Karen treats trading as a process and manages the process all the time. As far as I can see, her trading process involves the following elements as discussed in her interviews:
o A suitable set of strategic trading rules,
o An advanced trading software platform,
o A successful trading mindset and psychology,
o A daily trading routine,
o A trading number game management,
o An experienced trading team,
o A Sufficient amount of time and money for trading and learning, and
Karen’s daily trading routine starts from market open hour till the end. The constant watch on the market by her trading team allows them to react to market changes promptly. Karen’s trading rules help them staying away from over-trading or over-adjusting. Her high degree of confidence on the high probability trades enables her of proper trade actions in the face of market uncertainty.
Karen treats trading as a number’s game so that she can play it objectively. She enjoys playing the big game all the time and taking the market challenges as well. There are no feelings wrapped around her trades or positions, as they are just numbers to her. The ability to turn emotions and perceived risks into a set of trading numbers and to focus on the numbers helps traders to decouple themselves from emotions and irrational trading actions. The emotion and fear are the biggest obstacles in trading and they take down most traders. The focus on trading numbers takes away the feeling of heart-ripping during adverse market conditions. As a result of the application of high probability trades by going far out of the money, a heavy percentage of Karen’s positions are winners.
Karen had discussed her learning and trading improvement process. She had more failures than successes in initial years. She was willing to invest in learning knowledge with a large amount of money and time that many other people may not be comfortable with. Her education fee at Investools alone cost over 20K USD. Small traders may have this limited amount in their trading accounts.
Karen established a tremendous trading team of about 6 members. 5 of them are experienced retail traders and 1 is an accountant. She encourages different ideas from team members. They usually will listen to each other, discuss the ideas and agree as a group. From time to time, they will test water with new ideas using a small amount of capital. If the new idea is proven to be working, then they don’t hesitate to apply it in full scale. The selling of weekly option was a good example of this process of adopting new ideas.
Some traders may get extremely disturbed if the temporary position loss becomes very big. Karen does not get emotional about any of her positions. When positions are in danger, she will do whatever it takes to fix them and make them back to the original profit at the expiration date as described in Section 6 Trade Adjustment Rules. She is not bound by the future direction of market moves, but always reacts to it if the ITM probability and profit percentage of her positions indicate to her for adjustments.
Karen suggested traders to look at the profit and loss numbers of the portfolio but not to focus on the P&L. This is reflected on her trading team structure as well as there is only one accountant (vs 5 to 6 traders). With this team, the traders should be able to focus more on the other important trading numbers. Personally, I think the key numbers Karen discussed in the interviews can be summarized as the following:
· ITM probability
o First factor used to determine if opening, closing or adjustment is required
· Prices and trend of the underlying
o Second factor used to determine if adjustment is required
· Stress-tested market crash losses vs net liquidation value
o Critical number that indicate how many contracts to sell
· Option premium changes and time to expiration
o Available options for adjustments
Karen stated she is willing to take losses when necessary and she will keep existing profit in her positions also. However, there were no examples discussing when to give up positions for losses (probably after the portfolio margin runs out). It’s worthwhile noting that Karen did not indicate any rules based on position losses. She did not mention any direct trade reaction to the amount of loss of a position. Her trade adjustment rules are based on ITM probability and the current market trends.