Don't Get Emotional On Me!

This post will be the follow up to yesterdays discussion on who would exit LVS with only a 285% gain. Have you seen the stock today? Of course you have. An even better question would be...Did you see it yesterday? What did you see that made you decide to sell? Weakness? Hardly! Emotion is the driver of this decision, is it not? Of course, we are happy with the trade (a 385% gain thus far!), but why not give it the chance to go higher? The higher it goes, the more losses it absorbs! I placed this same trade last Wednesday, and I saw the same price bar each of you did yesterday and yo want to know what I did.......I did nothing.

This is an everyday decision that you will encounter, and you need to decide right here and now how you will make this decision. If you responded to this post yesterday that you would sell, then this means you have a tendency to cut winners short (sorry to point out the reality). This decision is typically made out of the fear that you will lose the profits you have made. This same personality type tends to want to let losers run at the same time. This emotional action is made out of hope that the loss will go away and that the stock "might come back."

You need to change the way you think, and leave "feelings" at the door when you trade. Instead of being fearful of your winners and hopeful for your losses....

YOU NEED TO BE HOPEFUL FOR YOUR WINNERS AND FEARFUL FOR YOUR LOSSES!!!

That is the magic antidote right there! You have just heard what it takes to be a successful trader. However...it is easier said than done. If you look at LVS today it is up another buck and a half. Let's say you owned 10 contracts @ $1.50 and yesterday they were @ $5.50. On a $1500 investment your position was worth $5500. If you had sold half, you realized $2750. The 5 contracts you have left that are now trading at $7.30 worth a total of $3900. However, if you were holding on to all 10 contracts...$7800. I don't subscribe to the "sell half" mentality. I just let it ride.

I am not suggesting you risk a lot to let profits run. Nobody wants to do this. However, those who would have sit tight and tightened a stop to lock in profits would be doing very well at this point. Try to implement unemotional exit strategies. Try and use a disciplined approach like the few that mentioned tightening stops.

My plan was to exit if we had closed lower than we closed the prior day, which was rather tight.

I hope this was a helpful exercise.

Jeff,

Thanks for the comments and the exercise. VERY HELPFUL. LVS's move has blown me away, but you're absolutely right that price hasn't shown any reason to exit. I plan to change my approach to dealing with winners based on this.

Thanks, Andrew

Jeff,
Did you happen to watch Deal/NoDeal last night. The guy had 283K offered from the banker with 4 amounts still on the board, 75K, 100K, 400K, 750K. He went no deal and proceeded to lose the 750 followed by the 400. I think he finished with 100K.

I would have taken the 283K.

And I still would have sold LVS yesterday on a 40 day option.

For every option that continued to run, I have 20 that didn't. I guess I still have this lesson to learn.

MikeH

Mike,

Deal or no deal is different.... especially since your gains are capped. Here in trading they are not. But as the contestant proceeded with "no deal" he should have used a stop loss... right?

If you could have set a stop at $280,to try and hit that $750 you would have said no deal also... right?

If you wouldn't than "yes" you are right. Time to change your mindset.

JK

Jeff,
His stop loss was at 75K, the lowest amount. Too big a risk. If I could have set a stop loss at 280, I would have gone no deal too.

You said set the stop loss at the previous days close. This was so tight it almost guarantee's getting stopped out (regardless of mental or entered stop). If I've already decided to stop it that tight, I figure just sell it and take the additional profit between the stop and current price and call it good.

It seems like such a low percentage play to let it ride after a big run like that.

You've attempted to make this "fear of losing profits" syndrome many times before and I get it but (there's always a but, hehe) this is offset by the lessons taught from watching profits evaporate because of some overnight event.

Nothing ventured nothing gained... vs a bird in the hand...

MikeH

The "bird in the hand" mentaility is why most do not succeed at trading. If you are able to do a decent job at managing the losses you take, perhaps the birds in the hand will overcome the overnight losses.

I HATE BEING WRONG!!!
OK so I never made this trade but I sure was wrong on my exit strategy. This is why paper trading is a good start but there's nothing like the kick in the pants you can get from a reality bite. Thanks, Jeff, for your thoughts on the whole exit strategy (and how those of us who are quick to exit, are long to hold on to our losers.) Now that I'm in a trading account that lets me in and out for $0.75 per contract (instead of a $35 flat fee plus $1.50/ contract) I feel much more confident jumping in and out. I'll have to lose that comfort level on the winners and enjoy it with the losers. So far, so good.
Chris PS now I see LVS is up over $2 today. Go, Johnny, go.

Jeff,

Guilty!!! I am one that sold half yesterday. Thank God I had my tight stop below the low of today and was able to stay in. I will now make half of what should have been a larger amount. I have been "re-taught" a valuable lesson - let the winners run and flush the losers fast!!! I will walk away from this with a sizeable profit but I will not soon forget what I left behind. I am going to re-evaluate my take half when I "think" it is time method! Thanks for a lesson that has proved costly to say the least! You are also correct in saying that we also have the tendacy to let the losers run to long as well.

