By - OnionsAreGODS
I feel like it's a necessary psychological component of trading and one that many people lack. In any deal, you have to work diligently towards your desired outcome while things are under your control. Once they are not, you need to walk away and not look back.
My father, for example, is a great guy but a typical terrible trader. He would see your outcome as a "loss" when it is actually a win. I sold a property last year and had things go sideways. I thought I was going to walk away with $300k profit and I ended up with a little over $200k. It actually bothers him worse than it bothers me . .he still talks about it, lol.
Haha damn! Congrats on the 200k. And I guess the physiology of trading is still something I have to work on. At least I still see it as a $100 gain though. I know it’s important not to get bogged down in how much you could’ve made because there will always be more.
Better to put your energy into the next deal. I like to tell myself "cool guys don't look at explosions".
Loss aversion is how the poor stay poor. Lots of money going into mattresses after this Q1 2022. Gotta weather the storm to see the sunshine. Fortune favors the bold. Etc, etc.
You took profit. You won. Walk away from that trade and move on to the next one. Hindsight is 20/20 but staying in a position longer to gamble that you ‘might’ get a bigger payout is emotional trading at its best… in fact, it’s basically the same psychology that makes gamblers do what they do. How often do they beat the house?
I would know, because I’m a gambler who always gets burned staying in trades in case I can get more out of it. The amount of times I could’ve taken a ‘small’ profit but ended up losing everything…
Keep going if you have a system that’s working for you, maybe leave a bit of skin in the game here or there once you’ve taken some profit if you want to see how many times you win and how many times you lose?
Good luck regardless
My problem with this is ill have 3 or 4 days like this then a red day that wipes out my profits even with tight stop losses. I've been going from 2k to 3k to 2k to 3k to 2k for months now and im starting to need to make some kind of progress
It sounds like you are trading "above your means"?
I don't think so. My risk management is fine
I wasn't actually referring to risk management, but lets talk about it. In fact, lets start with the type of trades you are making -- what are the specifics? Are you trading long options, credit/debit spreads, etc.?
If it wipes out your profits, you took on too much risk.
Your total open positions should not exceed 20% (better 10) of your portfolio
Each position is 1% to 2%. Can have the best risk management and still a random red day can take your profits. Once you trade longer then 2 weeks you'll learn. We all do. No matter what you do can't predict the market.
Ok your strategy is different then mine. How long it take you to figure that out genius LMFAO
Nope just called a red day. What's next Tuesday looking like since you can see in the future obviously lmao I swear new traders think they know it all.
When I enter a trade, I usually identify the amount I am going to lose and the minimum gain I am will accept. Lately, I've been sizing my bets so small that it doesn't matter if I hit maximum loss so I tend to go for almost max gain.
I currently go for 1pt debit spreads on SPY for $35. DTE can vary from 0-2DTE to 30DTE.
Sweet thanks! I’ve been looking into trailing stops. Any experience using them?
> I’ve been looking into trailing stops.
Trailing stops does not catch overnight gaps or intraday gaps.
Overnight gaps I wouldn’t be worried abt since I rarely hold overnight. Intraday gaps are what I’m looking for. How do you mean it won’t catch it. You mean that it could blow by my limit/stop too fast with no liquidity and not sell but just keep dropping/rising?
if bid/ask is too low compared to your trailing stop, it may not execute. Or if the bid/ask is skewed unrealistically, your stop loss will trigger losing the trade.
It may not happen in tickers that have HUGE options volume like TSLA, AAPL, SPY, IWM etc. But for any other ticker, bid/ask spread can cause problems.
Trailing stops on SPX are a disaster. Yesterday for example. I had 4330 puts at 2.50. Set a stop at 2. And 1 candle with the briefest of brief downturns took that stop to 1.20 and knocked me out. Before immediately returning to 2.25 literally in seconds. SPX is not the place for stops. On other more stable plays. I'll use trailing stops only if I'm already comfortably up. I start every play with a limit. Because I want to be able to easily adjust it up to capture small gains if the play isn't going my way
> SPX is not the place for stops. On other more stable plays. I'll use trailing stops
You’re so close to realizing stops on options plays in general is a bad strategy. It doesn’t really get more “stable” than SPX.
More stable ? Maybe longer options. ODTE go from 2.50 1.20 2.25 in one candle
That’s also why 0dte are a bad strategy.
