Trade The Journey

Trade The Journey

Psychology of a losing Trade!

Top of it.

I hope all is well with everyone. These days, good health and a positive attitude are essential to maintaining your sanity. The country can breathe a sigh of relief as a new President will take the helm for the next four years.

A country in turmoil has an opportunity to heal. Some think the country returning to its past ideals is a good thing. Others believe the progress that many worked hard to inspire is at risk of being lost. A small majority loved the turmoil and saw it as an opportunity to spread and foster even more division.

It’s safe to say these last four years, especially the year 2020, will go down in history as a test of character. Although we came close, it looks like we won’t fall off the edge. Many challenges exist for the new administration, and I’m sure that getting the Coronavirus under control is number one.

Stabilizing the economy will probably be next on the list. Without control of the Senate, Biden faces has a tough road ahead. People are hurting, and with no stimulus deal on the table, it’s unlikely the recovery will be smooth.

Not only are these issues awaiting his attention, but the damage incurred from changes in policies and broken agreements internationally has to be undone. What the Coronavirus has done is usher in a Megatrend that otherwise would have taken years to complete.

With the increase of artificial intelligence and robotics usage, more people are finding themselves unemployed, permanently. As much as I’d like to believe that the stoke of a pen would fix this mess, I know this not to be true. Some of the problems existed long before Trump entered office, like social security, structurally unemployed, debt, globalization, crumbling infrastructure, and healthcare.

All his administration did was magnify the existing issues. How this all plays out is anyone’s guess. An article I read earlier stated that Trumpism and Trump are here to stay, which leaves the door open for someone like him to rise again. The next time, this person will be more polished, polite, and fanatical with a blueprint laid before them.

It will be interesting seeing how we move forward as the United States. I hope that we reach a new height of progress, economic stability, and innovation. United we must be because we have formidable opponents seeking to take the top position.

The Psychology of Losing Trade:

Sunday, I complete my homework and preparation for the week ahead. I read articles about the current economic environment and assess the charts to see the markets’ reaction. Once I develop a system for completing my market assessment, things will be a lot smoother.

For the last month, I’ve been trading weekly credit spreads on Target. Credit Spreads involving selling one option contract and buy another. You use call credit spread positions for bearish forecast and put spread positions for a bullish forecast.

I like trading credit spreads because you know your maximum risk and reward before entering the trade. I guess this type of trade speaks to my risk-averse side.

So far, I’ve done okay. In the first two trades, I closed my position prematurely because I became nervous about the stock’s resilience. Usually, the stock continued in the direction intended. In both situations, had I remained in the trade, I would have earned a high return.

With options, you only have to be right about the direction to a certain extent. The week before last, I closed my position near the maximum amount earned on the trade.

Fear of a resurgence in the Coronavirus infection rate caused a market sell-off.

All stocks sank on a dim market outlook, so I can’t take credit for the trade. One attribute I believe is necessary for a trader to have is an open mind. The ability to open to new information will help you adjust to the market’s changing nature.

This last week, I lost the maximum amount possible in the trade. I couldn’t believe the market was going up amid a polarizing election and rising coronavirus numbers. Surely, the market would retreat but it never did.

With every downtick, my belief strengthens that the stock would make a turn in my favor. There were a couple of instances in which it looked possible, but the stock kept going up. Even when I had an opportunity to close for a small loss, I never did. I believed that I was alright.

When conflicting information arose, I thought the article failed to consider the ideas and forecast I knew. Maybe I’m right in the long run but trading isn’t about the long-run, its about right now.


What is the information the market is trying to convey to you?

The market was telling me that my forecast was wrong. The market saw the future, and with Biden as President, it would become brighter. With a republican controlled senate, the chances of higher tax and a large stimulus bill remain slim.

With a clearer road ahead, people felt comfortable buying stocks. I refused to believe this. Before I knew it, my stubbornness had cost me a month of profits.

It’s hard to accept your wrong but you must and the best do it quickly. I completed my homework each night, and when the signal came that the stock would rise above a reference level, I maintained my position.

While I saw the losses mounting, I held on to “hope” that the position would turn in my favor. Finally, I closed the position when the stock gapped up on Friday’s opening, killing any dream I had of the stock losing its momentum and retreating downward.

The only positive aspect of this trade was my eagerness to write down my experience in my journal. Luckily, I know enough about trading not to risk my entire account seeking to earn a once in a lifetime profit.

Looking forward, I have to set an amount I am willing to lose and never waiver from that amount. I have to place the trade when prepared because I don’t know which trade will be profitable.

This past week:

This past week, I was able to get my car fixed with the money I saved. At first, I was upset that I had to spend the money. Then I became grateful because I was able to get my car fixed without credit or a loan. Although it wasn’t easy saving the money, the result made my life much more comfortable.

Make the hard choices now to make your life easier later.

This past week deserves the grade of a “B” for continued improvement and making 90% of my meals at home.

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