Lesson Overview

Number of Trades You Need To Make

Do you know how many trades should you make each week/month/year in order to reach your goals?

Great question and we'll cover the specifics of how we look at the optimal number of trades in this video tutorial. In general the more trades you make the closer you'll get to your expected high probability target.

As a note: There's day trading and then there's high frequency trading with options. And yes there is a difference between the two. Day trading is getting in and out in the same day (or couple days). HFT with options is about building monthly positions many times throughout the week.

When it comes to trading options we do want to trade more frequently to get the number of trades up in our account over the whole year.

More Discussion

Was This Helpful? Add Comments/Questions

  • Hey – 15-20 per day could be a lot (or a little) depending on your account size. I don’t know what they would say on the TT side but we suggest between 1-5% of risk per trade (yet I’m not doing 15+ trades a day). If you did that much it would depend on the strategy as to how much risk each trade would take up. A credit spread might only take up $70 of capital whereas a strangle might take up $1,500 so it’s a hard one to answer for sure. My bet would be that you would probably need to see something in the higher ranges of account size to accomplish this ($100k+)

    • Thanks Kirk. Don’t think I can go that high ($100k) YET. I only have around $8k right now to play with. I just want to trade as much as possible. Your website here at OptionAlpha and TastyTrade have turned me into a complete addict. Thanks for all you do mate! :)

      • Haha we’ll I would say our tagline is “addicts welcome” but that wouldn’t go over well.

  • BL Kmobile

    Kirk another interesting point and video. Admittedly it is counterintuitive to me, since I followed so far ( with mixed results ) a “patient” approach. Only trading when I saw a Real Compellingly Good opportunity and I did not see that many. Your approach appears to be more of a numbers game and perhaps more accepting that none of us can predict the future.
    My bias was / is that “my edge” vs institutional traders is that I do not HAVE TO trade, just making a living is fine. However you are pushing that bias out of the window. Nevertheless, when I look at your graphical picture, it does not show any impact of “managing/adjusting” the trades and cutting losses to attempt to cut off the left outliers. Did I miss something?
    Look forward to your comment.

    • Oh yeah I know it’s completely counterintuitive to what most people think but it’s how we should be thinking about trading. Now it’s not to say we force trades every day because we don’t. You still have to be patient and wait for good pricing, high IV rank, etc but the thought process is that you just have to make lots of trades over the course of your career to ensure success. If you manage trades early, either for profit or to cut losses, you’ll cut some of the tail risk off the chart for sure.

  • Dan Amedro

    One question I am struggling with is how many trades to make as it relates to allocation and position sizes. For example, if I have a 100k to invest then my max risk in total would be 40k (@40%) and max risk per trade would be 3000 (at 3% risk per trade). As long as the max risk of my portfolio is 40k or less it is then OK to continue entering new trades? Another question is should most trades be close to this max risk figure? If I’m looking at a trade that that has 1000 in risk would I buy 3 to bring the risk up to 3k. Hope my question makes sense……

    • Yes correct you can continue to enter trades up to 40-50% allocation overall. I think you should scale trades based on IV rank. I scale UP when IV rank is really high and DOWN when IV rank is low – make sense?

      • Dan Amedro

        Yes, thanks

      • Dan Amedro

        One more clarification, is IV Percentile on TOS same as IV Rank?

      • No – they have different calculations.

      • Dan Amedro

        In that case, I can’t seem to find IV rank on TOS.

      • They just use Percentile – you’d have to manually add it to the charts via custom code. It’s going to be slightly different each week or month but generally they both follow the same structure so either one is fine to use.

  • Lord Hades

    When I started, I made many trades, not always getting good results so. Then I went looking for a better opportunities, stopped with DT and my results are better today with less trades.
    Thanks for content
    Regards

  • It’s 4 contracts at one time but I consider it personally as just 1 trade or 1 position.

Show Video Transcript +

In this video tutorial, I want to cover the optimal number of trades that you can potentially make. Now, before I go into this chart and I know it may be a little hard to read so just make sure that you maximize this video on your screen so you can see everything.

You'll get the understand; you don't have to see the numbers that are involved here. Before I begin here, I want to tell you guys that there's no set number that you have to have in your head for some trades to make.

All I want to do today is prove the point and the case that even though there's no set number, you do want to make a substantial number of, trades each year.

Not saying that you want to turn your account and just make a bunch of day trades, but for the probabilities and the odds to work out into the way that they should, you've got to make a lot of trades. You're going to have some trades that don't go well and some trades go great.

Over time, you be consistent and diligent and systematic about the way that you go about this business and trading for income, then you will make some money off of it as long as you make a decent size number of trades each year.

That being said, let's start talking about just the number of trades, and this whole idea of sample size or occurrences or consistency in your trading. I have a couple of charts that are up on the screen now.

I'll just use my cursor to kind of go through some of those charts so you guys can see what I'm talking about. I want you to focus on this chart up in the top left-hand corner of your screen first because this is a trade or a look at what a normal distribution graph would look like.

We have that normal distribution graph kind of here in this dark line across all these charts, but underneath that, we have the number of trades that somebody makes.

In this top left-hand corner of your screen, you can see that this is only a person that maybe makes ten trades throughout the entire month or the entire year. This goes to show you that you can have trades that have a wide distribution, right?

You might make two decent trades, and then you have one big loser and maybe a couple of small winners in there. The distribution of trades is very spread out because even though you're trading high probability options if you're following our system, that doesn't mean that all of those trades are going to work out over time.

It just means that they have a high probability only if you have a higher number of occurrences or instances or sample size in your trading.

So, in the top left-hand corner, you can see this person only made about 10 trades during the year, and there's a lot of wide variance in how they made money and where their trades ended up.

If we come in a little bit closer, right? So we say, "Okay, let's make some more trades." Instead of making 10 trades, let's now make about 15 trades. Now you can see that the distribution graph starts to look a little bit more normal.

We still have a lot of variance in what trades made money, right? We have a big loser; we have a couple of winners and a couple of trades that are kind of scratch where they made a little bit, or they lost a little bit, whatever the case is.

Now you'll start to see that even if you continue to move up in the number of frequency of trades or the number of occurrences that you make or the sample size meaning the number of trades, which you get more of that normal distribution curve in your trading and your probabilities.

So, to end this whole idea of some occurrences and the number of optimal trades to make we go down here to the bottom right-hand corner of your screen. You can see this is 120 trades that someone makes and you see that we do have some losers.

We have some really big winners but generally speaking, we have trades that are right where they should be, kind of right in that middle of the distribution range.

This is here to show you guys that the more trades you make at a 70% probability level or an 80% probability level over time, then the more money you're going to make at that probability level.

The more consistent you're going to be where you make 70% winners and 80% winners. This does not happen if you make two trades during the month and they're both 70% chance of winners.

You may lose on one and win on the other and in which case you won 50% of the time. Most people walk away and say, "You know what? That doesn't work for me because I made a high probability trade and I lost one, and I won one."

You only made two trades so again, the point I'm trying to drive home here with some optimal trades is that you just have to make a lot of trades. So a lot of your portfolio might be a lot for my portfolio and vice versa.

I do encourage you to make more trades to reduce your risk size to make smaller trades which have less risk so that you don't overextend yourself in one or two trades that might blow up and make a lot more trades.

I hope that this chart drives home that point with you guys. Again, if you enjoy these videos, please let me know. Obviously share them on Facebook and YouTube and Twitter, etc.

And if you have any comments or questions go ahead and add that to the membership area of our website, I'll make sure that we get all of those questions answered about an optimal number of trades for your specific portfolio.

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