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Steve's $1,000 Option Trading Challenge (Week 1 Update)


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My latest account has gone from 900 to 700 to 500 working back up slowly to 600ish, 700ish, to 1000 over the last couple of weeks. Then, I hit a rough day and went down to 150 until the last 30 minutes when I made it up to 1100 (crazy SPX calls on 12/26). The next day, I lost 600, and the next day to 0. I have spent much time analyzing my trades and came up with a few problems. My main problem is trying to time my exits. I try to maximize my profits and time the market, and that sometimes leads to letting green trades go red. With the bigger losses (or potential losses) comes a greater pressure to make up the lost money, and I fall victim to revenge trading with unreasonable goals. This is the third account I’ve blown on options trading. While I have learned a ton over the past month, clearly, I have much to learn. To help myself and others, I plan on posting my trades with analysis for the 1k challenge and on. Following are a couple of trades I’d like to discuss.


On 12/21/2018 I bought a Netflix put at 9:50 for $294 (first circle) and sold at 11:02 for $528 (second circle). I was looking at puts on Netflix from the start of the day because everything started dropping right off the bat. As Netflix started to go down, the tema and ema looked like they would cross very soon, confirming a bearish market. I jumped in and then they crossed. I look for the ema 20 to cross the tema as a confirmation for any play I make, and for the ema to be on top of the tema for a bearish play. Netflix had a quick reversal but I held through that because the tema and ema never crossed back (even though I was down $100). I sold at 11:02 because Netflix had just made a $2 drop in price and I wanted to secure profits. There were no technicals to justify me leaving, but I didn’t want to lose my profits. The options had an end of day expiration and I wanted to stay safe.


On 12/28/2018 I bought a Netflix call at 9:37 for $445 and sold at 10:19 for $232. I was looking at calls on Netflix because the previous day had such a huge rally and looking for it to continue. The ema was still below the tema and I entered after the first two red candles. I was initially profitable but neglected to take into account the market sentiment that day. Spy and apple started going down and the market reversed rapidly. It was a confusing day for the market. Netflix wanted to push up but the market kept dragging it down. At all times I need to have the other tickers open to track whats happening with the market. Apple and spy were bearish from the start day and that’s an easy mistake to fix.

Even after the account was blown through, I consider this somewhat of a success. I was able to identify many things I was previously having trouble with and correct them. Almost all of my calls were green at one point, and it is clear what I am doing is working. My greatest problem is exiting and being happy with a small profit. It is much more important to be down a little than a lot, and I can’t trade if I don’t have any money left. This is absolutely vital and I need to work on this. Always keeping humble. Not revenge trading. I will be looking into additional strategies and indicators to refine my techniques and will be ready when I get back from my trip to trade. Feel free to contact me at any time and I would be happy to go into more detail about my trades, your trades, or anything. Look forward to 2019 with this group.


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Day 1 (1/3/2019):

I started today with $1000 in my Tastyworks cash account. Apple brought the market down with weakened guidance in the beginning of the day and I used the overall market sentiment to make my first two plays. I bought Amazon puts at 9:49 at $384 as the first candle broke under support. I rode that to + $200 but didn't sell because it jumped up before I could sell. I sold as the first candle broke above support, but I still thought it would be a small bounce. I jumped out quick against my intuition because I wanted to conserve money and play it safe. It turns out that Amazon spent a few more minutes climbing before going right back down to $1506. I was looking for Amazon to go below 1500 which it ended up doing at the end of the day. I ended that trade at 10:24 at $316 (second circle).


I bought Netflix puts at 9:53 at $445 as the 3 min Supertrend turned red and the first candle broke under the next support line. The tema 30 was curving down hard and I thought the tema and ema would cross soon. I sold at 10:22 (second circle) because the market looked to bounce up and I wanted to secure my profits. I was up 35% and was happy with that. I sold that one just before Amazon and I should have sold both a little bit earlier. Or later as my trends were showing me it wasn't a big bounce.


After I exited, I watched the overall trend of the market go up a bit and then continue down. At around 7:38 it seemed like we were experiencing a strong surge in buyers and that the market would reverse. The tickers I was watching (SPY, Amazon, Tesla, Nvidia, and Netflix) started to act like they might go back up (price would try to go up and bounce off, red candles got smaller), and I focused on SPY to make the trade. I entered at 10:42 at $119 which was a little early. I got a confirmation from the Macdbreakindicator at 10:45 that SPY would be going up and I received another confirmation when the Supertrend turned green at around 11:07 on the 3minute, and again at 11:10 on the 5 minute. I rode it all the way up that trend all the way to 11:52 at $207. I sold because SPY turned red on the supertrend and was rejected off of the $248.18 support line. The Macdbreakindicator confirmed this trend a few minutes later. I left $30 on the table by trading a minute too late but am happy with the way I executed my strategy for this play.


I can't go over everything that I look for here but would be happy to go into more detail if asked. Always free to chat and learn. Account starts at $1,176.18 tomorrow. Stay green.

