I play poker and trade options, seeking edges from study, reflection and analytics.

Trading Style and Strategy

Trading Style and Strategy

In planning this site, I decided that a dual blog strategy made sense. I thought subscribers interested in my journey’s broader context (/blog) might not want notifications when I publish trades (/trades) and vise versa.

Given the hot start, my trades subscribers are probably wondering about the man behind the trigger. Where is he coming from? What is he thinking? Why the website? This post will address those questions. Blog readers will also find hints about future topics.

Why am I trading?

I have been an avid market watcher and participant for nearly 20 years, profiting from long-term investing but often taking trading losses. Who in the retail community can’t relate? But, I want better. Most pros say they spent years figuring out what works for them.

With the right framework, I know can trade successfully. When I say framework, I’m thinking:

  • Awareness - what drives markets and participants, context and bias, relative skill, technology and resources (i.e. edges)
  • Strategy - set goals and limits, act with reason and intent, think ahead, improve with analytics and new knowledge
  • Discipline - patience, accountability, trading the best setups and avoiding the rest
  • Psychology - high EQ, confidence, handling losses (and wins)

hint blog readers, future topics ↑ subscribe here

Many of my thoughts on framework materialized over the last few years while I worked on my poker game. I had several breakthroughs and revelations listening to Andrew and Nate on the Thinking Poker Podcast and reading Ed Miller (Poker’s 1% and The Course). Pairing the “soft skills” above with my market experience will make me a more complete and effective trader.

I enjoyed my time in the brokerage business, when I was working with clients versus smiling and dialing until my cheeks hurt. If I can acquire a reputation for knowledge and relative skill, then I would consider getting back in the game on some level.

Building on the blogs, I am inspired by a book idea that tackles big themes like personal gifts/challenges, choice, risk, time, success/failure and more. Much can be learned about life from environments where skill, strategy and variance determine outcomes, and my book will be much more compelling after reaching my trading goal.

Trading profits are achieved through buying low and selling high, and trades are entered and exited within a relatively short period of time. This time period can vary from a few seconds to months or years, depending on the trader’s style.
— Investopedia

What is my style and strategy?

Traders constantly adapt to changing market conditions; the best continually hone their craft. Therefore, when this questions comes up again, this post will be a marker for contrast.

I am a swing trader with an eye for technicals and long setups. I use candlesticks, chart patterns, moving averages and momentum indicators to gauge buying/selling strength and direction and set profit/loss targets. Stocks in existing trends with clear fundamental stories present the best trading opportunities (when market events and shifting sentiment cause temporary dislocations in price). The best entries are near support levels, relatively far from upside resistance. Unusual options activity helps occasionally as it did in trade #002 YNDX Calls.

I trade options. Besides gambling in the pink sheets, I’m not sure how else a three figure account moves to four, five and up without A LOT of extra time. Trading equities, ETFs and other securities may make sense at higher capital levels, but I first and foremost consider myself an options trader.

I look for directional plays, focusing on deltas and thetas, the latter being especially important in volatile markets. Consider trade #001 FIT Call Spread. I thought FIT would rise modestly into earnings, an event that often pushes volatility, premiums and thetas higher. I opened the position nearly in the money and profited from the spread’s long and short components as FIT eclipsed the upper strike price and held through expiration.

Analyzing my small sample size (5 trades), I initiate a new position once every 11.8 days with options expiring in 21 days, and I stay in each trade 5.4 days. Like playing a TAG style in poker, I closely track a few stories, trade only the best setups and bet aggressively.

I had an “ah ha” moment watching a recent setup in FIT. The stock was clearly consolidating, but big volume came in the Sep 27th weeklies. It looked like traders were just gambling! The next week, FIT presented a fantastic long setup that could be confidently traded, and I nailed it. Suddenly, the market felt like playing in a splashy 1/2 NL game.

Which trading tools do I use?

I place trades with optionshouse. Low commissions are one of the platform’s best attributes, but the recent E*Trade acquisition might improve functionality. I like the “Analyze in tradeLAB” feature that calculates trade probabilities and potential and surfaces upcoming event data (e.g. expiration, earnings and dividends).

For the bulk of my chart work, I use Tradingview. The cloud-based toolset is very precise, and the free tier is feature-rich. Stepping back to style, I tackle a new chart from a monthly view down, setting major support/resistance levels and looking for trends. When I understand the long-term picture, I toggle between the daily, 2-hour and hourly charts looking for trading opportunities. I might use a 3-minute view when timing an exit, but I usually stay above the noise of minute by minute trading.

Why do I blog trades?

Blogging adds an accountability layer that is otherwise absent from independent traders’ framework. Publishing each trade’s thesis and levels ensures thoughtful, disciplined decision-making.

However, that extra step can result in missed opportunities. Take last week’s setup in Transocean Ltd. (NYSE:RIG). The stock broke out of a falling wedge then pulled back to/held a supporting trendline and moving average. I entered a buy stop limit order for calls but ultimately cancelled it to work on this post; I didn’t figure time for writing both pieces and monitoring the trade, and I missed a big return.

 RIG breaking out of a falling wedge, holding support and rising sharply.

RIG breaking out of a falling wedge, holding support and rising sharply.

For the first time, I am trading and playing poker with clear purpose.

I am trading toward long-term goals (e.g. returns, writing, professional). I am playing poker to pay the bills - I will push for new experiences, accomplishments and big wins in the game, but I can’t wait to play for fun again... like David Einhorn.

Lead image modified with Creative Commons license.
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Creating a Personal Website or Blog - Do These 10 Things

Creating a Personal Website or Blog - Do These 10 Things