Protecting You From Yourself

Protecting you from yourself is key. Many people are their own worst enemy when trading. To protect yourself from your own emotions, you have to first KNOW what works and how it works and to what degree and what the expectation is WITH trading fees involved.

 If you use options as a strategy you have a few things going against you anyways. Afterall with the leverage, you can use less at risk. If you use say a 1% position with a 5k account that is only $50. With $5 fees that fee costs you 10% and then you have to spend that 10% again when you sell. Take 20% off every expected outcome that's huge. Also, if you buy say 3 calls at .30 or $30 per contract you pay a per contract expense too, generally of .65 per contract (once during purchase and another during exit). so $1.30 on a $30 contract plus $10 out of $90 is $11.30/90=12.55% cost in fees.

Add on top of that the problem that you face... What if you produce your expected gain so that you can sell it for $90 per contract. Do you take profits? If so, add another 5.56% off all your possible wins. You better be able to have an expectation that adds that extra cost on and still produces. The volatility of the strategy becomes dangerous so it becomes real difficult to keep building such an account.

I never really stopped to think about how fees and amount risked so could drastically reduce potential outcome. One of the first things I want to do when I find the time to work on it and clarity is to put the spreadsheet together to factor in fees. I will work on that today!

The goal going forward after figuring all that out is determine what I expect to yield per year and also at what point is it impossible due to fees for me to profit using the current strategy. There are a couple reasons for this. The first is to decide how much of a draw-down I can afford, and the second, how much capital can I risk in a more passive investment strategy where fees doesn't become an issue. The final to draw a more accurate picture of my expectations and compare them on an even more "fair" basis than currently. The strategy then can be much more dynamic to when I can determine at what point does adding more bets at a lower correlation with the same expectation cause "the law of diminishing returns". Should I be betting 10 bets at once? 5? 1? due to fees it may be possible that less is more. Without fees, the relationship of more bets at a lower correlation is always better.