An Article Submitted By a Reader

To our little option trading community,

I, like many of you, have been working incredibly hard to become what I've always wanted to be: A professional trader. It has been a rocky road, and to be honest, there have been a few times where I almost quit. But I never did, because I am determined to be among the 10% of the trading community that is successful. In doing so, I have kept a trading journal, where I detail each trade: What the prices were, why I entered the trade, what my target is, what my negative exit is, etc. After I close the trade, I enter the result and try and sum up the trade in a few words. What I've found from this journal is that some comments appear frequently. I've taken these comments and put each of them into a list called "Trading Rules Learned the Hard Way." I'm not going to list them all here, because many of them you've all heard before like "position sizing is key" and "make sure you take a loss quickly when you're wrong."

But of the many lessons I've learned about trading in the last year, the one I've made the most consistently, and the most costly has been failing to wait until the end of the trading day to make decisions. Whether buying or selling my options, especially lately, I have made several mistakes that could have easily been prevented just by waiting until the end of the day. Which brings me to another point: If you're going to take the time to keep a journal, analyze your trades, and create rules to follow, make sure you follow them! I wrote this rule down 3 months ago and let me show you how not following this rule has cost me recently (I apologize for not having charts to insert here):

1) CTSH. On 9/14 I bought calls on CTSH after the ascending triangle breakout the prior day. In my journal, I entered "Exit on close below $71.50." The next day, the stock traded down intraday to $70.65 and I sold the calls. Where did the stock close? $71.50. It never closed below that point. Thankfully I realized my mistake and reentered a trade, but not without taking an unnecessary loss. Journal entry: "Never trade before end of day."

2) NGPS. On 9/21 I bought calls on NGPS on a flag pattern breakout. The problem? I bought the calls at the high of the day mid-morning and by day's end the breakout was hardly there. The stock returned to my purchase price and then sold off well below. I wound up taking a decent loss, when it should have been minimal. Journal entry: "Wait for end of day to enter orders!"

3) BNI. On 9/27 I bought OTM BNI calls when the stock was at $72.99. The stock went on a huge run up to my target of $80, then retraced slightly. I had a decent short-term trendline drawn in with multiple touchpoints. My exit was the earnings announcement or a close below this trendline. On 10/19, the stock sold off mid-day, and at $77.75 I closed my position for an 81% gain. Pretty good gain right? The stock rebounded to close above the trendline and continue higher. Today it closed at $79.49. Had I waited, I would have had a MUCH larger gain. Journal entry: "Do not sell before afternoon!"

4) SIGM. On 10/18, I saw what looked like a flag breakout so I bought calls when the stock was $18.94 mid-morning and volume looked big. It turns out that it was only a rectangle and I had bought at the top (resistance). Brilliant. Yes, the stock is over $19 now, but not before retracing to under $18 first. Had I waited until the close, I would have seen clearly that the stock was at resistance. I'm still in this trade, but my journal entry says, "Midmorning breakouts don't matter!"

5) BLUD. On 10/18, I saw a big spike breakout mid-morning and jumped all over it. Look at the huge burst before the consolidation. I wasn't going to miss the follow up move! What happened? 6 more down days before today's fortunate (for me) spike upward. Had I waited until the close, I would not have taken the trade. Journal entry: "breakout failed today. Wait until the close to make trades!!"

6) I saved the best for last. This is the stock that caused me to write this article. SEIC. On 10/19 I caught SEIC bouncing off 2 levels of support and bought calls on it. Yesterday (10/25), The stock closed below my diagonal trendline, but still slightly above my exit support level, so I didn't exit the trade. However, last night (10/25) I examined the stock and saw what looked like a clear head and shoulders top. The only thing missing was the volume, but the stock was sitting on the neckline. I was ready in the morning and the stock gapped down hard on huge volume and I quickly exited the trade for a decent, but manageable loss when the stock was $55.50.

