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Rick and ALL on this thread,
Thanks, thanks for all the input. Wow. It was huge.
Hopefully this letter will put all this bantering to rest. By some of
the e-mails I have received I pissed a lot of people off. It wasn't my
intent. My intent was to share my style of trading, which works very
well for me. I understand now that we all have much different styles.
Some of us have "systems" that work. I'm not one of those.
First off I never said this is easy money. It's the most intense and
difficult thing I have ever done.
Secondly, I know nothing of market dynamics and don't care to. I don't
really know what makes my computer work either but I sure can make it
serve my purposes.
So you won't waste your time speculating any more here's what I did in
November (my 2600% return month): I made 37 trades (round trip and those
I added to as a stock climbed/fell were all bunched under one trade).
None of them were more than two days in duration, the majority of them
were less than three hours in duration. 33 were winners and 4 were
losers or break even, including commissions and slippage.
My account balance is the same at the beginning of each month. I take my
profits out at the end of each month and start over fresh. Why?
Because with the kind of returns I am making I am living very, very well
and I see no point in rolling profits back into my account. I don't
need more than I am earning. I want to spend the money now and enjoy my
life. And besides, I have a very large nest egg from my other
businesses that is my slow grow capital (20% - 35% per year).
I may be reading this thread wrong but I assumed the goal of trading for
most people on this site is to make a living at it. If not, well then
my style is not for the people reading this post. I take and spend
profits every month. I have no debt and enjoy life immensely.
As soon as I start trading again (remember I am reviewing the last
several months and just focusing on learning more right now) I will use
the same strategy and guidelines that I did in the last six months,
those being: Never risk more than 50% of my capital on any one position
and never risk more than 4% of that on any one LOSS.
More often than not, my stops put me at a break even or a commission
loss. I keep very tight stops and only enter a trade when it screams at
me to enter. I never trade more than TWO STOCKS at any given time. I
typically buy between 10 and 100 contracts per trade, depending on how
deep in/at/out of the money I am on that trade. Very intense but it
works for me. So, I try to never risk more than 2% of my capital on any
given trade LOSS.
So, if I make 30 trades in a month and the average trade is 100% return
on 50% capital at risk (which with options is very possible
consistently) I am cruising along at 1500% per month on my capital
account at the beginning of each month. I won't tell you how much my
base capital was during the last six months but when I start trading
again (as opposed to taking a break to continue learning) my base
account will be in six figures.
I keep very tight mental stops and never enter a trade unless I see an
intraday period top or bottom. I trade off real time charts and use a
15 minute time frame for candlesticks and chart patterns and a dynamic
daily chart to give me the bigger picture of support and resistance
levels.
Market up or market down makes no difference to me. If it's falling, I
simply buy puts. So your discussion of what the market did over that
screaming three months holds a little weight, but not much. Remember, I
earned 1200% in January and themarket basically closed where it opened
for the month. I actually have done better with puts than with calls,
even with an up market because of the volatility.
I generate the kind of returns I do because I work on a monthly basis.
Average return on capital for the year will be close to what I earn
monthly because the base stays constant. My goal is ten times my
account balance at the beginning of each month. For the last six
months, I have averaged that or better. Again, I pay myself at the end
of each month over and above my static capital base. That affords me
less risk and higher returns and I don't continue to roll my profits.
Why take more risk for less return? I pay myself at the end of each
month and start over again because I know that I can match my previous
months return. And I have been making a phenomenal living just doing
what's in front of me.
Like I said earlier, I know nothing of market dynamics. Don't need to
and don't care. I know market makers control this thing. I just want
to go in the direction they are moving it. Doesn't matter to me what
they are doing or thinking. I couldn't care less. Won't waste my time
trying to figure out what everyone is doing to manipulate the market. I
just trade what's in front of me.
I keep my strategy simple and read the market as it unfolds. Market
dynamics? Nah, waste of my time. Know nothing about them. You nor
anyone else understands them either because if you did, YOU'D be on the
cover of Forbes. Even Greenspan admits there's a lot he doesn't know...
Truth is you have a system that works pretty well. Great. Keep doing
what you're doing. More power to you. More power to all of you.
My style of trading (definitely not a system because the market is fluid
and a systematic approach just doesn't serve my purposes) affords me
great monthly returns on my capital with very little risk. Defnitely
not for everyone. But my goal is to make a really good living/cash flow
at this with the least amount of risk. I'm succeeding. That's all that
matters to me.
Again, if I was continuing to build my capital base of course my returns
would progressively shrink every month. But why continue to risk larger
sums of capital for smaller returns? Never understood that one.
I live off what I earn and live very, very well. My risk is minimal, my
returns quite satisfactory. What more could I ask?
BTW, great analysis. It just doesn't apply to me.
I wish you and everyone onthis thread continued success. If nyone wants
to contact me please feel free to do so direct.
