Oh Spreads You Joys of Fixed Income...
I've decided to follow some of my earlier advice and trade only one thing at a time. I was trading oil for a while but those contracts seem to have disappeared from my simulator so I'm focusing on the spreads. I lost $1,500 today. I really felt like the yield curve might steepen so I went long the 2 to 30 and long the FIT. I'm still a little puzzled about the best way to trade these guys. P&L never really breaks out of a $2,000 range up or down. Most recently it has been down.
I'm not complaining...lord knows if you can manage to make $2,000 a day, God bless you, but what does concern me is the money management. If my biggest upside will be between $1,500 and $2,000 then according to the rule of 2.5 I should only let my P&L dip down to $(800) or $(600). That seems a little too easy to hit, but I'm going to try and manage that. Currently, I have no ability to put in electronic stop losses with my spreads, but if I watch the P&L and start to get out when I hit $600 then I should be able to get out by the time I hit $800. The only other concerning thing is leg risk when conducting so many trades. And given the small size of my positions, leg risk is significant.
There's a LOT of risk with spreads because it takes major economic news to cause movement and at least in my experience so far the variance of P&L is so tight it warrants the most discipline I've seen yet!
Stay disciplined and focused. If I can really manage that downside risk there unlimited potential, but otherwise spreads will be the death of me.
I'm not complaining...lord knows if you can manage to make $2,000 a day, God bless you, but what does concern me is the money management. If my biggest upside will be between $1,500 and $2,000 then according to the rule of 2.5 I should only let my P&L dip down to $(800) or $(600). That seems a little too easy to hit, but I'm going to try and manage that. Currently, I have no ability to put in electronic stop losses with my spreads, but if I watch the P&L and start to get out when I hit $600 then I should be able to get out by the time I hit $800. The only other concerning thing is leg risk when conducting so many trades. And given the small size of my positions, leg risk is significant.
There's a LOT of risk with spreads because it takes major economic news to cause movement and at least in my experience so far the variance of P&L is so tight it warrants the most discipline I've seen yet!
Stay disciplined and focused. If I can really manage that downside risk there unlimited potential, but otherwise spreads will be the death of me.
posted by Shiptastic at 7:30 PM
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