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Day 2 (1/4/2019):

I started today with $1,176.18 in my account. The overall market was bullish at the start of the day, and at 9:34 I entered a Netflix call for $220. I saw the supertrend was green, and the tema and ema crossed on the same candle which is always a bullish sign (with the tema above the ema). I was up about 15% but sold a little too late at 9:49 after it dropped about a dollar ending at $142 (second circle). Had I observed the 5 min chart and seen we were still in a supertrend I may have held, but not for much longer. Powell was set to talk at 10:15 and I didn't want to hold that long in case he brought the market down. I try to be very careful when I enter in a EOD play.


I bought a SPX call at 10:47 at $490 because it broke through a support line at $2509.62, consolidated, and looked like it was going to jump up with the rest of the market. The ema was below the candles significantly and I figured it would be good for a quick pop. I exited at 11:02 for $770 because it looked like it would reject off the next line and the Macdbreakindicator indicated a bearish run. I wanted to secure my profits and I was also on my phone on the way to Vegas and didn't want to watch the charts all the way up.


My third position I regret entering. I had been watching the markets for a little while now, and everything seemed to look for an EOD upward run. I entered an EOD SPX 2535 call at 2:18 for $390 because the macdindicator indicated a bullish move, the supertrend just turned green, and the tema and ema were very close almost about to cross. I entered perfectly, and at one point was up 60% on the play. But I didn't secure profits, and the market was very volatile at that point. I held way too long and didn't sell, then entered a no service region on the way to Vegas and wasn't able to, and by the time i got back into service the option was worthless (also was the end of trading day).


I ended the day down $193.64 to $982.54. My biggest problem was not securing gains on the first and last calls, and I've got to get that down if I want to be successful in my trading. Back at it on Monday.

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Day 3 (1/7/2019):

I started today with $982.54 in my account. Today was a really rough day for my account and I can not honestly tell you why I did the things I did. I'm just going to go over the SPX calls I made because I think those are the most useful to go over (Picture below. First two circles was the first play, second two were the second play).

I entered in SPX calls at 9:48 for $780. The market was going up (I was looking at SPY, Apple, and Netflix at the time), supertrend seemed like it would turn green, and the tema and ema had just crossed. Perfect call area. Macdbreakindicator was also green. In the next 5 minutes the market dropped, and I saw a full candle finish underneath the nearest support so I sold at 9:55 for $480. This was me playing it safe and securing what I could. I normally weather this stuff like a champ due to my lack of heart situation, but I wanted to play it safe after Friday. The market immediately reversed and started on its path upward like I thought it would, leaving me behind.


I entered in SPX 2555 calls at 11:10 for 460 because the supertrend was green, the candles were above both the tema and ema. and significantly above the ema 50. It was a good position and I caught it at the right time and I believed in the indicators. I left for work and started checking on my phone. I saw that we may have a reversal when SPX hit 2570 and planned to sell at or close to before then. At 1:45 there was a huge drop in SPX when the market reversed. SPX is quite volatile but this was a huge drop. There was a lot of volatility for the rest of the day making it seem like it would go up, and close to the end of the day there were signs of a reversal. So I held until there, but it didn't go up as much as I thought it would and I sold at 3:53 for $135. I was trading on my phone and didn't have the super trend up on that. I see the next day it went to 2579 and I would have been quite happy if I bought a later expiration. But at the end of the day, I at one point had 1300 in my account and can not honestly tell why I didn't sell then. Thought we would keep going up. This is a huge loss to the account as I ended with $228 for the day. A very humbling experience given to me by the market again. I can't emphasize enough to take profit. Market can change in an instant.

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Day 4 (1/8/2019):

I started today with $228 in my account. I started out with some smaller positions in Starbucks. I entered two positions into Starbucks calls at 9:35am at $44 as starter positions because the market was starting to trend upwards and entered into another two calls at 9:40 at $51. I was up about 8% on these before the market started to downtrend and I tried to sell out. I set a stop loss at $45 and thought it sold, it never filled and about 5-10 minutes later I realized this and tried to wait out for a better fill but got out at $28. Lesson, take profit if the direction of the market isn't completely set yet, and make sure you filled! But I'm not going into this trade as much because I'd like to spend more time on a new indicator I used to get this next trade. I started using the automatic trend lines that Ben put up in a different post, and with the tema/ema, macd, and supertrend on the 5 minute, I'm having a lot of success picking plays with it. Unfortunately since the trendlines adjust after every 5 minute candle, I am unable to back test this strategy. I may ask some of you to test it with me after I get more practice with it so we can see how this strategy works long term.

I was alerted Tesla calls at 10:35, and entered at 10:40 at $107 when I was at the bottom of the trendline range, the supertrend was green, and the macd was starting to creep up. I don't have a screenshot of the trendline at that point, but I took several later in the day. I got out at 12:35 at the first candle of the supertrend for $144. I was really happy with this play because it was pure indicator and market sentiment and no emotion. It was nice bagging some profit.


