The Five Pillars
After years of working at a hedge fund, it was clear to Wayne what separated professional traders from retail traders.
Below are those key variables:
Environment
The market environment is a critical metric to consider when trading options or investing in an asset. By analyzing the market environment and pairing the appropriate options structure or asset class with it, we are able to enhance performance and consistency.
The market environment can be gauged by various factors, including volatility, volume, price action, macroeconomic pressures, capital flows, currency strength, risk-free rate, and much more. For example, if the market environment is highly volatile, we might want to consider an options structure that is less sensitive to changes in underlying prices. Also if the market is extremely volatile the balance of risk assets in a portfolio needs to shift to accommodate.
On the other hand, if the market environment is relatively stable, we can afford to use an options structure that is more sensitive to price changes. By understanding the market environment and how it impacts our options trading and asset classes, we can make better decisions and achieve more consistent results.
A consistent and repeatable options trading strategy requires a favorable market environment. Volatility, volume, price action, Macroeconomic pressures, and capital flows can all impact an options trading strategy's profitability and a portfolio’s ability to grow. Instead of just accepting that a trade has a reduced edge, how about we place a trade that has a large fundamental edge for that current market environment?
That is precisely what The ADAPT Options System does. We only trade when Edges are quantified and magnified for optimal efficacy. A.W.A.K.E. and The Sleep Well Portfolio use the macroeconomic environment to determine the relative risk of the main financial asset classes in order to gain a market edge and maintain consistency year after year.
2. Position Size
Trading size is one of the most important aspects of trading, but it's also one of the most misunderstood. Most people make the mistake of thinking that bigger is always better. If you're not trading the right size, you're putting yourself at a disadvantage from the start.
Most people don't realize that the size of their trades can have a significant impact on their account's long-term growth potential, as a result, they never achieve the success they desire. Because ADAPT Options uses a multitude of different trades it’s paramount to size each trade for maximum relative performance. This keeps the risks consistent and optimized potential profits on every trade.
ADAPT SPX Options allows you to trade size intelligently, so you can maximize your profits and minimize your losses. With this tool, you'll be able to trade with confidence and consistency, which is key to becoming a successful trader.
3. Probability Theory
When it comes to trading, the goal is to stack the odds in our favor so that we can make a profit over the long term. That means understanding what factors influence the markets and how to use that information to our advantage. For example, political instability can lead to uncertainty in the markets, which can make prices volatile.
By monitoring these factors and others, we can develop a trading strategy that gives us a better chance of success. In the end, trading is a probability game, and the more we can stack the odds in our favor, the more likely we are to come out ahead.
Probability theory combined with the power of Position sizing significantly improves trading performance. One of the key things that our system does is provide the probability of success for any given trade and provide an exact position size according to quantifiable data. This data-driven approach turns probability theory into probability reality. When followed consistently we gain a significant advantage in the markets.
4. Trade Frequency
When and if to trade is another crucial component of successful options trading. If a trade is entered into too early, there is a greater chance that it will not be profitable. Conversely, if a trade is entered into too late, the potential profit from the trade may have already been realized by the market.
There are a number of different factors to consider when deciding when to enter or exit a trade. These include, but are not limited to, the following:
- The current trend of the market
- Support and Resistance Levels
- Price Action
- Volume
- Volatility
- Macro-Economic Pressures
- Geopolitical Risks
- Global Currency Relationships
- Capital Flow
Our system takes all of these and many more factors into account before making trades. By doing so, we are able to maximize profits while minimizing losses.
Being selective about when we put specific trades on allows us to utilize other trades that complement each other. In the ADAPT Options system, we have over 20 trades all paired together but generally not overlapping to increase our frequency of trading to achieve high returns.
Still, one person's definition of high frequency is another definition of low frequency. The ADAPT Options trading system has an average entry of 1.5 trades per month and only has to be checked once per day during market hours.
5. Diversification
In order to achieve consistent profits, it is important to diversify one's portfolio. This means not putting all of your eggs in one basket, so to speak. By investing in a variety of different assets, you can minimize the risk of losing money if one particular asset class underperforms.
Diversification is especially important when it comes to options trading. This is because options are a leveraged product, which means that they can magnify both gains and losses.
Our system takes diversification into account by investing in a variety of different assets when paired with A.W.A.K.E. or The Sleep Well Portfolio. This helps to minimize the risk of losing money if one particular strategy underperforms.
We provide the framework for maintaining proper position size with general risk expectations so you can decide what level of aggression is most suitable for your goals.
May you ADAPT and profit