Tough Trends

With the word on The Street echoing statements like: "This is the most volatile market we've seen in 30 years," I seem to be entering my trading career in very difficult market conditions. I know, my friends are asking: "But you said you can make money in any market condition: up, down or even sideways." Although this certainly is true, it does seem to be easier to take advantage of trends and directional movements. I say this mostly because I've been studying trends and looking at swing trades. Additionally, I realize that there's a different kind of analysis involved in trades that take advantage of stagnation.

You may have realized this for yourself if you read my post on Trading P.I.T. Session 5 because of the need to quickly compare the different risk graphs for the various ways to take advantage of stagnation. A Calendar Spread is a great way to make money on a stock that's expected to trade in a set range. In order for me to really unlock the power of Calendar Spreads I'm going to need some more sophisticated analysis software. I've been working out simple Excel spreadsheets for basic analysis, but it's really difficult to compare the variations on the trade without risk graphs and the ability to compare all the aspects of an option (strike price, cost, delta, gamma, theta, etc...). Being able to match the risk graph with your outlook for the stock is the idea here. It may even be that you'd favor a Diagonalized Iron Butterfly instead of a Calendar Spread in a glance with the ability to quickly compare the risk graphs.

I'll be working on getting OPUS or something to help me assess these kinds of trades. I think I'm going to stick to the original trending trades here in the beginning. I favor the Ratio Backspread for these directional moves right now because of the uncertainty of specific direction for the market as a whole. It seems like stocks are getting ready to actually move in a direction, but that direction seems unclear. Maybe August isn't the month to actually establish a trend... we'll see.

In the meantime, I've discovered Interactive Brokers' recorded webinars about Trader Work Station (their trading platform). I now know how to place a Spread now, but I'm still a little confused about entering the stop-loss position automatically if the initial order fills. Now that I know the basics of Trader Work Station I'm sure I can get an answer from a coach on the Teach Me To Trade coaching hotline or attend a live IB webinar and ask.

I have managed to open a few positions and will let you know more as they develop and/or close.