Tag Archives: Profit Management

Archive, Retrospective

Retrospective for January 21

Posted on by Conor Browne

Adapting to Market Volatility: Insights and Strategies

Quick recap

Ernie shared his trading experiences and mindset, highlighting the importance of not focusing solely on win rate but also on preserving capital and being comfortable with small losses. The team also discussed the current state of the market, with Ernie predicting a potential rise due to inflation and the Federal Reserve’s monetary policy. They also discussed their trading strategies, with Ernie emphasizing the importance of managing premium decay and focusing on the directional aspect of the strategy. Towards the end, Ernie discussed the potential risk of overconfidence after a series of successful simulated trades.

Summary

Trading Strategies and Mindset
Ernie and Laura had a conversation about trading strategies and the mindset behind successful trading. Ernie shared his experiences, mentioning that his trading week was somewhat successful, with mixed results but no significant losses. Laura praised Ernie’s handling of challenges and his confidence in his methodology. They also discussed the importance of not focusing solely on win rate but also on preserving capital and being comfortable with small losses. Ernie emphasized the need to understand the edge and avoid risky strategies that could lead to big losses. Kevin agreed, highlighting the importance of accepting small losses.

Austrian Economics and Trading Insights
Kevin, Ernie, and Laura had a discussion about a book on Austrian economics. They appreciated the author’s storytelling approach and the comparison of Austrian economics to the evolution of conifers. They highlighted the importance of skills like controlling drawdowns and staying in the game. Ernie clarified the role of market makers in the stock market, emphasizing their role in providing liquidity rather than manipulating the market. Laura expressed interest in learning more about order flow, which Ernie acknowledged as challenging but important. The discussion concluded with Kevin emphasizing the need to learn from experienced traders.

Trading Strategies and Market Analysis
The team discussed trading strategies, with Ernie elaborating on a fisherman’s net analogy, comparing it to their wait-and-see approach. Kevin and Laura added their insights, noting that the added money butterfly does not significantly impact their strategy. Later, Dave raised concerns about changes in the meeting link and calendar, which Ernie acknowledged and attributed to user issues. Ernie also mentioned potential changes to the daily meeting link to improve functionality. The team also discussed the current state of the market, with Ernie predicting a potential rise due to inflation and the Federal Reserve’s monetary policy. Ernie also demonstrated a technical analysis exercise, predicting a value of 5,239 using an ABC correction. Towards the end, they briefly touched on astrology’s influence on the market.

Roundabouts, Boston Driving, Investing Strategies
The conversation covered various topics, beginning with a discussion about the reemergence of roundabouts in Connecticut and their presence in Massachusetts. The discussion then shifted to a humorous conversation about driving in Boston. The conversation took a financial turn when Ernie shared his intention to start investing in long puts, a strategy he believes will allow significant profits when the market collapses. Ernie also explained his trading strategies, emphasizing the importance of a capital-efficient trade with a minimum 1:9 reward-to-risk ratio. Jill, a new participant, sought clarification on short strikes on the butterfly, which led to a conversation about their trading strategies.

Trade Strategy and Volatility Management Discussion
Ernie Varitimos discussed the trade strategy that adjusts widths according to volatility and risk tolerance. He highlighted the importance of managing premium decay and focusing on the directional aspect of the strategy. Ernie explained that their profit management framework dictates when to exit a trade, not waiting for the market to pull back. Ernie also shared insights on the potential returns of their strategy, ranging from 25% to 1,000% return on risk. Herb Lauw added that he uses the volume profile to follow the trend and pick a direction. Ernie emphasized the importance of considering the overall volatility regime when determining the cost and potential profit of a trade. He also discussed the behavior of the premium in the final hours of the 0 dte te and how it decays, emphasizing the need to play both the premium decay and be in the right place at the right time to capture additional profit.

