Need to Reset Expectations
Bob
When trading in public view, I have come to realize that my parameters are a bit unrealistic. When I enter a position, I am typically going in with too little capital at risk. At the same time, I am trying to extract a particular dollar figure out of the position. Typically, I am trying to reach 7%-8% profit on a trade. That is completely ridiculous in the grand scheme. I have entered trades with a profit goal of $100-$300. When looking back, it is completely absurd in some of those cases since the security would have to move 10%-20% to achieve the return. I have been fortunate, in many cases, that we are in a VERY volatile market. A 10% swing from the day low to the day high is not unusual. But, that won’t last and I have be get realistic about where things need to go.
A quick trade that I made earlier today is a prime example. I bought puts in the DIA. I bought 10 puts at $0.97 ($97) a piece. My goal was to make a quick $100 on the trade. When looking at that number, the contracts would have to move about 12% for me to reach my goal (after trading costs). That is an absurd goal to try to attain on a trade by trade basis. I ended up getting out with a quick little profit of about $95 on this trade. I had a 10% move in about 25 minutes. Percentage wins like this don’t help me dial in to 3%, but I must do it.
After analyzing the trades that I am currently stuck in, I have come to an even greater realization of this issue. I am stuck in one stock because it didn’t hit my 18% gain needed to extract my dollar value goal. It moved up more than 15%, but didn’t trigger my sell! 15% in a day, and I didn’t take the trade! The stock has since traded down and I am down more than 5% on the position. Had I tuned in the dollar value goal with a more realistic move in the shares, I would have put a bit more capital at risk, set an exit at a more realistic price point and achieved the same end result.
The exercise of trading in public view, has been educational for me. It forces me to go back and analyze what I did wrong. Was it my reason for buying? Was it a bad entry price? Was it a macro event? In most cases, it was an unrealistic exit price. If the market choppiness abates even more, I will need to be dialed in even tighter. I don’t expect it too become less choppy anytime soon, but I have to be prepared when the time comes.
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