Most traders are staring at the right screen and reading the wrong column.
They pull up probabilities and read the one for the expiration they’re in. What are the odds this thing finishes in the money on the 18th.
Fine.
Except that’s not the trade you’re making.
You’re not holding to expiration.
You’re getting out when price touches your number, and those are two completely different questions with two completely different answers.
The Two Numbers
I’ve got a position on in Meta right now, and it’s sitting around $670 at the open.
If I read the expiration column, it tells me one thing. But what I care about is whether price touches $655 or $650 before I’m done, because that’s where I’m out profitable.
Probability of touching that level out at expiration? 73%.
Probability of getting there this week? About 44%.
That second number is the one that matters to me, and it’s sitting right there on the same screen everybody else is staring at. They just never switch the column.
Why This Keeps You Sane
The chart ain’t going to do it for you on a morning like this one.
Price is a slop fest. Up $9, then up $5 sixty seconds later. And as I’m writing this it’s flat on the day.
If you think you’ve got a feel for intraday trade against that kind of liquidity, you don’t. Do not delude yourself.
What probabilities give you is something that doesn’t move around while you’re looking at it.
I’ll go with them every time, and not because they suit me. When everything else is chaos, a number that says 44% is a number. It’s the only thing in front of you that isn’t an opinion.
So before you put your next one on, switch the column. Look at probability of touching, in the timeframe you plan to be in the trade.
That number is your trade. The other one belongs to somebody who’s holding to expiration, and that probably isn’t you.
To your success,
Don Kaufman
P.S. Thursday at 2pm, I’m putting something on screen that has never left this company.
There’s a trader I’ve worked with for years who built a screen that tells him what’s already been decided before the market opens.
Not what price did. What’s been decided. He looks at it, leaves one trade sitting there, and he’s finished at 9:36.
I’m not naming him until Thursday. Nobody outside TheoTrade has ever seen this thing.
Free, 500 seats, and somebody on that call is leaving with $2,000 in cash.