That's called stop loss hunting its a well know trick used to trigger people's stops cause they know where they will typically place them. I've started using a stat with ATR and tweaked it and I've had atleast 10 trades since come within 0.02 of my sl and then shot back up as j hear the moans off traders who got stopped out. Watch for it on false break outs and retest I promise you'll see it
That's why market makers like Citadel pay millions for option orderflow data from retail brokerages.
Others here have covered the main considerations, so I’ll add something else. I believe the answer actually lies somewhere in the middle. There’s an old adage—you’ll never go broke taking a profit. In real life trading, however, that’s not completely accurate—at least as far as your trading goals are concerned. That is, most traders’ goals aren’t to not go broke but to make some real money.
In simple yet accurate terms, Your expected profit is a function of the combination of your average winning trade size and your average losing trade size.
So it’s like an F1 driver. If you just stomp on the gas and drive as hard and fast as you can, you’ll end up blowing up the car and not finishing the race. You take your foot off the pedal too much, and you finish the race, but you finish outside the points. It’s got to be the combination of being the most aggressive AND conservative you can be—at the same time.
I used to trade a similar style as you (to be sure, I’m not criticizing or implying it’s inferior to anything else. It’s not. There’s really no ideal or perfect style or strategy. There is only execution.), and when I worked in the industry as opposed to just trading for myself, I worked for a market making firm (not a pure market maker but an options trading hedge fund which at the time also made a market in a number of things) running these kinds of numbers.
The basic idea is to take your set up(s) and start modeling. What’s the average profit/loss after entry, after 30 seconds, 1 minute, and so on. You’re trying to essentially optimize the magnitude and probability of expected moves. Track the results across time. Then do the same thing with the negative moves.
The amount of questions you have to answer/address can be staggering, but unless you address these, you’ll never really be able to attribute your results—good or bad—to anything other than chance.
For example, say you enter long when the underlying is at 240. What is the optimal amount of time to stay in the trade until the odds move against you—as a function of time in the trade? If you’re trying to make x amount in the trade, what is the probability of making x? How much risk do you need to take to make x? Bear in mind that you start with your profit taking exit. Calculate the probability of winning that trade. Now, add an exit for loss. No matter what that is, it necessarily diminishes the probability of making x. Now given the expected return of making x, when weighed against your expected losses, how does that affect your overall expectancy/edge?
For example, many people concentrate on risk/reward, and focus on only taking trades that offer some multiple of return for each unit of risk. For example, one might only risk $1 if he/she can make $2. But if limiting your risk to $1 results in losing most trades, then it’s not a great plan. The amount of risk you take for any potential profit always decreases the probability of making that profit by some amount. You have to find the profit target and risk amount that both maximizes your profits and minimizes the risk while also maximizing probability. It’s a kind of constrained optimization problem, but you can ball park it with some informal research.
So you’re looking for that sweet spot. The point where you maximize your expected profit on each winning trade, subject to the constraint of limiting your risk on each losing trade by keeping the losses small, but not too small that you squeeze yourself out of trades at the expense of your winning trades (Ie at the expense of winning probability).
It’s a lot of work, but it can be rewarding and satisfying when you figure it out.
The point is, when people say you should exit at your target and not look back, what that means is, you shouldn’t have to look back because you know and have confidence that no matter what the underlying does after you’re out, you’ve ran the numbers and did the homework, and you know that overall, staying in the trade would only hurt you. It’s really only when you know this are you able to truly shrug it off. Same with losses. Overall, once you’ve done the leg work, that will give you the confidence to never regret exiting a trade or looking back. If you’re exiting at the optimal point, you know there really is no such thing as “leaving money on the table.” You know It’s an illusion—if you know you’re exiting at the right point.
>But if limiting your risk to $1 results in losing most trades, then it’s not a great plan.
Yup, my spreads were too narrow or too far. I was reliably losing money due to low probability trades. Opened the max loss a little and i was seeing some good trades.
Same thing for me this week with FB and QQQ puts.
I enter FB ad 35c 5 contracts .. sold end of day for 98c. If I held it over night it was $6 the next day.
QQQ I enter at 98c.. sold end of day for $4 .. 2 contracts next day it $12..
I was happy with $900 bucks but it was easily 6k gain...
But I got burn so many time before not taking profits I now rather take small gain and try to build up...
Suck still though...
