The science of trading is financially engineering a custom-built portfolio across multiple asset classes with robust criteria for each individual trade. The art is bringing it altogether yourself within a home trading environment.
It's hard intense work without compromise but achievable within 2 hours per day.
The treatment of trading options as a home business is built on 5 core processes:
❑ Relative Strength for Asset Classes: done weekly for Entry & at expiry for Exits.
❑ P&F Chart Validation: use of Breakouts/Breakdowns for Entry & at expiry for Exits.
❑ Forecast IV, Skew & Test Probability of Touching: done per Entry & reconciled weekly for Exits.
❑ Scenario Testing of Theoretical Price with forecasted changes in IV & Skew: done per Entry, thereafter assessed on a weekly basis for Exits; with, Automated Position Monitoring.
❑ Position Monitoring of Implied Volatility and Deltas specific to the spread's construction: set up on an automated basis upon filling orders, thereafter responding to Alerts electronically triggered for Exits (both Profits & Losses).
– See Distribution of Time Usage on the right.
As these processes become increasingly intuitive through constant practise, you will find more time to concentrate on Reconciling the Forecasts for Implied Volatility/Skew, and Scenario Testing Theoretical Price. These 2 core processes are critical as they make up more than 50% of the 110 minutes and each process has a sizeable and direct impact on the P/L of your Home Trading business. Position Monitoring becomes a highly automated process which only requires a one-time set up upon filling the order.
– See Trading at Home: % Distribution of Time Usage on the right.
Each step within the core process is detailed inside a specific Trade Plan using concrete criteria.
It's obvious that tools are required to operate the core processes. Commissions aside, you will have other operating expenses necessary to conduct trading from home.
❑ As a guideline for a trading account below USD 25–50K, the per annum spend on operating expenses must be within what you can make back on 1-2 trades, with each trade staying within the money management rule of 2%–5% per trade. Spending more on the "latest software" or "secrets revealed" subscriptions just raises your total cost of doing business. Higher operating expenses encourages added risk taking that does not cultivate consistent trading practices. Stick within this level of operating expenses, regardless of the size of your trading account.
Home Options Trading uses affordable retail-trading processes to achieve independence from training firms who partner software providers to bundle the sale of their proprietary teaching with pricey software renewals and hefty subscriptions.
These firms below are trusted providers with unique services that fits into the Home Trading techniques; and, satisfies the annualised operating cost rule of 2%–4% to use their uniquely specialised tools:
❑ Relative Strength matrixes is unique to www.dorseywright.com
❑ Forecasts for IV & Skew (plus Kurtosis) with a Hi-Low Indicator, as one combined package can only be found at www.ivolatility.com (Advanced Historical Data).
❑ Scenario Testing using Probability of Touching price and to automate the Position Monitoring using smart Alerts specific to Implied Volatility of the strikes and the strike's Delta can only be done in ThinkorSwim's platform. These functions are free on the platform, once your account is funded.
What about the cost for enriched Technical Analysis/Charting? Zero. P&F Charting techniques dispenses with the unnecessary baggage of MACDs, Oscillators, Candlestick pattern scanners, etc.
❑ P&F Charts are free on www.stockcharts.com and arguably the site has more than adequate Point&Figure tools that some other providers would charge for.
❑ P&F Charting simplifies the need to obsess with Technical Analysis. Remove the obsession of fussing over MACDs, Oscillators & Candlestick scanners, etc. You get more value out of your effort evaluating Implied Volatility and the Probability of Touching the strikes of a spread's construction.