But that's not all. I executed my FAVORITE move and bought OTM puts when the stock dropped to $54.60. I figured I'd hit my $52 target in a couple of days maybe on this volume! Lo and behold, the stock rocketed back up and actually closed at $56.38. Since it's still below the neckline, I'm still in the bearish trade, but had I waited until the end of the day, 1) I could have exited my calls with a smaller loss and 2) I could have entered my bearish trade with a much greater chance of success rather than a big hole to climb out of. Journal entry is too explicit to repeat here but suffice it to say I was pretty hard on myself.

You should notice that for over a month I've written the same rule over and over and continued to break it even as recently as this morning. True failure is not making mistakes trading, but not preventing them from happening again. It's like walking into the same wall and bumping your head again and again.

In summary, and I cannot stress this enough to new traders: You MUST have the patience to let most of a day's trading pass by before making decisions. Breakouts often fail, selloffs often reverse, and you will lose if you don't let it sort itself out. Yes, you will occasionally be right. You will get out of a trade that continues moving against you or get into a trade that continues moving with you. However, I have found (call it painful backtesting) that over the long haul, you will still be far better off waiting out the storm.

Hope you get something out of this! Thanks again!

Brett Atlas

Thank you Jeff for posting this. Thank you Brett for writing this. I too struggle with this rule"wait till the end of the day before making trades." It is so difficult to watch the swings intraday and not move on it. If I would have stuck to this rule I would be so much further ahead. I have that exact rule posted on my computer in big letters as reminder. we'll see if that works .Thanks again.

Sarah

now that i'm retired, a full time trader, and a make believe golfer I'll change my tee times so i can be home by 3pm

Brett,

Thanks for the insightful information based on your real experiences! I have fought the exact same temptations over and over and over and .....

The only way that I was able to ovecome it (for the most part) was to use Bracket Orders and Not repeat Not sit and watch the screens. Afterall I am not a Day Trader so why would I even need to sit and watch? Again - very hard not to do!

Since I have began using Bracket Orders my Profits have gone way up and my losses have ben controlled and well within my Risk Mangement Rules.

You have also challenged me to do a better job at capturing the entire event in my Trading Journal. The history certainly proves it's worth!!!

Best Regards,

Randy

Brett,

Thanks for sharing. I think most of us struggle with waiting till days end...but I agree that it is a great rule to follow. I often try to maintain a trading journal, but you have encouraged me to keep up with it. Thanks for sharing your rule as we all endeavor to develop our trading rules. “Failure is success if we learn from it.”

Keith

Thanks Brett for sharing. I hope more readers would be able to post their experiences. Thanks Jeff for posting this...

Meena

Great job putting this information out for us Brett! I have run into that brick wall so often I think I am punch drunk sometimes. I recently added the following line to my email signature and your post just reinforced it. "My belief is that I do not know which way a price will move. All I have is the edge, which gives me a higher probability of the price moving in the way I predict. I have no edge regarding the size of an intraday move." I do keep a journal but have not been "religous" about useful comments when the trade is done. New rule, "I will always post my trade evaluation/comments to my journal when the trade is done"

Thanks,

Erndog

Thank You Jeff for sharing this great Journal that Brett is writing.
Thank you Brett, as well as you, I keep writing my journal every day and it is amazing how much you learn about yourself and the way you trade when you write your trading experiences every day with every trade that you make.

It is important to have the knowledge for trading but it most important maybe on what you base your decision taking. Having a plan like you have and rules to follow is very important, but they need to be executed too.

Thank you for sharing,
Alessandra

Get your finance last hand, plan your next month budget not fake with the exact help of the gas station loans,
many individuals have was able to survive the depression.

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About me

  • I'm Option Addict
  • From Saratoga Springs, Utah, United States
  • I am a professional trader and an instructor for Investools. I've had relations with the markets for 9 years. Born in Concord, CA, but reside in Saratoga Springs, Utah. Father of THREE, Husband of one.
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