Last week I mentioned that I recently started a full time job. Let me assure that working full time is far from my favorite thing in the world, but, at least for now, it’s what I need to do.
While I was out on one of my 4 a.m. caffeine loaded, cold, dark jogs, I realized that it also presented an opportunity.
Specifically, working a demanding day job (like being a Tax Accountant during Tax Season) gives you the (dis)ability to not watch the market. It’s extremely frustrating when trades go against you and you want to make an adjustment but you can’t because you’re at work, traveling, or whatever. The ability to react is critical in trading.
How can you trade without looking at the markets?
I sure we all agree that working and not having access to the market is less than ideal, but what if you could structure your day around your trading? For example, every night we can review the markets, update our tracking spreadsheets, and anticipate the next day. Instead of jumping in to make changes to positions when the market moves, we could choose a specific time of the day to make any necessary adjustments and ignore all other fluctuations.
Essentially what we’d be doing is looking for a way to trade in a “hands off” way. What that means is that you won’t always be able to react to changes and sometimes the end of day position might be different than if you could get in and change things. It also makes sense to choose a specific time every day where you spend 15 minutes making any necessary adjustments. Outside of that, you do nothing.
Is there any hope for people who can’t watch the markets?
Obviously, the important question is whether hands off trading can be done successfully and profitably. I’ll spoil the answer to that question by saying I have no idea, but I wouldn’t be asking if I didn’t think it was possible.
There have been quite a few successful traders who never really watched the market all day and/or didn’t react if things were getting crazy. Specifically, I’m thinking about Nicholas Darvas, the Turtle Traders (many are still trading today), Ed Seykota, and plenty of others. If it has been done before, it can probably be done again.
What Strategies Work Best?
When you’re working and trading what you really want is a system you don’t need to think about and one that won’t get into a huge amount of trouble if the market moves.
The first part of that statement implies that any system should be completely mechanical. The reason I say that is when you’re working a lot, you mind is busy. The Zen folks out there would probably call that busyness “monkey mind” and it’s not a good mental state for making sound trading decisions.
The second part makes a case for low gamma strategies because they won’t get into trouble as fast as high gamma strategies. If you’ve ever been burned trading weekly options, you know exactly what I’m talking about.
Mechanical, Low Gamma Trading Systems
When I first started trading, I was using some mechanical Trend Following systems. They weren’t sophisticated, exciting, or discretionary. I just made and took trades, went to work, and harbored animosity about my chosen career path. Doesn’t get more beautiful than that . . . ahh, the American dream.
Over time I began using more discretionary trading strategies and recently have been trading the CIB, which I trade with quite a bit of discretion. Of the systems I’ve developed, pTheta is the most obvious example of a mechanical, low gamma system. Outright Trend Following strategies would also work because they’re mechanical and can easily be implemented as next day trades.
I am getting ready to start the pTheta system up again so I have something running while I’m working long hours. Initially I thought I might not trade through the winter, but I don’t really have the capacity to step away from the markets.
At the same time, I only trade when I have a plan for how to trade and how it integrates in my life. If you’ve looked at my 2015 results, you know there are periods when I didn’t trade. Those periods correspond to times when I was moving and not able to watch the markets. When I’m not in control, I stay out.
Structuring my day and trading in the bathroom
Since we’ve established that watching the market all day is not an option, I need a plan for executing trades that relies on a specific window of time for placing orders. I choose 8-8:15 am MST, which corresponds to 10-10:15 am EST. That period gives the market a little bit of time to open up and gain a little direction before I place trades. More importantly, it’s an easy time to sneak away from my desk and hide out in the bathroom for a few minutes so I can execute orders. If I happen to miss my 8 am time slot, I’ll place orders an hour before the market closes at 1 p.m. MST or 3 p.m. EST.
I will try my hardest not to watch a ticker all day. Obviously I can’t promise, but I can try.
I’m going to rely heavily on resting limit orders to open and close positions because I can’t see what’s going on during the day. I will also use alerts to tell me if I’ll need to make trades during one of my windows, but I will not be responding to alerts when I receive them. In the past, I’ve used alerts to tell me when I need to adjust a position. I would then jump into the software and make an adjustment. Now my trades will need to be placed during my morning or afternoon time slot.
What about the CIB or Iron Condors?
I’ve received quite a few emails asking if theCIB is a trade that can be traded end of day only. I’ve also had questions about whether the trade can be traded with more capital. At the moment I have access to both capital to increase my size and the (dis)ability to trade without watching the market. The challenge I see is that I don’t have access to risk graph software during the day and I feel like I’d be trading blind. Additionally, any trading I do right now will need to take place over my iPhone, which doesn’t work great for complex positions. In the past I installed my trading software on the work computer, but that doesn’t seem like a viable option in my current situation.
People always ask about Iron Condors and why I don’t trade them more. The Iron Condor is a trade I’ve used at times, but something I’ve never mastered. The trade itself definitely works if you have the ability to control risk, size positions well, and know when to take a loss. The problem is that it doesn’t fit well with my psychology and that’s totally okay. Not everything works for everyone. Some of my friends like The Lazy Trader and Jonathan Lien at Create Monthly Income Fund do an excellent job of covering Iron Condors and Credit Spreads.
Sometime this week I’ll be revisiting my pTheta system and getting ready to start it back up. I’m going to spend some time over the next few days choosing 3-4 markets and coming up with some initial position sizing rules. I can assure you that SPX and/or SPY will be traded. I’m considering some Futures Options markets after reading more about Trade With Aram’s experiences with Futures options. Crude is an obvious choice and I’ve always liked trading options on Gold and Bonds. As far as a fourth market goes, I’m not sure yet. Corn is a definite possibility.
If you’re working a full time job and can’t watch the market during the day, the discussion going forward should be pretty interesting for you. I have no idea if I’ll be successful or not, but we’ll certainly find out. I do have confidence in the pTheta system, but it’s scary to move away from a more discretionary style of trading that was working. At the same time, I don’t want to rely on my decision making ability when I’m tired and can’t watch the markets.
Have a good week and I’ll catch you next weekend with an update on my progress.