Igor, I have to stress first off that there is no mechanical method to my
decisions. If there were I could just have some programmer just plug it all
into some black box application and just wait for the profits to be mailed
to me.
So when I suggest the 1.5s.d. adjustment it is more as a placeholder or
explanatory device or disciplining tool than a hard, fast and absolute rule.
I've tried to underscore how malleable the sigma concept is based on a time
frame. One reason for this is the very real way prices can move in spurts or
slush around over small, medium and longer time frames. And to trade
successfully, for me, you have to get experience dealing with all these
varied situations.
Further, gaps are always important moments that MAY require action
regardless of any preceding plan or set of calculations. (this is part of
what makes trading so challenging: we can plan and anticipate, but no matter
how much we prepare, mark conditions can and will force new decisions.) on
many gaps, I disregard any preconceived notions and address the moment with
aggressive responses.
With all this preamble, I hope you see that the calculation of any "x" sigma
number has to be only a very provisional thing. Treat the number much like
technicians will maintain a flexible attitude toward calculations of
support or resistance depending on how the market reacts at those critical
price levels.
That said, when I do use the calculation I will use the last trade or
adjustment (your action point). I'll use the implied volatility of the
current market or the implied volatility of my position based on whatever is
most relevant to the position's p&l. I do the calculation for a range of
time periods anywhere from a half hour to three days or so. Again you have
to use some good market sense and pay attention to both what the market is
doing (e.g. if price is not moving but something is driving up IV in the
options, you have to incorporate that info into your thinking) and what is
happening to your p&l. the real goal, for me, is to capture and lock in some
occasional profits and prevent losses. If that requires veering from
pre-established calculation, so be it.
-----Original Message-----
From: OptionClub@yahoogro
Behalf Of Igor Djuris
Sent: Tuesday, June 16, 2009 2:57 AM
To: OptionClub@yahoogro
Subject: [TheOptionClub.
Hi Michael,
for past couple of months i have been trying to replicate your trading
method, so now i have a question regarding determination of action points.
From what i know you have been using 1.5 sigmas both daily and hourly. I
wanted to ask you what price are you using for calculating the sigmas? I
started to use my last action price or where the price of unerlying was when
i last adjusted, but you were also talking about how the gaps also determine
your action, so i was wondering if it makes sense to calculate the sigmas
also with previous days closing price and measure the sigmas from the open?
If i do that to im afraid that i could end up with a bit too much action
points.
Then, my question is do you hold the sigmas constant once you calculate
them? Since as each day pases they are changing, not dramaticaly but if say
no action was taken for a week or so they do change due to passage of time.
Also, do you use hourly sigmas anymore if nothing happens in a day that
action was taken (under presumption that i use last action price for
calculation)
Thank you.
Igor
------------
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