Squeeze and Geez
The lure of easy money brings many to the table, but few can handle the gyrations and twisted logic that encompasses the world of day trading.
Shorts were squeezed unmercifully through lunch, and most probably threw in the towel once we got to the 80’s. When the pain gets too much to bear, or greed kicks in, it’s probably time to think reversal. It was the longs turn to squeal GEEZ as their profits came unwound after the lunch break.
Option expiration at it’s best.
Set limits; both a money limit and a time limit as a circuit breaker for your emotions. Spread your risk out over a period of time; revenge trading is detrimental to your wealth.
If you are in the right direction and flowing with the trade, begin to think defensively if you have made some easy profits. Options including staying in the trade, but tighten up your stop, standing aside, and reversing position.
If I have been fortunate enough to catch the primary direction, I try to capture the lion’s share of the profits and then, from the sidelines, evaluate risk vs reward for the next possible trade.
The simple question I ask myself is this:
If I am willing to risk 2 or 3 points, what is the reward for going long? short?
What is the probability of the long trade or short trade working?
As a conservative trader, would I prefer a trade (A) for 5 points that has 80% probability, rather than a trade (B) potential of 15 points but with only a 20% probability?
The math for trade A
wins: 4 x (5x $50) = $1,000.
loss : 1 x (3x $50) = – $150
Net: = $850.00
wins: 1 x (15 x $50) = $750
loss: 4 x (3 x $50) = -$600
Money management cannot be dismissed as insignificant; trade selection is as crucial to winning in the long term as is your entry and exits. Van K. Tharp and Ryan Jones deserve your attention if you want to further explore this topic.
Secret code traders got it right today in BOTH directions if they understood the dynamics of sequence trading.