Trade The Journey

Trade The Journey

Review the Trade!

Top of the Morning.

I hope everyone is healthy and safe. Every week I’m reflecting on the state of volatility and uncertainty here in the US. “The virus numbers are climbing“, or “troubling times are ahead” are common phrases for me now.

This election will be one of the most important elections in United States history. Not only is our future domestically at risk but our international one as well. The implications of a fall in the status of the United States as a safe-haven for assets and currency could change this nation’s trajectory.

What troubles me most is the decreasing job security of my generation and the generations following will face. One of my family members recently brought a house after years of saving and budgeting. They owned a small condo, but the condo went belly up during the downturn, and they left the property.

I felt for them. They hoped to achieve the American Dream, and by outward appearance, they did. Few people were prepared for the financial downturn in 2008, and if you were, you likely were a financial professional or financially astute.

The average American knew little of the derivatives that almost brought about a financial collapse and still don’t. Derivatives are complicated investment vehicles and can involve significant leverage.

As time went on, the World recovered, and people’s financial health recovered as well. Sensing that now might be a good time to purchase a house, they finally made the deal.

With the federal reserve apprehension towards moving rates higher, now is not a bad time to purchase the house if you have the money. The purchase made me think about the American Dream.

Why didn’t they wait? Rates will be low for some time.
Why didn’t they purchase a duplex? Triplex?
Why didn’t they start the business they talked of having?

The dream of starting a family, having a secure job, and purchasing a house is a dream shared among many families regardless of ethnicity. It’s a dream that has been passed down for generations.

My generation may be the first to experience and share a dream that pales in comparison to our parents with our children. The harsh reality of more expensive healthcare, technology overtaking a portion of the workforce, fewer companies offering a comprehensive retirement, and a declining social security program mean that our generation will shoulder the burden of our financial choices while working.

My purpose for this blog is to inspire myself and others to realize that the dream is still there but in a different form. We will have to be more entrepreneurial, frugal, and innovative to survive and prosper in the years ahead.

We have something that my parents and the generation before them did not, the internet, and access to information. The workplace is changing rapidly due to the Virus, and many suspect it will never be the same.

Innovation will be the new currency, overtaking experience.

 

Why is all of this important to the investor/trader?

It’s very important because it signals a change in the trading environment. More volatility will occur as everyone has easier access to the stock market. With the advent of apps like Robinhood, offering commission-free trading, and fractional trading, traditional platforms followed suit.

Everyone has access and now they hope to make quick money

It took me three years before I began to be comfortable trading.

It’s not uncommon for me to now see numerous advertisements offering trading educations. I mentioned in a previous post how one Instagram user offered options education aimed at replacing your day job. The post showed various people with large options positions accompanying large profits.

What the average person doesn’t know is that there’s no such thing as a free lunch. Either you pay by working hard or learning a lesson.


Another Options Trade:

Looking for a second weekly income, I looked for options that expired weekly. It’s tough trying to predict a stock’s direction in a week because so many things can happen. As the election nears and stimulus talks slow, volatility will continue to increase.

Its hard to tell what will move the market. I chose Target because I like the business and have experience paper trading the stock. Target’s stock had been on an uptrend since the pandemic began. Target did well, as people prepared for armageddon by stocking up on toilet paper.

Last week, Target neared its Twenty year high where its momentum seemed to be slowing. The first thing I do is identify the long-term trend, not to trade but to understand the stock’s general direction. I start on the large timeframes and work my way down.

I end up at the five-minute chart. I feel comfortable trading the five-minute chart even if I hold the position for more than a day. Of course, I look at the fifteen and thirty-minute chart for the weekly direction, but I like trading off the five-minute chart.

I’ve learned that with options, you have to trade them to understand them.

The options position I opened was a bearish call credit spread. You can design option positions to capture volatility, directions, or even non-directions. I like option credit spreads because you have defined risk and reward. With a bearish call credit spread, I bet on the stock not drifting higher than the twenty year high and falling a bit from the current position.

I made the ultimate mistake as a trader. I hesitated thinking that I needed more information to make the trade. I needed a guarantee that I was right before I placed the trade.

The trade would have been profitable, feeling stupid, I entered a trade in which I completed no analysis or forethought to enter.

The trade worked in my favor after stimulus talks faltered, and I exited the position as the stock rested at the two-day low. The next day the stock dropped. Further, I left over half of the profit on the table.

Trading isn’t easy. As you can see, in this scenario, my analysis proved to be correct, but my psychology for maintaining and exiting the trade was incorrect.

The longer you stay in the trade, the more risk you undertake in earning your return. To truth is you don’t know what will happen, and sometimes you end up leaving more on the table.

Reviewing every trade improves my trading skills and adds to my trading experience.

But in all honesty, I fumbled.


This week in review:

Expenses and emergencies will always arise. Sometimes they follow one another. The key to lengthening your life and finances is to be prepared by saving money. I can’t explain how many times a small nest egg has helped me avoid a more challenging or stressful situation.

Yes, it’s uncomfortable saving money at times, but it’s worth it. Your future self will thank you.

Last week was one of those situations. This past week, I did well eating at home and limiting my expenses.

This past week deserves the grade of a “C+” for continuous improvement.

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