September 22, 2018

Question: in options, which is more profitable intraday or positional?

In your experience is it giving better returns than positional trading. For example, I/m attaching a 2 hour chart of nifty with your own indicator.

Would a positional short according to the sell signal given by the KPL indicator have given more profit than intraday trading?

Indeevar





Answer:

As per the chart shown above (with conditions), it is obvious to an untrained eye that both the positional long and short trades are immensely profitable.

But trading is not so simple.

Firstly, you need to have an SL and the SL cannot be 20 bar low for a long position. It will be something like 5 bar or 10 bar low.

Because of this, you will have several entries and exits.

Secondly, this was a straight forward rally in nifty so chart looks nice. In reality, you will have a lot of sideways markets and then markets trading in a channel etc.

Not to forget gap ups and gap downs which can mess up charts.

Pick any chart... 15 min or hourly chart and see the indicator action when the EOD chart is rangebound. You will surprised at the whipsaws one gets. Of course, there will be a temptation to "modify"the timeframe and then arrive at a conclusion that 30 min charts are the best.

This is called "chart fitting" and has no use in real life world.

This is what a messy hourly chart looks like. Option buyers would be losing money.



Another example:



So in any market and in any timeframe, there will always be times when one timeframe is giving whipsaws while another timeframe is showing good profits. This is a reality of the markets.

This leads to the next question: why I prefer intraday.

Answer is simple. I trade options and usually the long side. I rarely trade positional futures because of risk of unlimited overnight losses. Of course, one can buy futures and puts at same time but this is same as buying a call.

In positional options, I run the massive risk of time decay. This is my biggest enemy and I must fight a losing battle everyday. Ditto with drop in VIX.

There are some big advantages in intraday trades. For one, I am not worried about gap up or gap down. Secondly, I get 10X leverage so I can pyramid big time. This is not possible in a positional trade. Of course, I rarely cross 3X leverage.

Note I trade only nifty options. I never trade stock options as liquidity is pathetic and I am at the mercy of the writer.

Central to all this is my risk management. 

Never lose more than 1% of my capital in any trade.

So feel free to follow my methods. As long as you can follow the above most important rule.


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