Doc
Rick Mortellra wrote:
>
> Lionel,
>
> After reading his "proof" exposing this guy is easy and I don't even have to
> check his *hypothetical* trade prices, nevermind his real ones. The guy is
> all over the place, having us in a trade for 3 hours one time and 30 days
> the next. He also expects us to ignore the fact that these gains weren't
> made over a series of many trades but just 2 huge totally disimilar trades
> made months apart. Practically one-offs in other words. Especially since the
> stocks he mentions are extraordinary to say the least as well as the time
> periods in which he trades their options. These stocks have exhibited
> unprecedented prices moves during a never-before-seen 3 month market period
> that saw the Dow gain more than 30% and a NASDAQ gain of almost 85%. To
> imagine this "easy money" is the normal state of the market from now on and
> trades like this can be made daily is total naivete.
>
> Now here's how the math catches up with his charade:
>
> Of course buying CALL options can keep his losses small EXCEPT he bets his
> whole wad on each trade because he infallibly calls the highs and the lows.
> But if he looses, which he implies he sometimes does, he looses EVERYTHING.
> End of fairytale.
>
> Obviously he has lived to trade again so he must not be betting everything
> and perhaps he's practicing a little bit more money management than he lets
> on. In which case, his 2400% return on his *account* is not what it he makes
> it out to be.
>
> Let's keep it simple. Say he still bets a very imprudent 10% or $1000 of a
> $10K account on the AOL trade. He wins $24k. Suddenly his total hypothetical
> account's return is just 240%, still not too shabby. However, maybe he's not
> so wild and crazy and only bets 2%. Now his total hypothetical returns are
> back down to a more believable 48%.
>
> But, he completely ignores slippage and commissions. Not that commissions
> would be adversely huge (maybe for a 1000 contracts though) but they sure
> won't be $20 roundtrip either! Slippage, on the other hand, could be very
> adverse to his options' return and it is a stretch for us to believe that
> he, as a retail customer, could buy 100, much less a 1000, contracts of AOL
> for a 1/16. Frankly I can't even imagine an expiring option with strike of
> $160 for a wild stock like AOL trading barely out of the money that low, but
> perhaps it did among option makers/institutional accounts at the low of the
> cash market. Nevertheless his trade would probably make up a substantial
> part of an expiring options' total open interest that day and as soon as his
> order hit the sheets the options' bid/ask would fly. He's talking trading
> 10,000 to a 100k shares of the underlying here too and the options maker is
> also gonna lay that risk off in the cash market. Needless to say, he seems
> to lack a complete understanding of the market dynamics. Cutting him some
> slack and allowing slippage to bump a market order price up to just a
> measily 1/4 point lowers his trade return to 60%. And using 2% of his total
> account to enter lowers the return to a *really* more normal 12%.
>
> Now here's the big surprise! Once he starts making his big profits the IRS
> is gonna want a piece of it. In advance! Because as anybody who has made big
> profits in stocks learns, you gotta pay your estimated taxes quarterly
> whether you finish the year at an overall profit or not. Otherwise the IRS
> paddles your behind with penalties. This directly impacts the amount of his
> trading capital available throughout the year, hence the overall profit he
> can generate, thus lowering his return even more.
>
> So as you can see, unless you belive 1-2 lucky trades vouche for a persons
> trading skill, just overcoming the frictional costs of trading is a big
> hurdle for any trader regardless of his system or lack thereof. Even a huge
> win can be cut down to size.
>
> Of course the simple solution is to make more than 1 huge trade a month but
> I doubt if he could conjure up enough historical data. Certainly not enough
> to satify my risk profile.
>
> At least I give him credit for buying slightly out-of-the money CALLS on
> highly volatile stocks on expiration, as it is a tried and true strategy.
> Especially, in these net stocks like AOL when they are splitting the
> following Monday. It's a great punt WHEN it pays off. But make no mistake,
> that's exactly what it is, a punt, as any option maker will tell you. Just
> like a lotto ticket, 99.99% of these plays expire worthless, except in this
> case the ticket would cost you a minimum of $625. But when they payoff, the
> rewards can be spectacular. I congratulate him on his paper win, but now the
> challenge for him is turn his Monopoly money into cold cash.
>
> cheers,
> Rick
>
> -----Original Message-----
> From: Lionel and Gail Issen <lissen@xxxxxxxxxxxxxxxx>
> To: metastock@xxxxxxxxxxxxx <metastock@xxxxxxxxxxxxx>
> Date: Thursday, February 25, 1999 1:13 PM
> Subject: Re: S&P 500 (was AOL, CSCO, & WMT)
>
> >Docteur:
> >
> >Your "proof" is after the fact. What have you traded?
> >
> >
> >Lionel Issen
> >-----Original Message-----
> >From: Docteur <docteur@xxxxxxxxxx>
> >To: metastock@xxxxxxxxxxxxx <metastock@xxxxxxxxxxxxx>
> >Date: Wednesday, February 24, 1999 7:52 PM
> >Subject: Re: S&P 500 (was AOL, CSCO, & WMT)
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