Roger mostly trades equity and index options. He’s been trading for around 10 years and his approach works just as well with both stocks and options. He selects a stock first and then finds the associated option. Roger is similar to Stephen Knowles, in that his hit rate is approximately 90%.

What attracted you to TradeGuider?

A whole bunch of things: the concept, the simplicity and ease of use, its visual nature, its effectiveness, especially on my bottom line <laughs>. I used to use a manual process to select my stocks, which I found very time consuming. TradeGuider solved that problem, because it’s got a nice Stock Scanner. It also has an Indicator Scanner which generates a report of all the stocks which have just generated a trending or a volume indicator. I like the fact that TradeGuider isn’t an optimized system. Optimized systems look great because they optimize out the failure – I didn’t understand this before.

What has your success rate been and how has TradeGuider influenced that success rate?

TradeGuider has definitely boosted my confidence, as I now have a system that I can use consistently. I find that now that I have a disciplined regime, I am far more profitable. When I trade purely on gut-feel and emotion, especially if I’m stressed, I nearly always lose. Selecting an option can represent a challenge – I use specialized software to carry out this task. On stocks, I have a 90% success rate.

What is your personal screening process?

I first scan my stocks against the parent index and note the strongest and weakest stocks. I then look at the overall trend of the index. I tend to use the auto trend channel facility to show me the last active trend, which is something else I like about TradeGuider. I also draw my own trend lines too. For my particular style of trading, I have found it best to only trade in the direction of the long-term trend. I like to use the diamond stop indicator to help me time my entry, together with the Volume Thermometer.
I occasionally buck the trend, but I nearly always end up paying the price – it’s so hard to trade contra-trend.

How many candidates do you have per week?

I have 15 open positions at the moment, but I’m not normally this exposed. Once I’ve selected a stock I like, I need to identify a cheap option, which has a strike price very close to the purchase price of the stock. I always look for an option that is close to expiration so that the time premium is low and I only purchase under priced options. These tactics mean that I have a far better risk: reward ratio.

Apart from using the Stock Scanner in TradeGuider, I also screen stocks using TC2000. I find that these two pieces of software work very well together. I like to concentrate on blue chip stocks that are at least $10 each. The reason I concentrate on blue chips is for two reasons: these stocks are liquid, so it’s easy to get in and out quickly; they also produce good consistent volume figures, which is required for TradeGuider’s volume-based signals. I tend to make a couple of trades a week.

You talked about using specialized software to help you select the correct option. Do you use the Black-Scholes model?

I have a spreadsheet that calculates the Black-Scholes formula. The options programs I use are the AIQ option model and another piece of software called OptionVue.

How do you protect yourself from being taken advantage of by the floor?

I think that a lot depends on your broker. You need to find a good broker that will take the special types of orders that are required to execute an option. You need to be able to set up a contingency-based order. For instance, if I wanted to trade Microsoft based on some movement in the NASDAQ, I would use limit orders only and I would be extremely careful about the spread size. I wouldn’t really consider touching any option that has a spread greater than a 1/8 to 1/4 between the bid and the ask. You have to be careful when setting your stops too – I set my stop manually in TradeGuider, based on the stock price.

How long do you hold a trade?

Occasionally, I’ll base my exit on a price target that is based on a trend line. Normally. I’ll base the target on the upper part of the trend channel. TradeGuider has this neat feature that shows you the upper and lower quadrants of a trend channel, which can help with identifying shorter term overbought/oversold levels. I hold an option over a short period because the time period decay works against you holding for too long. I will try to buy an option 1.5 months out and hold for about two weeks to minimize my exposure.

What advice would you have for new users of TradeGuider?

Stick with it! It’s quite a departure from most other systems, but the concept and tools are what make it valuable. Don’t try to second-guess the system – just be as objective as you can. Don’t be afraid to use TradeGuider with other pieces of software. Different systems have different strengths. TradeGuider’s main strength is that it is volume-oriented. One of the most difficult parts of trading is managing your trade and TradeGuider is amply equipped to help you do this. TradeGuider is a very smart system and you need to give it some time if you are to realize its full potential.