Why not take profit on 4 of the FB puts and let one ride overnight?
Take profit on 1 QQQ and let 1 ride?
Yes this was my big mistakes ... I don't fell quantity was enough to profit and have something left over but I was wrong in that assessment..
Next time I will be doing for sure if I have winning hand.. had couple loosing weeks in a row so just wanted to profit and have a green week..
Also one 0.98 is a small position. If you would have lost, still \~800 bucks profits
Yes that is true... That what I came to after this week..
Keep that in mind more from now on ...
> But I got burn so many time before not taking profits
Same experience. Smaller real dollars in account is much better than vanishing imaginary gains.
its money and there's always more opportunities. a green day is a good day no matter how much it is.
I have been screwed being greedy and holding too long more then I’ve been screwed selling short of the expiration. My rule is hold only for a day max. I usually get out of my trades first thing in the morning and then give the market an hour to watch it settle before opening a new trade. Especially in this market you have to get out like you’re robbing a bank in and out. But it does sting watching the trade keep going the direction you thought it was and closing early lol
The thing I think helps the most is once you close the trade, never go back to see what it ended up doing. Period. Fidelity wipes it off my stock watch list once I close it and I refuse to actively search and look back at what “could have happened.” Well… of course I do, but in theory the plan is solid.
Haha yea it’s the last part for me too. “In theory” plus Questrade doesn’t wipe it. Every trade I make is stamped on my portfolio for the rest of the day.
Ah, the age old hindsight coulda, woulda, shoulda.
What was your plan going into the trade? Did you follow it, or are you just flying by the seat of your pants?
Do you also keep track of those times you take that profit before that positions turns around and heads to what would be max loss?
So maybe you could have bought two SPX contracts for $16 total. Sell the first one just like you did to lock in the profit, and let the second one ride to capture additional upside. Another great hindsight strategy...
Surprised this is so far down. This strategy totally changed my mindset when wrestling with the lock in profit vs don’t miss the continuation. I make a decision on when I’d normally exit and I exit part of the position then. By then, I’ve moved my stop up on the remaining runner(s) so I’m at least at break even on those. Then I treat that position like found money, meaning play a very loose stop with a combo of ATR trail and 50 EMA depending on the velocity.
The psychological benefits to this are tremendous. It helps alleviate the fear of taking a major profit hit on 100% of the position if it turns sharply, while also satisfying the lizard brain that wants to capitalize on the long runners. And that psychological factor helps in the next trade because you don’t feel like you missed out.
Also can’t believe this isn’t the top reply - ditto this strategy as it allows sensible well thought out profit taking while allowing your hidden degenerate to enjoy the run
First, are you hitting your Price Target/Expected Move? Do you know how to make price predictions yet? If the answer to the second is no, I am sure there are plenty of people here would be happen to teach you a few ways, as well as give you an idea of which way will work with your style and strategy. Second, if you are hitting target/move... AND, you are regularly missing max profit that much I would re-evaluate how I do predictions. Finally, rarely will I wait until I hit max profit to sell. My opinion, it's far better to bank profits, then buy back in. (This may help the guy talking about inconsistent returns also.) I mostly have a bucket of companies/indecies I invest in. Therefore, I have a general idea of what the price action is going to look like throughout the day. Assuming no indicators/news telling me to run, I will close my full position (sometimes I will keep 1 or 2 spreads, depending on how many I started with), as the price starts to fall from the last expected high of the day. Then I will take the exact same position, except I will move 1 strike one each leg by one position in the same directionas my trade. I do this for two reasons, habit, from before my account was comfortably above $25k. I also change my strikes so that I have more potential upside. This way profit is locked, but we haven't lost any potential, actually gained. For me this has worked VERY well.
Sweet thanks! I *think* I have pretty good predictions. Most of my trade convictions end up being right in the end. So I think it’s more of the consistently missing max profit. I wouldn’t hold to Max profit either - however I feel I can probably move UP my min profit if it’s consistently blowing past my profit levels. I think the other aspect to my trades are: I get in on technicals, and get out on emotions. Gotta change that for sure.
I can understand the emotional component. When I started, I was bad at closing winners early and holding loosers WAY to long... about the only time my emotions carry me away is like Friday. I had about 30 open positions, the vast majority bearish. Market opens to 100% of my trades going the wrong way, and I had a dozen or so that expired on Friday. There were a few I may have been a little hasty on, but I didn't get too carried away. Another piece of advice, very rarely do I look to see what I could have made. Second guessing yourself is another emotional trap.