Trading Ranges and Volatility Adaptation
Ernie Varitimos discussed his approach to trading ranges in response to changing volatility. He stressed the importance of not treating every trading day the same and adjusting to specific conditions. He shared his experience that there is no significant difference in his performance or return, regardless of when he trades. Ernie also emphasized the importance of continuous adaptation and improvement in his strategy, which involves collecting a wide range of data and making micro adjustments weekly. He also shared his personal trading strategy, which involves putting on trades before the market opens or around 9:45 to 10:15. Finally, he explained the advantages and disadvantages of trading the E-mee features.

Ernie’s Performance and Strategy Discussion
Ernie Varitimos discussed his recent performance, which saw a drop in his win rate to under 50%. He identified a significant drawdown but clarified it wasn’t a major one and shared his strategy of becoming more conservative to protect against long losing streaks. Despite a 13 out of 15 losing streak, Ernie was only 1.6% down. He emphasized the importance of understanding the reasons behind mistakes and adjusting strategies accordingly. Ernie also discussed the use of the profit taker, explaining it was not mandatory but a tool to raise awareness. He also addressed questions about the impact of holding a trade through the day and the reliability of trading simulators. The discussion concluded with Ernie sharing some of his successful trades.

Simulator Practice for Trading Beginners
Ernie Varitimos discussed the importance of practicing on a simulator before using real money, suggesting that beginners should aim to do 1-2 trades a day. He emphasized the need to focus on execution skills rather than accumulating simulated dollars. Ernie also highlighted the potential risk of overconfidence after a series of successful simulated trades. Towards the end, he explained a strategy where insurance trades are placed three months out, with the goal of then investing in undervalued equities if the insurance pays off.

Archive, Zoom Daily

Daily Meeting for Friday January 19

Posted on by Conor Browne

Strategic Discussions on Directional Trades and Managing Risk in Market Volatility

• Discussion on Hull Moving Average: The meeting begins with a debate about the effectiveness of the Hull Moving Average as a directional indicator and its reliability in predicting market movements.

• Market Direction and Probability: Emphasis is placed on the acceptance that market direction is essentially a 50/50 proposition, and that long-term trends matter more than daily fluctuations.

• Volatility and Market Exposure: The conversation shifts to adjusting market exposure based on volatility, with strategies for expanding exposure in high volatility situations and contracting in low volatility environments.

• Implementation of Strategies: The participants discuss various strategies like the Batman and single out-of-the-money butterflies, focusing on their execution, risk-to-reward ratio, and the importance of staying within maximum daily risk limits.

• Experience Sharing and Strategy Testing: A portion of the meeting involves members sharing their experiences with different trading strategies, including an overnight Batman strategy and its performance analysis.

• Profit Management Framework and Decision Making: The meeting covers the application of the profit management framework, emphasizing the importance of being mechanical in trade entries and using the framework for making informed exit decisions.

Summary

The meeting was a comprehensive discussion on trading strategies, particularly focusing on the Hull Moving Average, the understanding of market direction as a probabilistic outcome, and the importance of aligning trades with market trends. The participants delved into various trading strategies, including the Batman strategy and single out-of-the-money butterflies, discussing their execution and risk management. Key insights were shared on adjusting market exposure relative to volatility and the significance of following a profit management framework for decision making. The meeting was interactive, with members contributing their experiences and insights, leading to a holistic understanding of risk management and strategic trading in volatile market conditions.

Archive, Zoom Daily

Daily Meeting for Thursday January 18

Posted on by Conor Browne

Comprehensive Analysis of Trading Strategies in 0-DTE

• Overview of daily market conditions and decision-making process for bullish or bearish trades, including consideration of recent economic reports.

• Detailed discussion on the use and setup of volume profile in trading, highlighting its role in identifying market structure and significant price levels.

• Insights into the effect of volatility on option premium decay, especially in relation to butterfly trades, and the rationale behind morning trading.

• Strategies for entering trades based on various factors, including risk tolerance, direction, and timing, with emphasis on morning sessions.

• Exploration of the profit management framework, including the impact of volatility on decision-making in different market zones.

• Q&A session addressing specific trading queries, such as last-hour trades and translating volume profile insights from futures to SPX trading.

