Trading, Overtrading and Waiting Part One: Trading & The Iron Condor
Trading, Overtrading & Waiting
One of the truisms that frequently gets tossed around in trading circles is that ìentries donít matter.îThis is counterintuitive to many traders, especially new traders, who spend hours or even days looking for ìthe perfect setupî (e.g. thetrade with such great odds of success that it just canít fail).
The problem with this statement is that any trade can fail. However,when you add in the second half of that truism, it suddenly begins tomake sense
ìEntries Donít Matter, But Exits Do.î
In other words, thereís no such thing as a perfect setup or a flawlessentry signal. Just as a graceful exit can turn a tenuous trade into aconfirmed winner, a botched exit can make a total loser out of even thenicest of entries. Therefore, itís always better to examine the entire life of atrade rather than focus on a single point.
Weíre not particularly big on trading psychology (maybe becauseweíre in such psychological disarray in other areas that ourtrading mindset gets pushed way down the list).
But thereís definitely some value in planning out how your strategyshould work in advance of a trade. This should be done under avariety of different circumstances so that you arenít caught off-guardwhen those unexpected circumstances arise.
So letís look at threeaspects of our trading strategy that relate to these questions of preparationand holistic thinking: trading, overtrading, and waiting.
Trading & The Iron Condor
One of the principal advantages of the iron condor strategy is that itrequires very little actual trading. In other words, you can be a lazy,undisciplined jerk and still not necessarily get clobbered (not that weadvise this approach).
As you may already know, an iron condor is a market-neutral,credit-producing trade that consists of four legs. The iron condortrade is best executed four or more weeks prior to expiration. It isbest exited 4-10 calendar days prior to expiration (or allowed toexpire worthless if you enjoy playing with fire).
Given that iron condors are risk defined and non-directional, most ofthe work in trading these positions is done up-front. As a result,where and when you enter the trade is very significant. In fact, theentry point is far more important in an iron condor than it is in manyother trading strategies. Exit points obviously matter as well, along with constant monitoring, since these trades frequently require adjustments prior to expiration.
However, the process of trading itself is relatively straightforward.The biggest danger that youíre likely to face when trading iron condorsisnít so much erroneous entries, but instead overtrading...
Continued In "Overtrading & The Iron Condor"...
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