Friday, September 29, 2017

My very first option trade

The only way to complete a learning cycle is to practice it, acknowledge the outcome, learn from the outcome (mostly failure, if you got it right, you are just plain lucky) and repeat the cycle again. Cognition is defined by encoding, restoring and retrieving information. Most people with average or above intelligence can do first 2 steps with ease but the last step, usually tested an individual confidence level and I found that a lot of people are stuck at this phase because it involves something so dear to them (e.g. money).

In my experience mixing with people who took up a financial workshop or tutorial, especially those catered on investment, a lot of people took months to begin to start their first step even though they actually have nothing to lose except for their time (because you can practice your learned skills with virtual money or we called it paper trading). This will somehow define are you a person with high or low confidence and I will leave this for some other days.

I am one of the 6th batch of Pattern Trader Tutorial (Penang). I have graduated from the course and our real trading journey begins since the historical high hours of classes (yes, even the sensei aka teacher himself agreed about this!). It is by a very humble trader named Conrad Alvin Lim who is running his business under his company Financial Scents.

Having complete the tutelage last week, I decided to test one of the safest technique among our sensei's arsenal on the instrument which I had not touched before, Options.
Those who are trading/investing US stock or derivatives should be familiar with this chart. I plucked this from Think Or Swim, the analysis platform I used. Since I have closed this position so I guess this will serve as my postmortem report for my very first option trades.

Looking at my Stock Trader's Almanac, I found that I can take my Buy Call entry on SPY (SPDR S&P 500 ETF) by 26 September because it was a day with 40+% bull followed by 2 higher average bullish days (we always buy on the low/dip) and I was swing trading this position, I did not want to hold this over a week, thus I started my position by the entry point as labelled in yellow circle as depicted on above chart.

It went down to touch the first support of that day (S1). Since I have planned my trade and laid my stop target, I decided to call it a day and went to sleep (after it was a nice rainy night and I had just coming back from my stall). The next morning, I woke up from my first surplus in option trade and of course, it helped to enlighten my day. I continued to monitor the position to make sure the position went at least hitting my profit target. By the 2pm (EST) when it went parabolic and broke the resistance level (S2) which served as a new support for next day, I closed half of my position to secure parts of the profit and raised by stop target to entry point. You guess, our stall is closed on Thursday so that means I was working on Wednesday night so tiredness kicked in and knocked me to bed. No surprise as you can see, it forms another new high which formed the resistance (R1) as of the point this article is published, but it was well supported on S2. It broke the last diagonal support, though...Back then, the market was quite chaotic and I actually planned to close remaining contracts before today market open because it is quite bearish according to the Almanac and I remember there is October Effect.

I forget to put a stop on the ideal profit target on the blue circle (as in the chart) and went for this local made movie instead...
OK, I supported local made films and frequent visitor of JinnyBoy TV. I will just review it in another post and let's just get back to our position, shall we?

So after 2 hours off from the screen the movement of the position was quite clear that it was unable to brake R1 and began to slump with divergent patterns. In order to keep Greed and Fear in check, I decide to close all position as showed in chart and here is the summary of whole process since Tuesday,
$1088 capital with $270 return (24% ROI) within 3 days, some preparation, lots of checking (cognitively and emotionally). Again, this is not to boast anyone but to show you that if we are willing to learn, there is always something new to explore. How many times you ask that we can do this? I don't know, because I cannot foretell market condition (unless you are a psyche) and we shall never do so because it is not helpful to prove ourselves right in the market. Blessed to those who are humble (a reminder for myself), for they continue to know that they can be wrong and learn.

Should you wanna learn more about what I am learning, why not meeting up with my sensei? Next preview session:
Otherwise, you can always keep an eye on Pattern Trader Facebook for further info about next preview session and course date.

No comments:

Review: Cozy Atria SOFO

What is the best thing when you are hosted by your own friend? Discount? Sort of, because being the first customer who booked a new unit lis...