Trading options can be alot different to trading stocks since...

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Neo

2,195 Posts.

24/05/15

22:52

Post #: 15341633
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Originally posted by Orwell ↑

Interesting discussion on cfds. I've never traded with them as I considered too risky but traded e mini warrants for a couple of years and some relevant issues emerged for me.

One was when backtesting my trading approach I was surprised at how much brokerage eats up any profits. I thought I was trading cheaply but surprising the impact over many trades when you measure it.

I also came to the conclusion that using stops gave me a negative edge. Stops are a fundamental of trading, but then 90% of traders are said to lose money. I suspect it's actually higher. The market has a natural volatility and spikes for a range of reasons. You can't control that and stops of any sort auto or mental take you out of ultimately winning trades enough to create a drag on performance and profitability. I think hard about systems of trading that don't use stop losses at all.

At the moment that's by long options trading where no matter how far against you the market goes you can simply hold the position. If the trends has clearly changed I can close it out but its not a price based stop level. Options are more like time stops.

I also have a longer duration than most here in typically 5 months or so trades and playing with calendar spreads to offset premium on long positions.. Also reducing position size so can allow positions to run against you more comfortably and hold them.

My experience reflects much of the comments above with the answer I think for me is to try and minimise the need for stops in your trading method.

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Trading options can be alot different to trading stocks since you don't necessarily have any directional bias, plus the premise of what you're dong is based more around probabilities/time & volatility. If you're trading mean reverting strategies based around volatility contractions/ expansions then it would make no sense to have a stop, you would only close out the position if your premise had changed- Otherwise you would keep rolling/ re-establishing your position.

On the other hand if you're trading a momentum strategy where you're simply buying/selling stock then not using stops could be the fastest way to wipe out your account. Whether or not to use stops is a decision that should be based on your trading style- While stops are detrimental to some strategies, they're essential to others.

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