certain strategy, you need backtesting.  Paper trading is just perfect tool for it.  Record down each trade for certainly strategy, and test Risk/Reward ratio and Probability of success.  It will take at least 6 months before you have clear understanding which strategy is suitable for you.  Then, stick to it, test for successful rate, journaling the trade and learning in those process will be most important learning journey.

3). Using paper trading to develop your trading plan and rule.

Once identify suitable strategies, you need to develop your own version of trading plan and rules which you should follow as if is Standard Operation Procedure.

When you start to work, you will be given SOP and rules, why not treat your own trading as serious as work for others.  What I found, the process to develop trading plan and rules, is a pivot point of your become a professional trader, not just play play.

4. Real Money trading- Risk allocation and management

When you start to move to live trading, your capital size plays important role as well.  You should pre define your comfortable risk level.  

Everyone is different, but trading is risky, you should only risk the amount you are comfortable to lose it.  

Let's say, you are okay to risk $500 per trade.  

There are few factors you must know before you place a trade:

• Risk/Reward Ratio
• Probability of Profit

Based on above, you can decide what trade size to take, which strategy to use........If you are not sure about it, go back Paper Trading.

5. Real Money trading- Be realistic of Return and understand in absolute terms

To fully understand ROI (Return of Investment), we need to look at absolute term and percentage term.

When someone tells you certainly strategy gives  300% return, make sure to ask, what is absolute return as well?

one can invest $1 and get $3, to get 300% return; also can invest $1000 to get $3000 to get the same 300%, and you can easily see the absolute return is totally different.  In theory, they are same, but in trading emotion and psychology, they are very different.  So you need to ask yourself to determine your own comfort level.

In my future posts, I will share more of my personal trading strategies.  

Wish you all successful trading!