Trade The Journey

Trade The Journey

Trade Strategy Review: June 02

This past week, I placed two trades that both were closed without success. On the surface it may seem that disappointment should be the primary feeling but on the contrary, I feel optimistic about future trades. As you may have read in my previous posts, I faced significant drawdowns on several trades, and I vowed to never let it happen again if within my control.

One of last weeks’ trades gapped down and short of exiting the position in the afterhours which wasn’t possible, I had to take the loss as soon as the market opened. Also different from the last several trades, the second trade I placed within the week was not a revenge trade.

I thought the trade had a possibility of ending the week with some profits, however timing continues to be a major challenge. More than once, the market moved in the direction forecasted but the option was either nearing expiration or already expired. The trades placed last week would have ended profitability had I not closed the position due to my risk management strategy.

First trade of the Week:

Asset Type: ETF

Symbol: QQQ (Nasdaq ETF)

Strategy: Bull Call Spread. Buy 353 call : Sell 355 call

Expiration: Two-day Option

Result: Closed at $354.65. Hit $355.83 as the new high

Hypothesis: The Nasdaq would reach new heights because a debt ceiling agreement was reached.

Second Trade of the Week:

Asset Type: ETF

Symbol: XLF (S&P Financial Sector)

Strategy: Bull Call Spread.  Buy 31.5 call: Sell 33.5 call

Expiration: End of Week

Result: Closed at $32.8

Hypothesis: Finance would improve because of the debt ceiling agreement that now goes to congress. Jamie Dimon speaking this week, could move the ETF in a positive direction.

 

Here are some of the reasons I should extend the options expiration beyond a week:

  • It’s quite difficult to predict market direction within the span of day, or a week. Not impossible, but I feel that I need more experience to do so.
  • Time value erosion picks up as the option moves near its expiration date, leaving little time to be right about a position.
  • Speed or volatility is a major concern for an option but more especially within short-term options.
  • Different Greeks or option risk measures move differently as the option nears its expiration date. Perhaps I wouldn’t face such dire consequences if I gave myself more time.

Upon closing the option position, I always enter a trade review into my excel spreadsheet to track patterns in my trading. This past week I put ChatGPT to use by entering my trade reviews and asking it to identify patterns in my trading psychology and trading choices. It gave me a chilling review of my trading performance and some of things I could do to improve.

I also asked it to compare my trading performance against that of Paul Tudor Jones and George Soros, and it gave me specific details on the gap between my performance and those of the traders mentioned above. Risk management, scenario analysis and a more flexible mindset were some of the helpful hints chaptgpt provided. A more detailed list is provided at the end of this post.

I highly recommend using chatGPT to shorten the learning curve involved in each trader’s journey.

Here is my review of last week’s trades:

Well, another losing week. I’m not too upset because I could have lost a lot more money. This is the first time I was able to cut a loss quickly on the first trade of QQQ and enter another trade which is XLF. I thought the run up would continue on the NASDAQ or its ETF because of the debt ceiling agreement but I was wrong. QQQ was extremely bullish with the RSI near oversold levels but since you can’t call a top, I thought the run up would go higher and it didn’t. It could be a small pullback, but I wasn’t going to wait around to find out, I quickly closed the trade and moved onto the next trade.

 XLF was profitable on the first day, but I noticed the night I placed the trade, it was testing resistance at the 20 SMA and 50 SMA. It didn’t have enough strength to breakthrough and retreated. I lost on both trades, perhaps I should have considered various scenarios to help better plan for uncertainties. I think a bit more scenario planning, and defined risk and reward parameters will take my trading to the next level especially since I was able to cut losses on both trades without much hesitation. The economic data released showed more rate cuts might be coming.

Lesson:  Cut your losses quickly, the pain and worry could be over in an instant and you have more energy and capital to take the next trade which may be a winner.

For fun, I compared to my trade review and strategies of the last several weeks to Paul Tudor Jones’ trader philosophy on ChatGPT, here are the results:

  1. Paul Tudor Jones is very careful with how much money he risks when trading. He always thinks about how much he can afford to lose and sets limits to protect himself. The other trader didn’t mention doing this.

  2. Paul Tudor Jones also thinks about different things that could happen in the stock market and makes plans for each situation. He is prepared for different outcomes, but the other trader didn’t talk much about planning ahead.

  3. Controlling emotions is important for Paul Tudor Jones. He doesn’t let fear or greed influence his decisions. He sticks to his plan and makes smart choices. The other trader seemed to feel scared and hesitant, which can make it harder to make good decisions.

  4. Paul Tudor Jones is always learning and trying to get better at trading. He studies how the market works and pays attention to what’s happening in the world. The other trader watched some educational videos, but didn’t mention studying or learning in a systematic way.

  5. Paul Tudor Jones is flexible and can change his strategies when needed. He can adapt to different situations and make adjustments to his trades. The other trader didn’t seem as willing to change and held onto losing trades for too long.

Happy Trading

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