As always - you are the best!!!

Randy

Wow , Thank you so much for this (actually Yesterday's post). I am in an LVS stock trade so I am letting it run. Thought last night, "Of corse I would let an option trade do the same" It would be a no brainer. Today my (5) $50 Dec. contracts on DKS went wild. If it wasn't for your post yesterday I would have dumped them at 1:30. I am watching them for now. As soon as I see weakness I willl be gone.

I have just changed my approch in the past 2 weeks. I am making a mental note of where I will get out of my stock trades, and then setting stop losses mechanically for tragic news. IE If support is at 35 for a stock my mental stop may be 34.80 and my mechanical is set at $33.80. If the stock plummets I still have a safety net of sorts, but I won't be whipsawed out during intraday trade.

Good feedback from Jeff as well as other folks. I like the approach the degroodt is suggesting. Have a disastor stop and then have your mental stop and then let the trade run. This is a difficult lesson since I have seen so many trades where I have small profit and then end up getting stopped out for a loss later.
We have to learn to curb the instinct to get out when we have made money but most of us students go through so much bad trades in the "training" period that we become gun shy.

Thanks for waking us up

Mahmood

Jeff,

Well, I understand. I will learn to adjust my stop closer to the bid instead of closing out my positions. I still think the realized gain is great, but the move today for those who held is great too. I learned alot from this exercise. Thanks, Jeff.

- Corey

The way I see it, this was a loosely formed ascending triangle breakout, and if you measure the triangle properly, no one would have reached the target even yet.

The beauty of price patterns is that it reinforces patience because you only sell when you hit your target (or if you blow through the target, you use the target as a stop loss).

Then again, those of you who took the trade can dump a bucket of water over my head because whether you exited yesterday or today, I missed the breakout entirely!!

Jeff,

When quoting the Master (especially in large bold caps) you should credit the Master.

Jim

Aloha,

First of all, these are great exercises. I love it! And, Jeff, it's great hearing your methodical processes.
I liked Mahmood's comments.
What I personally found that I was doing was staying in too long, giving my stocks too much room to move without getting stopped out and ending up with nothing. So I need to correct that.
I was just at Adv Technicals in Honolulu (Mike Coval taught it). I spoke with one of the newer support team members about this. What she told me I have heard from other newer support team members. In their coaching they are encouraged to aim for a percentage (this person used a 25% gain) and do that consistently first. That was the conclusion I had come too prior to the class. What I was already doing was not working and it was affecting my confidence.
That's my approached for now. I guess what I'm saying is for me it's a process. It's not what I'll do forever, but I'm very cool with the approach.
LVS caught my eye on the evening of Wed Nov 8. I placed an order for the Jan $85 Call @ $3.30. Unfortunately, it gapped up in the morning and I didn't get in. That was a bummer, but the market opens at 4:30 am in Hawaii and I am working my way there. I'm at 6 am for now. I watched it and got in near the end of the day @ $5.30 (frown) because I felt it still had plenty of potential. On Fri afternoon I took my 60% and smiled all weekend. Where else can you get that?
My thought was that I could always get back into it. I wouldn't have done that with OptionsXpress but now that we are using ThinkorSwim, I am really appreciating the flexibility.

Sheri K

Sheri,
I think it was Kelly Allman that talked about a great baseball player, that when asked about how to get out of a hitting slump, that he just tried connecting with the ball. I was hving some real losers from May thru July and decideed the same thing. All I want to do is play winners, evan if that means just taking small gains. With the market now that seems easier ;-) I think it was a good point though to get confident. I am still not as confident as I would like. Because of that I do about 90-95% of my trades in stocks. I want to be able to hit 70% of my support bounces and get a better feel for price patterns before going heavy into the option buisiness.
Just my opinion, that is still new and worth evry bit of what people on the blog payed for it... Nothing

Wow...thank you Jeff for this eye opening exercise. You certainly hit the nail on the head when you pointed out that emotions get in the way when we cut winners short yet let losers run. It is sobering to realize that our fear and hope is completely displaced when we let emotions be part of any trade....and even more sobering to recognize yourself as that personalitiy type.

Learning to think differently has proven to be the most challenging aspect of trading. Thank you for providing these homework assignments and for "holding our hand" as we learn to trade. For those of us who participated in this exercise, this is one lesson I'm sure we will never forget.

Danuta

Smokeisms-

Who was quoted as saying this?

JK

Hello,

can anyone tell me which is the best counter strike guide ? :)...i found this one :

http://www.downloadzdb.com/Counter_Strike_Best_Guide

What do you far roughly it ?

Thanx in advance

Sorry for my bad english :s

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  • 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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