RULES

  1. DO NOT MAKE THE SAME MISTAKE TWICE
  2. DO NOT LOSE MONEY
    a. Always cover the tail
    b. Set up hedges or stop levels before the trade
  3. PLAN THE TRADE, TRADE THE PLAN
    a. Timing is everything, wait patiently for optimal entry point
    b. Do nothing, unless there's something to do; trade as little as possible
    c. Don't trade out of fear; Don't trade out of hope; Don't average down;
    D. Know how to respond to all situations - never stay in a losing trade
  4. TRADE ALONG THE LINE OF LEAST RESISTANCE
    a. Identify the trend
    b. Do not buy on the way down in price
  5. TRADE SMALLER THAN YOU NEED TO

 

TRADE OPERATIONS

  • pre-trade analysis and planing
    • develop hypothesis, design strategies, screen and identify candidates, define max allocations and stop-losses
  • watch
    • watch candidate price actions, identify entry points
  • probe
    • enter initial position to test market and validate strategy
  • pyramid
    • add position in stages when strategy confirmed correct
  • risk control
    • set stops along the way of trading; cut loss anytime if stop reached or hypothesis violated
  • hedges and position replication
    • when vol is cheap, use hedge in place of stops
    • or use ITM options to replicate cash positions
    • this will help is 1) create asymmetric return, 2) set automatic stops
  • (probe and pyramid may be combined in a swift market, but risk control should be tightened)

 

 

Crude Oil (USO)

Period

  • For Jan 22, 2019 - Mar 31, 2019

Hypothesis

  • in the short-to-mid-term, relief on U.S. - China trade tension will ease market sentiment, drive global pro-growth investing theme, push crude further on its recovery path
  • mid-to-long-term, weakening USD will provide support for crude price

Curent Assessment

  • USO bottomed out between mid Dec and mid Jan
  • broke downward trendline on Jan 4, 2019; 5/20 cross-over thereafter; consolidated for 6 days and moved up again Jan 18
  • seems forming right shoulder before further advances

Allocation

  • 5k

Stop-Loss

  • 1k

Trade

  • strategy: trend following
  • probe
    • 1k
  • pyramid
    • 2k
    • 2k
  • leverage
    • may consider using ITM calls to replicate cash position or increase leverage
  • stops
    - [as of Jan 19] ATR_10 = 0.335
    - use 2 ~ 2.5 x ATR_10 as trailing stop level
    - cease trading if overall loss is greater than 1k
  • hedge
    • no need for hedge if only trade cash position
    • choose right ITM call to balance time value and intrinsic value, perferrably intrinsic value as automatic stop