Why I never look at charts when I trade

I will admit, I have an advantage.

When I sell strangles with my plan, I don’t have to look at stock charts; I depend entirely on the probabilities suggested by the option prices. I also sell cash secured puts in my IRA. . . . and even there, I never look at charts.

In fact, I’ve found through experience that my portfolio performs measurably better the less I look at charts. How can this be? Well, if my strategy depends on probabilities and numbers, trying to add chart reading into the equation starts throwing the probabilities off. If I trade based on the belief that I “know something,” or see something in the chart, what I lose is my consistency.

And I’ve seen it happen with countless other traders as well. They want to trade the probabilities, but they can’t stop chasing the charts and end up chasing their tail.

Granted, it took many years to break my chart habit. For the longest time, I’d still open up a 3 month or 1 month chart and try to make an “assumption.” But eventually, I noticed that I no longer even bother to look at them. I realized all I need is the option chain and IV rank—looking back, that is when everything started running like clockwork.

I make all of my trade decisions based on this

That’s when my trading became a business—a repeatable process of execution based on a few simple numbers.

Of course, sometimes it’s hard to trust the probabilities the option greeks give you. Some might say that simply selling options doesn’t tilt the odds in one’s favor enough—that implied volatility overstatement isn’t enough of an edge. That may be true. Which is why a trading plan must have specific guidelines on trade defense, as well as exit strategies that take profits early and cut off trades that have become stinkers poised to cause more trouble than they are worth. Everything and anything possible should be done to tilt the odds even further in your favor. Why do it any other way?

At the same time, I’m not trying to put down the technical analysts. Every trader has to find their own way. I have found mine.

Good luck to all traders, and be careful out there.

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15 comments on “Why I never look at charts when I trade

  1. PEDRO MIGUEL GUERRA

    excellent, I was wondering if I was the only one that doesn’t care about charts

    Liked by 1 person

  2. The parameters for the CSP, are same as those for strangle?

    Liked by 1 person

    • No, I handle the CSPs different. 30 delta, 150 DTE, rolling out in time until the position is profitable. I’m in no hurry in that account.

      Like

      • Many thanks for the response.
        I have many questions on the CSP selling, but to save posting these “have you written the trading plan for CSP similar to the strangles trading plan?”
        Thanks

        Like

  3. Many thanks for the response.
    I have many questions on the CSP selling, but to save posting these “have you written the trading plan for CSP similar to the strangles trading plan?”
    Thanks

    Like

    • I haven’t written out a full plan on the CSP because I haven’t been trading that account for very long. I wouldn’t want to post something without establishing evidence that it truly works for me.

      Like

      • Chris Christensen

        I’ve started trading some strangles like you are over the last couple months and I really like the “calmness” of being that far out and that wide as well. I’m definitely interested in how you’re trading in your IRA for sure. Naked options are so much more profitable and easier to trade so the IRA is a big limitation. Looking forward to hearing more about that. Thanks!

        Like

      • Yes, and Tastytrade (Dr Jim) did a presentation the other day talking about how much faster naked options, and farther out of the money options, decay. So when people think a 150 DTE trade is going to take forever, that is not necessarily the case.

        Like

      • Chris Christensen

        Have you considered just doing the same trading plan in your IRA, but purchasing super far OTM options to allow the trade? Something like 1-2 delta. Maybe it costs $2-$5 per side for those options.

        Like

      • I’ve considered it and decided against it. I think my strangle plan requires the use of some leverage in order to produce results that outperform cash secured puts, and that isn’t easy to replicate in an IRA. Also, while $2-$5 doesn’t seem like much, it adds up, as well as generates more slippage on each trade because the bid-ask spread is usually wider out at 1-2 delta.

        Like

  4. Eddy Van Esch

    J. , have you ever tried a strategy selling straddles rather than strangles? By selling an ATM straddle, you receive a high premium, and benefit from max time decay. If the underlying continues to move sideways that is … Of course, your position is immediately ITM the next day ..
    I’ve always been wondering if there is a way to make this work …

    Kind regards
    Eddy

    Like

  5. Mr. Squiers, You have an excellent writing style and I appreciate your perspective!

    Like

    • Thank you. I haven’t been creating as much content lately as I would like. That will pick up more as I compile the results from my latest research.

      Like

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