The 3Dimensional Trading Breakthrough

The 3 Dimensional Trading Breakthrough
Just today, ironically, I offset a Treasury Bond position that I had been “wrestling”
with for just over a month. I say “wrestling” because when I initiated the position,
it soon went against me. The market gave me little chance to reverse direction, so
I had to manage the position closely to reduce and/or eliminate my risk. When it
was all said and done (after adjusting the options during changes in momentum,
and shorting a second futures position to dollar cost average about a month later)
I actually realized a $1,340 profit with the original position. Although $1,340 is
not a significant profit for us commodity traders when a trade with the trend
produced nearly $3,500, the days of big losses can be eliminated or reduced very,
very drastically by managing a position properly. When the time came to offset
my “problem child” position, I liquidated all positions at market and I was out
“clean.”
The reason I will not use a protective stop is, if my long futures position gets
stopped out and then rallies before I can exit/offset the option insurance, not only
will I realize less of a profit from my futures, but I will also realize considerably
less with the option premium (as they lost value from the exit price/point of my
offset futures contract). In all actuality, and as a personal preference, I never use
a protective stop when trading with insurance. If I’m wrong and I feel I am a little
early with the position, I will simply sell a call option above the market (as in the
case of the Crude Oil example above). Also, if the market moves against me and
I sell the call to further reduce my risk, I can easily let the chart pattern evolve to
get a clearer picture of what the market really wants to do and what appropriate
action to take next. Then, when the market changes momentum to the upside, I
can buy back the short call and/or go long another futures contract (with an option
insurance) to dollar cost average the overall position.
I realize there will be some traders that, if long a position and the market goes
against them, may want to just “leg out” of the futures position and hold the put
option as the market goes down (or is perceived to go down). It certainly appears
logical. However, the markets do not always make sense and there is no guarantee
the market will continue down immediately. Besides that, if you “leg out” of your
long future, you are now speculating the market with options only – and that is
not what this book is about (as per reasons stated early on in this manual). That is
actually an advanced form of trading with this “blueprint” that requires personal
work with charting from other methods not taught (or advocated) in this book. I
will never leg out, or offset, one side of a position.
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