Summary

This meeting included an assessment of the current market situation, including the influence of economic reports. The focus then shifted to a comprehensive tutorial on using volume profile in trading. Ernie explained its importance in identifying key market structures and price levels, such as support and resistance zones. A significant portion of the discussion revolved around the impact of volatility on the decay of option premiums, particularly in butterfly trades, highlighting why trades are often initiated in the morning when volatility is typically higher.

Further, the meeting delved into the strategies for entering trades, considering various factors like account size, risk tolerance, and market direction. The presenter underscored the importance of timing, particularly in the morning sessions, to leverage the benefits of higher volatility. Additionally, the profit management framework was discussed in detail, explaining how different market zones and times of the day affect trade management and decision-making.

The session also included a Q&A segment, where specific trading queries were addressed. These ranged from the effectiveness of last-hour trades to the applicability of volume profile insights from e-mini futures to SPX trades. The meeting emphasized the necessity of logging, journaling, and reviewing trades to develop a deeper understanding and consistency in trading. Overall, the meeting provided in-depth insights into various aspects of trading within the Zero DTE service, emphasizing the importance of strategy, market awareness, and disciplined review processes in successful trading.

Archive, Zoom Daily

Daily Meeting for Friday December 15

Posted on by ernie

Volume Profile Analysis and Trading Strategies in the Market

• Market Overview and Trading Strategy: Discussion on the market’s current state, including a focus on negative economic indicators and their impact, and the Fed’s narrative suggesting a dovish approach.
• Candlestick Patterns and Technical Analysis: Ernie talks about interpreting candlestick patterns, like the evening doji, and emphasizes the importance of context and statistical significance in technical analysis.
• Trading Execution and Price Selection: Insight into selecting appropriate prices for trades and the importance of patience in waiting for trades to fill.
• Profit Management and Risk Tolerance: Ernie discusses his approach to managing profits and setting trailing stops based on risk tolerance and account size.
• Investing in Short-term Treasuries and Money Markets: Conversation about investing in short-term treasuries and money markets for better fund management and interest returns.
• Detailed Volume Profile Analysis: Ernie explains how to effectively use volume profile in trading, focusing on the importance of high-resolution data and identifying key levels in the market.

Summary

In the daily meeting, Ernie delved into various aspects of market analysis and trading strategies. The session started with a discussion on current market conditions, highlighting negative economic indicators and the Federal Reserve’s dovish approach. Ernie emphasized the importance of context in interpreting candlestick patterns and the limitations of technical analysis without statistical backing.

The conversation shifted to practical trading tactics, focusing on the process of selecting appropriate prices for trades and the value of patience in allowing trades to fill. Ernie shared insights on managing profits, setting trailing stops, and risk tolerance, especially in different sized trading accounts.

Investment strategies outside of direct trading were also discussed, with an emphasis on short-term treasuries and money markets as a means of fund management and securing interest returns. Ernie provided detailed guidance on using volume profile in trading, stressing the need for high-resolution data and identifying significant levels in the market. He debunked common misconceptions about market indicators like the point of control and moving averages, advocating for a more objective approach based on market memory, as supported by mathematician Benoit Mandelbrot.

Archive, Zoom Daily

Daily Meeting for Monday December 11

Posted on by ernie

Exploring Trading Strategies and Platform Familiarity

• Discussion on Paper Trading vs. Real Trades: Challenges with paper trading platforms and the importance of familiarizing oneself with trading platforms for effective execution.

• Understanding ES and SPX Correlation: Clarification on the correlation between ES (E-mini S&P Futures) and SPX, including the nuances of futures contracts and their impact on trading decisions.

• Box Trade Explained: Detailed explanation of the box trade strategy as a method to circumvent the Pattern Day Trader rule, emphasizing the need to understand its mechanics thoroughly.

• Profit Curve and Trailing Stops: Insights into how profit curves change throughout the day and the significance of trailing stops in managing trades.

• Pattern Recognition and Trading Psychology: The importance of experience in recognizing market patterns and the psychological aspects of trading, including the impact of patience and detachment.

