Trade The Journey

Trade The Journey

Bias Vision!

Top of the Morning. I hope everyone continues to remain safe, healthy, and in good spirits. The Coronavirus continues to ravage the country with no hint of slowing down. Nurses and Doctors continue to advocate wearing a mask to possibly slow infections and hospitalizations.

Sad to say, many still believe the virus to be a hoax. With the holidays coming up, the infection and hospitalization will continue to increase. With many against another nationwide shutdown, governors are imposing stricter measures.

A vaccine is nearing completion, and it looks like it will be available to the public in 2021. Of course, at the moment, these are just projections. Most people are skeptical of a vaccine created so quickly and are unlikely to take it.

With a vaccine, we could return to some normalcy, which would help the country recover and spur growth in sectors hemorrhaging from closure.

The markets will remain volatile until the transition of administrations from Trump to Biden is completed. Interestingly, the current cabinet members have reuttered the President’s certainty that he will see a second term.

In January, a refusal to concede will mean blood in the streets and a severe downturn in the Market. International confidence in the United States is slowly fading as we look unstable. The world is watching to see how we emerge from this turmoil.

At stake is our economic status and, with time, our currency.

Trading Review

Trading is an experience like no other. You can see just about anything on stock charts. Depending on your bias, you can see price support instead of the resistance forming. Seeing what’s happening on the charts requires objectivity that few have.

Last week, I made the mistake of falling into this very trap. The week before last, I made a bearish trade, and the stock rebounded upward during the second half of the week. The following Monday, the stock dropped close to five dollars. Ouch!

All I could do is shake my head. I was right about the direction but wrong in the timing. Timing is one of the nuances involved with trading options. Depending on the strategy, the direction could range from trending to neutral, but your timing and correctness have to be within the options contract timeframe.

I’ve returned all profits made in the last month and a half to the Market in two weeks. Hard to accept but easy to understand why.

A bias held loosely prevents catastrophic losses.

The Trade:

Bullish put credit position: I defined a level the stock would not go above.

Completing my homework every night, I saw no reason to see the other side of the trade. The stock was sliding lower to test a major support level.

I opened this position mid-week after seeing the sizeable nasty bar on the opening Monday morning. The option contract had three days left until expiration.

The day before the expiration date, the stock closed much lower than the previous day, and I was convinced the profits would be rolling in. On expiration day, the stock gapped up on the opening and closed every period above the twenty periods moving average. I hate closing on the expiration date.

When I completed my nightly review, I saw how price support formed on the day I thought it to be resistance. Sad to say, I saw what I wanted to see. Thinking about what the other side of your trade is thinking or doing means admitting that you may be wrong.

Most of us don’t want to be wrong and refuse to accept that our decision was incorrect. The week before, I experienced this refusal first-hand, and it cost me.

The more I trade, the more I realize how psychological trading is. It requires mental flexibility, the ability to release your ego and constraints in your thinking rigidity.

You can demand to be right in real life, but the markets respect no such position. Remembering my previous lesson in the futility of “hope” and rigid thinking, I cut the position at the determined level. When I paper trade, I practice on execution more than entry.

I practice closing trades at predetermined levels without second-guessing myself. I also practice thinking about the people behind the price bars, bullish, bearish, or neutral; what are they thinking?

Someone is on the other side of your trade, system, or not. There’s a reason a trade is placed. While we will never know the real reason, it can be helpful to think of possible causes. Maybe it’s the pattern that someone uses to fake out other traders, or perhaps the news of a new deal the company completed caused the prices to rise.

We’ll never know. That’s why thinking about both sides of your trades is essential. You’ll realize as I am now why cutting your losses short is so vital to your survival.

Experiencing options in real-time is helping me learn how options work. Yes, I could have read books and then traded, but I believe learning how to trade options should be full-contact. Reading can’t replace experience, and trading is about action.

At the moment, I’m keeping my return and risk low while I learn.

I’m looking forward to learning even more about options. ThinkorSwim has a great platform for trading and analyzing options. I wouldn’t suggest trading options until you have a firm understanding of technical analysis. Of course, this is my opinion.

Some options traders trade mainly off the greeks. I probably won’t but I see why it’s important to understand them.  Moving forward, forcing myself to think about the other side of the trade will encourage me to think of reasons why the trade won’t work. Reference points could also be used to identify where you are wrong.

This week in review:

I still need to work on my budgeting skills. Sometimes I overpay my bills, eager to pay them off sooner rather than later. When I miscalculate, or an unexpected event occurs, I face a cash-flow crunch. This next week, I may have to start writing down my spending plan accounting for a potential surprise.

Writing things down helps me visualize my plan better. It’s old-fashioned, but for some reason, it’s helped me tremendously.

This past week, I’d like to give myself a “C” for steadiness.

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