Stop using stop losses on options trades.
You said you are doing well... which is the resultant of your trading temperament.
See how many times you escaped 3rd degree burns by bailing out in time.
I know this feeling all too well. I did nothing yesterday but sell SPX puts way too early. I had five separate contracts that I bought for under $1000 each. The cheapest one ended up running to 2k and the most expensive one all the way up to 6k. Just gotta move on. Stings but can’t change the past.
Profit is profit.
Save the energy for your next trade. Impossible to time trades perfectly.
Stick to the exit plan.
If you deviate and become undisciplined---thats when the losses get you.
If your position has multiple contracts and it goes in your favor you should definitely sell some to recover your investment plus some profits. If you feel the contract would go higher you can hold on to remaining position. Worst case scenario market reverses and remaining contracts are worth nothing you still got your investment plus some profit out of it.
I understand the feeling but if you took profit you won the trade. That's the point. If you start trying to to hold "to the last moment" you're going to burn yourself.
The only thing I could suggest to you is setting a trailing stop. 20-25% and tighten that up when it gets higher and higher.
If you profit you win, trust me I know it’s hard to walk away to early. I turned 300 to 7k from the Netflix collapse. However if I would have waited literally 20 more minutes to sale that 7k would have been almost 20k. It’s hard but a win is a win and gives you another chance to go win again(:
Bro I hear you I’m having trouble getting over for the first time.. seems like it’s impossible but ima see it through
If I executed the trade plan I formed prior to taking the trade, I don't worry about it. I had a similar trade yesterday and I am fine with the outcome.
You should not expect, not desire, to make *every* penny. Successful trading is defined as making more than you lose over the *long haul* and fretting over the woulda-shoulda-couldas is going to lead you to make significant loss-making mistakes at some point.
Edit: one way to be able to take your profits and still enjoy the occasional trend run is to scale out of a position. Rather than buy one put (or short one futures contract, for those of us that trade futures), you would buy multiple and sell some at a point where your cost (risk) is covered and you have achieved your absolute PT in dollars. Then the others can run risk free and while you may not get the gains you would have by letting ALL of them go, you can still enjoy some unexpected gains. This would usually means trading cheaper options (more OTM) or on a cheaper underlying (XSP for example, if you trade SPX) or in futures, using micros instead of e-minis.
Of you have 5 contracts take profit on 4 such that if you lost 20% because the 5th one is worthless you're okay with that and let the 5th contract ride a bit.
Take profits for 100% winners. Take losses on 50% losers. 2:1 profit loss ratio.
Buy more than 1 contract next time
No one has ever gone broke taking profits. On the other hand, people have gone broke waiting for a few dollars more and then watching profits turn to losses. Greed and FOMO are traders worst enemies.
So, I had TSLA 1090/1100 earnings credit spread, at 9:00 Thursday, it was like $300 profit. I let it sit, I lost my investment.
Last week I put a JPM earnings butterfly, 131/127/122 for yesterday's expiry and closed it for about $150 profit. It ended up hovering at the short strike. Lost probably $150 profit.
I started noting this in several of my trades, and notice that it is unpredictable. I have a lot of trades where I held on expecting more profit only to lose the trade or lose a LOT of profit just to scrape the investment.
I have noticed that it is easy to go back and sulk at missing profit. It is very demoralizing for future trades. If you took profit, you are out of that trade for good. Don't go back and look at lost profits.
edit: went back and looked at my trades, DASH earning last time, ROKU etc....HOlding till expiry is not a smart strategy due to gamma.
start selling options instead
I also do that. I like to play spreads mostly and then day trade SPX contracts.
first of all, can you lose the amount of money? If yes hold until it goes up significantly, set s/l, keep raising s/l and gg easy money
This is me. I'll be confident until I hit the trade button then any dip I think "omg I'm gonna lose money" then I sell for a 70$ profit on 5 contracts and watch it climb to 2k each and im sitting there thinking well that sucks I made 350$ where if I just held it would have been 10k. And nothing happened other then a small dip it didn't break support or nothing major.
I need help building a trade plan if anyone has any helpful links
Look into using following stops or buy 3 and sell two at break even on position if you think move is not over.