Why Good Traders are Really Good Losers

This post was originally published on this site

A previous colleague of mine used to arrive at the office I worked at every morning and state the following for all to hear: “The market has no day-to-day memory.”  It was his way of issuing us a dual reminder that short-term stock prices can do anything; having total disregard for what you think they should do with no bearing on value or fundamentals.  

More importantly, he was also implying that we traders shouldn’t have a daily memory.  In other words, yesterday’s trades are in the past, and we should always be looking forward and assessing new information.  If something changes, be it news or the chart’s technical set-up, you must be able to adjust accordingly.  This is why I like to define my trade parameters — both the profit-taking target and the loss management level. 

For example, yesterday I sent an Options360 Service member alert to establish a bullish position in digital payment company, Stone Capital (STNE), in which I had a $78 per share upside target.  However, this exclusive alert — which I’m giving you a special peek into — also defined our risk and exit strategy:  

“Since we were using a vertical spread and the options were relatively thin hedges and adjustments, especially in a fast-moving market, might be difficult. Instead, we applied a stop loss level instructing Options360 members, “the risk management is simply if shares drop below $69.80 we exit the position” referencing this important support level on the chart. 

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Unfortunately, this came to pass too quickly as shares gapped lower on the opening.  This morning, I quickly issued a follow-up alert reminding members that our ‘stop-loss’ had been hit, triggering an exit.  The position was closed for a very manageable loss.  

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To be a good trader, you have to also be a really good loser.  

The point is, being able to remain unemotional and adhering to your plan makes trading a lot easier. There’s no second-guessing (ok, maybe a little).  However, assuming you’ve established favorable risk/reward parameters by following your pre-defined game plan, profits should accrue over time. 

The STNE trade is now yesterday’s news.  It’s a trade that wasn’t successful. But, it won’t hurt my long-term performance goals, as long as I keep targeting (and securing) 45%-65% winners. 

Sure, they’ll be losers to accept and then move on from.  Then, it’s best to focus on finding the next winner.  This process has helped me and Options360 Service members outpace the S&P 500 average each of the past five years— averaging  67% annually. And we’re doing it yet again in 2021, as we’re already up 19.2% in 2021!

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