Trade The Journey

Trade The Journey

A nightmare Trade!

Trading Asset:

SPY (S&P 500 ETF)

Strategy: Vertical Spread

1ST Spread (SPY)

Leg 1: Buy $522 Call

Leg 2: Sell $527 Call

Premium: $19

Profit/Loss: $1.04

Total Premium: $1.04

Hypothesis: There seems to be bullish sentiment and there doesn’t seem to be anything immediate that’s screaming sell.

Hypothesis Explained: The indices appear overstretched, yet there seems to be room for further growth, assuming the PCE report aligns with forecasts. Regrettably, due to a holiday, the markets will be closed and the market’s response will remain subdued until traders resume on the upcoming Monday.

Trade Management: This trade was suboptimal from the outset, as the indices showed volatility in anticipation of the latest inflation report. Entering the trade may have been ill-timed, as SPY experienced a pullback during the week, resulting in a 70% loss of premium. The loss was still on paper as I kep the trade open. Managing the trade became challenging as the decline persisted.

I must acknowledge feeling anxious over the trade’s potential recovery. Leaving the trade open during the pullback was far from ideal. However, I believed SPY was temporarily oversold and considered the pullback potentially beneficial. The trade lasted nearly the entire week, and on Wednesday, SPY retreated to $518.36.

The trade was exasperating; SPY would climb to $520.80, only to dip again. In the post-market, SPY would rally, then fall at the market open. The $520.80 mark proved to be a crucial reference level that SPY continually tested. Finally, on Friday, SPY broke through, setting a new high. Fortuitously, I managed to exit as SPY peaked, and relief washed over me.

Trading Review: The trade was fraught with risk, and I lament keeping it open throughout the downturn. Instead of persisting, I should have closed it as soon as it hit my stop-loss limit. My inability to adhere to my stop-loss limit is troubling, as it may lead to significant losses if the trade fails to recover.

This pattern in my trading behavior has become entrenched. The challenge in adhering to my stop-loss is the perpetual “what if” – the possibility of a trade turning profitable if given more time. There’s nothing more vexing than exiting a trade only to watch it rise and ponder what might have been with extra patience. Experience, however, can sometimes indicate when the market has reached a pinnacle of emotional intensity, and short-term volatility is likely to prevail. Depending on the circumstances, there have been instances where I’ve swiftly cut my losses upon realizing a recovery was improbable. The beauty of trading lies in the continuous opportunity to learn more about oneself and the market dynamics.

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