Summary

One primary topic for this meeting was the challenges faced in paper trading, highlighting the necessity for traders to become adept with their trading platforms for better execution of real trades. The correlation between ES (E-mini S&P Futures) and SPX was discussed, elucidating how these instruments mirror each other and the implications for traders.

A significant portion of the meeting was dedicated to explaining the box trade strategy. This strategy is employed to avoid the Pattern Day Trader rule, particularly relevant for accounts under $25,000. The mechanics of setting up a box trade, its purpose, and execution were thoroughly examined.

The meeting also delved into the dynamics of the profit curve throughout the trading day. The discussion emphasized the role of trailing stops in managing profits and losses, underscoring the need for traders to understand how these stops shift with market movements.

Lastly, the meeting touched on the importance of pattern recognition and the psychological aspects of trading. It highlighted how experience plays a crucial role in making effective trading decisions. The discussion also acknowledged the variability in traders’ responses to similar market scenarios, driven by their individual experiences and psychological makeup.

Overall, the meeting provided a comprehensive overview of several key trading concepts and strategies, with a strong emphasis on the importance of experience, platform familiarity, and psychological factors in successful trading.

Archive, Zoom Daily

Daily Meeting for Tuesday December 5

Posted on by ernie

Strategic Trade Execution and Management

• Market Bias Assessment: Discussion on determining market bias using the whole moving average, highlighting its sideways movement and the resulting uncertainty in trade direction.

• Live Trade Demonstration: Execution of a call fly trade on the SPX for December 5th, with a focus on selecting strike prices and adjusting trade width based on a set rule for debit percentage.

• Pattern Day Trader Rule Navigation: Insights on managing a small account while adhering to the pattern day trader rule and plans to increase account size to overcome limitations.

• Alert Setup and Monitoring: Strategy for setting up price alerts on trading platforms to monitor the trade and making adjustments based on market movement.

• Profit Management Framework: Explanation of a profit management approach, emphasizing the importance of tracking the highest profit point and setting mental trailing stops.

• Upcoming Daily Meeting and Educational Resources: Announcement about the forthcoming zero DTE daily meeting and the availability of recorded, transcribed, and indexed sessions for member access.

Summary

In this meeting, Coach Ernie focused on demonstrating a live trade setup, emphasizing the importance of understanding market bias, which was challenging due to the sideways movement of the whole moving average. He executed a call fly trade on the SPX, carefully selecting strike prices and adjusting the trade width to align with his rule of keeping the debit at 10 percent of the width. He also discussed how to manage a small account while adhering to the pattern day trader rule, including plans to increase the account size.

Ernie then highlighted the importance of setting up alerts to monitor trades effectively, adapting strategies based on real-time market movements. He elaborated on his profit management framework, which involves tracking the highest profit point and establishing mental trailing stops that adjust throughout the day. He concluded by mentioning the upcoming daily meeting, which would cover trades, strategies, and methodologies, and reminded attendees of the availability of recorded and transcribed educational sessions for further learning.

Archive, Retrospective

Sunday Retrospective November 12

Posted on by Conor Browne

Zero DTE Retrospective: Mastery Through Patience and Consistency

• Reflective Approach: The meeting stressed the importance of retrospection for continuous improvement in trading strategies.

• Asymmetric Risk Strategy: Reiterated the necessity of adopting an asymmetric risk approach to preserve capital and maximize potential rewards.

• Market Opportunity Timing: Emphasized the unpredictable nature of market opportunities, highlighting the need for consistent market participation.

• Profit Management: Discussed the challenge of knowing when to hold or fold a position and the psychological aspects of securing profits without regrets.

• Trading Discipline: Underlined the importance of detaching from the outcomes of individual trades and focusing on the consistency of the process.

• Execution and Review: Encouraged meticulous logging, journaling, and reviewing of trades to build knowledge and improve decision-making.

