Trade The Journey

Trade The Journey

Greetings, I hope all is well, and everyone is in good spirits.

Over the weeks, you may have read some of my doom and gloom posts. I was over-eager to categorize this economic environment as bearish. It’s hard to ignore the polarizing events that occur almost weekly.

As things heat up towards the November election, the markets are reaching pre-pandemic levels. With each passing week, I felt more confident that the eventual economic collapse would make its way to the headlines. It never happened, or should I say hasn’t arrived in the time frame I forecasted.

To be clear, I would also be affected by an economic event large or small but this post and my trading should center around objectivity. Here is a situation in which the adage, “The Market is Always Right,” perfectly applies.

While I was waiting to be right, someone else was looking to be profitable. I even placed some short-term VIX futures a couple of months back to capitalize on the coming volatility. The volatility that occurred in March has yet to return, and I was left with a losing position.

It’s challenging to trade a market without some bias. Without proper risk management, the market can lead you to believe that windfall profits are just around the corner. Luckily, without much capital to spare, I don’t have to worry about risking it all.

One trader trait I notice I have but need to discard is falling in love with my position. Maybe it’s a good feeling or an acknowledgment by the market that I made the correct decision that keeps me in positions for longer than I should be.

It could be the absence of a profit goal. Who wants to be the person that sold at $1,000 when the stock rose to $10,000. Not me.

Here is the dilemma, you nor I have no way of knowing when a trend might end, continue or dip and start again. There are clues the market gives but those clues are not definite indicators of a market’s direction.

We all need a little bit of luck, skill, and resilience to hold in the end. I won’t mention the stock by name. The stock is a minor player in their field with lofty ambitions and an increasing member base. The stock dipped when I opened my position and slowly rose to an all-time high.

The analysts were predicting its continued rise to another price level of almost ten dollars away. The stock moved well, with the twenty-period moving average above the forty and two-hundred. The stock was in a healthy and steady uptrend.

Sometimes I make the mistake of thinking that a stock can go up forever. The stock is steadily rising, analysts are bullish, and I’m feeling pretty good.

 

Here are some additional facts I didn’t consider:

I held the stock with some understanding of the companies business but not much. It was a swing trade that transformed from a two-day trade to a three-month trade

I didn’t know when the earnings report date was.

I checked for news regarding the company but did not do any thorough research.

 

With these small facts ill-considered, I woke up the one morning with a stock that dropped over six points between the pre-market and open. When I checked, I saw the stock tumbled in the pre-market and gapped down on the opening.

I checked for company news, and there it was, missed earnings expectations and CFO fired. Looking back, I think it may be in my best interest to develop a checklist for stock health when in a trade.

 

Here are my thoughts:

Spend time reviewing some of the major events that have occurred in the companies history. Develop an understanding of what the company does and how it manages its earnings.

Anticipate events or developments that could occur in the future – requires second-level thinking.

Be aware of the earnings date and the general sentiment regarding earnings.

Better study the stock’s momentum.

Develop an understanding that a trade does not have to be permanent. You can always take some of your profits off the table. Don’t get attached to the winners or worry about the losers.


This past week in Review:

Another week of subscription cancellations. I guess its a good thing that I’m canceling most of my online subscriptions.

I hope that this renewed since frugality continues into the near future. Like most, I fall into the trap of “it’s only $5”, or “I’ll cancel it next month.”

If I’m able to do this, I’ll be able to save and trade with more frequency.

For this past week, I” ll award myself “B” for continued improvement and optimism.

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