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I think it is important to recognize that the returns that were shared in the presentation were the returns earned on specific positions. I don’t find it particularly remarkable that someone might earn 5%, 7% or even 15% or 20% on a particular trade or that they might earn 5% on a specific type of trade – e.g., iron condor – several months out of the year.
There were two key concepts that were addressed. The first concept was addressed by Dan at the out set of the presentation, which was the idea that to be profitable over the long term there needs to be a focus upon risk management, so that if you earn 5% on a trade in the “winning” months that you cannot take a 15% or greater loss during a “losing” month. Most, if not all, of us have heard that before but somethings are more easily said than done.
Some of Dan Sheridan’s current and former students came on after that initial presentation. The reason they shared some of their trading results was so that we could see the level of discipline they were using to manage risk and limit losses. Some students seemed to be more focused than others, but all of them were working to enforce a disciplined risk management and loss mitigation strategy. To maintain that level of discipline each student had found it beneficial to be accountable to someone concerning their implementation of and adherence to their trading plan.
While active in Dan’s program they had the benefit of needing to report to a mentor, but outside of the formal program they each had sought out and teamed up with one or more trading partners – not to “get trading ideas” – but to have someone that they can share their plan with who understands what they are doing. The benefit of doing this is that when the temptation arises to deviate from the plan, or to relax your level of discipline, or deviate from your trading procedures, you have this other person who knows that you’re breaking your own rules and that you’re not doing your job.
The one other insight to be gleaned from last night was how hard each of these people work. It has become cliche now, but they truly treat their trading as though it was a business. While they have passion for it, they have adopted a daily routine for monitoring the market, placing and managing trades, and keeping a constant eye on their risk. It’s not particularly exciting or flashy. It’s simply about working hard from one day to the next to make sure that their risks are understood and properly managed. Just like some mornings you drag yourself out of bed and make your way into the office simply because you know that if you don’t go in you will be missed and held accountable for being AWOL – these traders have found a way to hold themselves accountable should they decide to slack off.
I doubt that anyone logged on last night saw trades among those portrayed on their spreadsheets that were particularly novel. Butterflies, calendars, and iron condors. That’s about all I remember seeing. The underlying securities these strategies were traded upon should be familiar to most everyone – stuff like SPX and SPY, RUT, IBM, CAT. In other words, they’re trading the same stuff people on this board trade. The secret to success is not in learning the latest greatest indestructible options strategy or buying some awesome new trading software. There’s nothing wrong with learning new strategies or trading methods, or purchasing software, so long as you recognize that hard work and disciplined risk management are he things that distinguish the consistently profitable from the rest of the retail trading crowd.
Christopher Smith
TheOptionClub.com