Summary

The Zero DTE meeting provided a platform for traders to look back at their past week’s performance, discuss areas of improvement, and prepare for future trading. The session reiterated the fundamental importance of maintaining an asymmetric risk to reward ratio, which serves as a bedrock for capital preservation and unlocking significant returns. A major topic of discussion was the unpredictable nature of market opportunities and the importance of staying engaged in the market to capitalize on these moments. The psychological aspect of trading was also examined, particularly the challenges traders face in managing profits and accepting the outcomes of their trades. The dialogue touched upon the importance of detachment from the results of each trade, instead focusing on following a consistent process and learning from each outcome. Traders were encouraged to document their trades thoroughly, using annotation and journaling as tools for reflection and improvement. The overarching message of the meeting was one of strategic patience, discipline, and the value of a steadfast adherence to a proven trading process for long-term success.

Archive, Zoom Daily

Daily Meeting Friday November 10

Posted on by Conor Browne

Navigating Trades and Market Movements

• Early Trade Execution: Discussion on the benefits and outcomes of entering trades before the market opens, with personal trade examples provided.

• Profit Management: Strategies for securing profits, including setting trailing stops based on high watermarks and the importance of not letting winners turn into losers.

• Use of Box Trades: Explanation of how to set up box trades in Thinkorswim for SPX options, and clarification on the assignment process for SPX and ES options.

• Adapting to Market Signals: The importance of adjusting to market trends and conditions, with a focus on low volatility strategies and the use of the Hull moving average for trend direction.

• Monitoring Trades: Introducing a potential app for monitoring trade profits and discussing the functionality of the Thinkorswim mobile app for setting trailing stops.

• Diversifying Income Streams: Encouragement for traders to explore multiple streams of income, with suggestions ranging from consulting to online marketplaces.

Summary

The daily meeting focused on the nuances of executing early trades, particularly before market open, and the rationale behind such timing. The speaker shared personal trade experiences, emphasizing the significance of risk management through profit-taking strategies and the use of box trades. There was a technical walkthrough on setting up and understanding box trades within the Thinkorswim platform, specifically for SPX options, and a discussion on the non-impact of assignments for cash-settled indices.

Further, the conversation shifted to market behavior, with insights on adapting to market trends and leveraging tools like the Hull moving average to determine directional bias. The potential for a new app that monitors trade profits was discussed, as well as the capabilities of mobile trading apps like Thinkorswim for setting dynamic trailing stops.

Lastly, the topic of diversifying income was addressed, with the speaker urging traders to consider multiple income streams. This included options like consulting based on personal skills, online work, and even real estate ventures. The meeting concluded with an acknowledgment of the trading challenges faced, such as exiting trades early due to other commitments, and a reminder of the importance of consistency in trading strategies.

Archive, Zoom Daily

Daily Meeting for Thursday November 9

Posted on by ernie

Independent Strategy and Real-Time Decision-Making

• Traders are discouraged from copying strategies without understanding; independent decision-making is key.

• Utilization of volume profile for strategic market structure analysis and node identification.

• The use of mental trailing stops is discussed, with an emphasis on dynamic profit management.

• Importance of pre-planning scenarios and making informed decisions to avoid indecision during live trades.

• Adapting butterfly widths based on the volatility regime to optimize trade setups.

• A live trading session showcases the process of setting and executing exit strategies based on market movement.

Summary

The daily meeting for Zero DTE traders revolved around the principle of independent strategy formulation and the critical evaluation of real-time market data for informed decision-making. The discussion highlighted the pitfalls of copying trades without a thorough understanding of the underlying strategy and the legal and practical implications. The use of volume profiles was emphasized as a means to grasp the market structure, particularly focusing on how prices interact within identified nodes. The conversation also touched upon the concept of mental trailing stops and the need to pre-plan for various market scenarios to reduce the impact of indecision. Additionally, traders were advised on how to adjust their butterfly trade widths in response to the prevailing market volatility, ensuring flexibility and responsiveness to market conditions. The session included a live trading segment where the facilitator demonstrated the thought process behind setting exit strategies and the execution of a trade, which involved a critical decision point influenced by sudden market drops and recoveries.