I entered SPY at 12:50 for $131 because I saw the supertrend start to go to red, I had a confirmation of the Macdbreakindicator, and the SPY was at a resistance level at the trendline. I missed my entry by $2 and it left without me, but I tried to force it anyway and got in late. I was pressured to hold for more to get what would have been 15%, and left at 1:02 for $114 when the tema and ema crossed as it started to go back up again. I had the right idea, but that was just too quick of a bounce to catch that time. I shouldn't have tried to force it after 1) because you shouldn't force a trade and 2) because the tema and ema were very close, and could cross and go up after, as they did.

I bought TSLA calls for $121 at 1:04 because it was at the bottom of a trendline, and the tema and ema had just crossed. I saw it didn't have resistance until $340 and was thinking I'd hold it until it hit there and then I'd sell. I failed to take into account the DMI being so close which shows sideways action. But, I got a lot of useful information watching TSLA to the end of the day. I held overnight on this one.


In this screenshot, we can see that there's a red candle on the support line of the small and medium trendlines (red and yellow dotted lines). I alerted Ben that I thought Tesla would go up then because it had a candle sitting on both trend lines and its been bouncing off before. Here is the screenshot a few minutes later.


Now, the trendlines are adjusted because they update with the candle action, but the trendlines caught the reverse before the supertrend did. In the second circle above, I took a screenshot as the green candle was still forming, and it ended up forming over both trendlines at the top. So I suspected a drop, and Tesla delivered. It dropped, then reversed back up to the line, then dropped again.



In the latest image, the candle overlapped the small and large resistance line, so I thought it would bounce back up, which it did.


And the day ended. I'm really excited to keep testing this out, and run into more conditions, like a hard reversal or a huge change in price. Sometimes the drops in price are a quick dollar, or other times its the start of a trend. I haven't figured out how to tell which from which, but I'll keep at it. Ended the day at $115, but feel better about it because I learned a lot from it. As always, feel free to contact me anytime I'm happy to help.

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["Steve's Trading Log","Steve's $1,000 Option Trading Challenge (Week 1 Update)"]
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It's easier to make $100. x10 than to make 1x$1000,......take consistently small profits...

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One last thing, change your chart to white background and the candles Black and white, the eye has receptors for B&W, remove but one bottom indicator, hopefully volume,...read candlestick support, resistance and trend.

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Hey @MasterSteve , I like your use of TEMA/EMA very much. I made some slight modifications to the indicators that you might find handy.
They simply color the MA's bullish or bearish depending on their directions. That way when the TEMA is above the EMA and both colors are bullish, it could have very good probability that price will continue to rise. Possibly it can even give confidence for entries prior to the cross.


TEMA_UpDwn_Colors: https://tos.mx/ICyi9Q3
EMA20_UpDwn_Colors: https://tos.mx/iFUiz8T

# Name:  TEMA_UpDwn_Colors

# TEMA with trending colors
# modification made by @RickKennedy, member, usethinkscript.com

input price = close;
input length = 10;

def ema1 = ExpAverage(price, length);
def ema2 = ExpAverage(ema1, length);
def ema3 = ExpAverage(ema2, length);

plot TEMA = 3 * ema1 - 3 * ema2 + ema3;
TEMA.DefineColor("Positive and Up", Color.cyan);
TEMA.DefineColor("Positive and Down", Color.magenta);
TEMA.DefineColor("Negative and Down", Color.magenta);
TEMA.DefineColor("Negative and Up", Color.cyan);
TEMA.AssignValueColor(if TEMA >= 0 then if TEMA > TEMA[1] then TEMA.color("Positive and Up") else TEMA.color("Positive and Down") else if TEMA < TEMA[1] then TEMA.color("Negative and Down") else TEMA.color("Negative and Up"));

## end of code

# Name:  EMA20_UpDwn_Colors

# This is a modified 50 EMA to color the MA green when moving up
# and to color it red when moving down

input price = close;
input length = 20;
input displace = 0;
input showBreakoutSignals = no;

plot AvgExp = ExpAverage(price[-displace], length);
plot UpSignal = price crosses above AvgExp;
plot DownSignal = price crosses below AvgExp;


AvgExp.DefineColor("Positive and Up", Color.GREEN);
AvgExp.DefineColor("Positive and Down", Color.RED);
AvgExp.DefineColor("Negative and Down", Color.RED);
AvgExp.DefineColor("Negative and Up", Color.GREEN);
AvgExp.AssignValueColor(if AvgExp >= 0 then if AvgExp > AvgExp[1] then AvgExp.color("Positive and Up") else AvgExp.color("Positive and Down") else if AvgExp < AvgExp[1] then AvgExp.color("Negative and Down") else AvgExp.color("Negative and Up"));


## end of code
That's interesting @RickKennedy I'll have to look into that more when I get a moment. I haven't used this strategy in quite a while because I got busier during market hours.
@MasterSteve I am curious how quickly do your orders fill when you close at ~3/4ths the max profit?
I have noticed that unlike in the summer there can be some hesitation on buying options when the price is away from the VWAP...

Almost like somehow the market has learned to wait for prices to come back before accepting your profits.

Have you had any issues or is that just me???

Also you might try some Iron Condors 🦅 on positions with low volatility that you expect could move. I have found that to work quite well lately
@Gellidus Bollinger Bands is one of the built-in indicators in ThinkorSwim. You can find it under your Studies section.

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