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Market Lab Report
I am still experiencing a major problem with my trading, and it happens to be one of the cardinal sins - not letting my winners ride.
Q: Hope all is well. I am still experiencing a major problem with my trading, and it happens to be one of the cardinal sins - not letting my winners ride. I attribute this issue mostly to some major trades in the past where I failed to take profits only to see them erode away. Now, I feel like any time I make a small profit, I need to take it immediately.


Classic example: Last Friday, I bought June 89 IWM puts at 5.00 since I thought we were due for a slight correction. I expected IWM to fall in a few days, then bounce off it's 50dma which was roughly 82.90 at the time. Well, I turned out to be "somewhat" correct in that yesterday it did bounce off the 50dma yesterday morning, and I felt so happy about my assumptions being correct, that I immedately took a 20% profit on the option, thinking the the market would turn around and start going up (which it did slightly). However, I came back later in the day to see what the market was up to, only to see that IWM busted through it's 50dma and starting heading south fast...and that of course continues today. Yes, I did make a decent (20%) on my VERY short-term trade, but it kills me knowing that if I held onto this, I could have made much, much more. It's very frustrating and I can't seem to get through this. What really kills me is that I feel like I'm really starting to "get it" (i.e. reading charts, using moving averages) thanks in part to your and Gil's e-mails, as well as your book (which I'm halfway through).


I don't know how to get through this. I research my trades before I place them, I write my reasoning down in a journal...and then I do all that work just to close out the trade in 2 days. Sometimes, I just want to make my trade and not look at the market for a week. I would probably be better off that way.


Sorry how long winded this is - I'm wondering if you or Gil would have any suggestions for me. I know you are both busy, so any time you get a chance, I'd really love some input.



A: Trading is like walking a tightrope when you're newer at it. You just have to keep walking the tightrope until it feels like a walk in the park. And the market will always throw a nice gale force wind at you so dont ever think walking the tightrope is without its one-off black swan challenges. Too many felt the tightrope was a park in 1999.


Also, if your position size is too large relative to what you're comfortable with, you are more liable to close out the position prematurely either because of fear or greed. You may be tempted to close out a position that is showing a big profit even though it is too soon, or you may be tempted to reverse a position that is showing a small loss even though it is also still too soon to exit.


Keep making notes in your trading journal and studying charts and putting real money on the line to engage your emotions. And stop by www.tradingtribe.com. It's Ed Seykota's site. Excellent.

First published: 17 May 2011
Last updated: 17 May 2011