Why Not Better Profit? – Week of 4/8/22

Red days are a part of trading, but losing days should never happen.

It's fitting that the inaugural 'Better Profit' post kicks the series off with some of the most egregious errors a trader can make. This ended up being a type of week that if you have more often than about once per year, you're going to blow up your account. I'm going to explain the errors I made, and also why I left this week feeling strangely calm and optimistic about the future.

Around July, 2021, I transitioned away from primarily options to primarily shares, as I realized I could better control my entries at exact equity prices, vs the less structured movement of options premiums. Since that time, I was using far from my potential of my buying power, as I wanted to prove to myself I could be consistent, before sizing up. There were also other challenges that caused me to resist sizing up, such as trying to teach my mind to unlearn what a dollar really means. It's rare that you won't be red at some point during the course of a trade, so it's important to decouple stock price points from unrealized p&l dollars.

After a week and a half vacation, I finally decided that this was the week I was going to take the next step, and size up more appropriately for my account size and profit goals. Wednesday ended up being my most profitable day in nearly a year, and I followed up with another solid day on Thursday. These days together resulted in a 0.7% account gain. A weekly milestone that I hadn't attained in over half a year was in reach with a solid Friday session. I was feeling more positive about my trading, and as I recognize now, a bit of euphoria was setting in. There have been several times in my career that I've made trading errors after a bought with euphoria.

Here's a point by point narrative of what happened on Friday that led to loss.
-Woke up around 2am Friday morning with a terrible stomach ache. Was able to finally get back to sleep around 4am.
-Snoozed my alarm and accidentally ended up overslept until 15 minutes after market open.
-Headed to my computer desk, booted up the trading software, and pulled up my charts as quick as I could. I did not spend time analyzing, did not have any breakfast, and proceeded to jump right into a trade.
-My initial bias was to the long side, where as the SPX indicated there should be no reason to have a long bias yet.
-Initial trade(s) were small losses, and then was able to make a couple of subsequent trades to be green on the day. I should have stopped here and prepared some breakfast.
-I found myself about $50 away from a weekly milestone. At this point, I believe I felt I could get a quick scalp and call it a week. The trade ended up red.
-By this point, it was already starting to approach lunch time on a Friday. Volume is usually so low starting at at this time, that the risk to reward just isn't there to continue trading on Fridays.
-Instead of just stopping and accepting a red day, I began to oversize to try to chase the losses.
-I recognized that the market was just chopping, but yet I didn't stop.
-When all was said and done, I finished the day with a 4% loss on the account.

This was a compounding of mistakes that is really egregious at this point in my career.

If I simply wouldn't have oversized, yet continue to enter the same ill-advised trades, I would have only lost 0.5% on the account for the day, end still ended with a green week.
If I simply wouldn't have traded after a night of sickness, and missing the opportunity to properly prepare for the day, I would have had my most profitable week of the year.

Rules to Follow:
1) When you recognize euphoria, step back.
2) When you can't adequately prepare for the day, take the day off.
3) Determine a proper directional bias for the day.
4) Don't place a trade if the direction isn't clear.
5) Recognize when you don't have a premium day, and size down accordingly, or stop trading.
6) Accept a red day. Don't chase losses; instead focus on better and more selective entries for higher probability of successful trades.
7) Don't oversize. There is never a need to oversize.
8) Stop trading if you have reached your daily maximum loss.

I'm a little surprised and happy to report that I am not discouraged moving forward. I knew that the road would be bumpy as I transition to sizing up in my trading, and I have identified my mistakes. This can be considered a bump in the road, as I am only down 4% in my account for the week, and I live to trade another day. I lost a nominal amount that I had previously imagined would kill my psyche and confidence, yet I'm still alive, and I'm still a profitable trader. The goal is to learn from mistakes, and survive each day and advance.

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