Trade Aptitude
Today’s Best S&P Futures Turning Points: This strategy remains on hold but is rapidly improving. Stay tuned.
The World Index: (+100/-100) rises from +21 to +36 with most major world markets Bullish.
Catalysts: Building Permits/Housing Starts @ 8:30. UofM Consumer Sentiment @ 10:00. Fed’s Goolsbee @ 13:25.
Quick Tip: Sell or Hold?
Money messes with our heads. Until you get a grip on the emotions associated with winning and losing, you’re unlikely to succeed.
Here’s a viewpoint I learned from one of the all-time great traders, Larry Williams: “More money is lost due to overstaying positions (greed) than exiting due to the fear of losing money.”
Your fear is likely solved by using stops that lose an amount of money you can accept. Easy enough.
If Larry is correct, and I do believe he is, then greed is solved by pre-planned profit targets and open trade management. Planning targets is easy, open trade management requires skill and discipline.
Here’s an example: The chart above shows the results of a trade I closed yesterday. I bought the 9/20 $22.50 strike calls based on our Unusual Options Activity strategy. I paid $1.55 and sized the position to lose the premium rather than monitor a stop loss. My target was time-based, not monetary. As you can see, the stock soared 54% yesterday reaching $33.58 giving my $1.55 calls an exit at $12.30. +693%.
In the same situation, would you follow your plan and leave the trade open until your time stop order? Or would you take the profit?
As I was watching this trade yesterday I thought about Larry’s viewpoint. Was I being greedy staying in? I might miss a big follow up tomorrow if I close it.
But I also know that extended ranges like this frequently collapse quickly. And I’m suspicious of any dramatic move like this being a short covering rally. I closed it.
Regardless of what happens going forward, my open trade management got a big winner. Next time FOMO sets in consider Larry’s viewpoint.
If you're a swing trader of stocks or options, you should watch my training session on Unusual Options Activity. Click here.
Trade Fearlessly,
Mike Siewruk
P.S. Feel free to pass this along to your trading buddies. Share in the wealth!