Trade The Journey

Trade The Journey

Losing Trades: Last six trades in a row

Good Afternoon, this post will cover a series of trades I made within the last few weeks and some of the lessons I learned from these losing trades. Since my site was down for the past few weeks, I’ll do my best to provide a comprehensive review of the trades. There were more than a few instances, where I thought trading might not be for me and maybe I should pursue other things. Watching a trade descend further and further downard was like watching a ship sink with the people on board, it was that painful.

I’ve been in many trades some winners and some losers but never I have been a trade where I lost my entire premium. It happened twice, the first time I watched the ship sink and the second time the stock gapped lower and when the market opened my entire premium vanished. The second trade was a earnings play, so I was subjected to the market’s view on the earnings report and conference call.

One thing I learned from watching Mark Douglas, the author of Trading in the Zone and the Disciplined Trader, is that the blame lies with you, not the market. So each trade result is about the market and what it did but it’s more about how I reacted and what I did as well. A lesson that I am learning is that analyzing a trade is important but accepting the uncertainity involved when placing a trade is even more important. There’s always be something you did think of or surprise news event that arises and causes your position to move.

So what’s the best course of action a trader can take to guard themselves against uncertainity?

In my experience, my most profitable trades worked because I had a few scenarios that I imagined could occur and how I would proactively handle each scenario. Recently, I lowered the size of my trades to better develop my trade strategy and plan of action to guard against uncertainty and surprise events. If you think about the market as the force conspiring against, you’ll have a hard to adusting to how the market truly works.

The market has no feelings or biases, its just a marketplace where buyers and sellers to meet to determine the best or truest value of an asset. This is another reason I lowered the size of my trades so that I can look at the market without thinking about the money on the line. When there’s a lot of the money on the line, you have to be prepared, mentally, for the movement of the market.

Trade Review after the trade was closed:


Strategy: Butterfly and Call Credit Spread

Hypothesis: Test theory that I can allow trading to overcome my traditional salary. Earnings not until May. Low volume for the options series. Earnings this Thursday.

Time: Weekly Expiration

Review: A bad week too place a neutral strategy with the earnings report and economic data reports being released. I knew this before I placed this trade but didn’t think ADSk would fall like it did. Instead of being proactive, I was reactive. Buttefly trades are hard to close, and no one was bidding on this butterfly spread. I held onto HOPE for a little too long and watched ADSK fall lower and lower before I exited the trade by legging out. This trade result could have been avoided because I had multiple opportunities to exit the trade. This is the largest loss I have taken thus far on a single trade. $195 is still solid level, I just picked a bad week with volatility rising to place a neutral spread. To ease the wound of a big loss, I opened a revenge trade thinking I could soften the blow and ended up losing more.

Lesson: Try sitting out the week or not placing a trade that is doomed from the start. Trade with EBAY included in the loss.

Trade: APPL

Strategy: Call Credit Spread

Hypothesis: A play on earnings released later this week. Higher estimate: $1.56- Lower Estimate: $1.38.

Time: Weekly Expiration

Review: After last weeks monster loss, I was hesitant to open a trade this week. I wasn’t sure that I’d be trading after loosing the most I’ve ever lost trading. My recap is on the previous post. But after thinking about it, I figured I wasn’t going to become a better trader by research or reading, I wanted to trade. This week I decided on call debit spread on APPLE due to the earnings release. Most of the large cap tech did well on earnings, and I figured that APPLE would do well also but I didn’t make it to earnings. Even though this trade shows up as loss, I think I did quite well with this trade. I didn’t jump right in, I waited until the price fell to my entry price and then entered. That’s a first. After the Fed annoucement, stocks and the overall market sentiment sank. Bank worries also persisted. Apple slumped again after two days of closing with a profit, Apple drifted closer to my stop loss point. I could feel the hesistancy rising at closing the trade. I just didn’t want to do it. I kept telling myself its coming back, you don’t want to miss out on earnings which could cause the stock to gap up. But after some thought and with the memory of the monster loss on my mind, I closed the trade within my limit of a 15% loss. I was a little upset as Apple continue to move up and down as the close came near but I followed the plan. The mechanics of trading and mindset of a professional trader is still be ingrained but this is a good start. The problem with holding onto a trade, is you don’t know what will happen next.

Lesson: A professional trader and amaetur trade aren’t separated by skill alone but also by the mindset and thought process. Keeping your losses small, will give me better opportunities in the future.

Trade: ABNB

Strategy: Call Credit Spread

Hypothesis: A play on earnings released later this week. Higher estimate: $1.56- Lower Estimate: $1.38.

Time: Weekly Expiration

Review: I really don’t know what to write. Had this been a lost that occurred while I was monitoring the trade maybe this trade wouldn’t make me feel as bad. I can’t blame the market because as I understand it the market is neutral. The markets didn’t do anything too me. Earnings were bad, a 0.81 miss and the stock fell post market. ABNB plunged the most on record, falling more than 10%, I didn’t expect this to happen. Based on the CEO interview, I was under the assumption that travel had picked up and things were good at AirBNB. When the market opened, I couldn’t close because no one would buy the spread and to be honest, I was hoping ABNB would recover somewhat so I wouldn’t look so bad. Going into earnings I had a small profit and it didn’t even cross my mind that earnings would be that bad. In two weeks I lost close to $500.

Lesson: Don’t base trading decisions on an interview, article, or anything that involves an opinion. Be prepared for the unexpected, you can’t think of everything but at least have some options to exit the trade. I didn’t expect the drop at all. Be very wary of entering into a trade before earnings, you just don’t know what’s going to be reported and how it will be reported. Be prepared mentally for when trades go wrong. The worst part is a stop-loss whether mental or placed in the market wouldn’t have helped.

Trade: IWM (Russell 2000 ETF)

Strategy: Butterfly


Time: Two-day expiration

Review: Unsure of how this trade ultimately turned out. I can’t say that this trade was more challenging but a two day option doesn’t leave much time for you to be right about direction or nondirection. IWM had a bullish day, after Biden announced that the debt ceiling will be resolved which prompted the market to rise. I wish I could say I should have known that he would be making a annoucement, but I should have been aware. It seems like there’s always something even during the weeks when nothing should be happening or very little economic data or earnings are present. Maybe I should think of a better strategy based on what’s happening and the charts and form a true hypothesis. I must think of a way to incorporate uncertainity into my trading plan. I belive that for now I should keep my trading size small to better learn butterflies and broken butterflies.

Lesson: News of progress on the debt-ceiling negotiation caused the markets to rise, negating my neutral outlook. It may not be possible to predict what news event may arise, but it possible to limit your exposure to the event by setting stop losses or mental stops if you have the discipline to execute. One new tool I’ve been using is the prices slices: uniform stress testing on thinkorswim. This test allows you to see how the greeks changes at various price levels. Below is a picture of the tool.

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