For those of you who follow my daily posts and Instagram(day trading_traveler), you know that last week was not one of my best. In fact, it was my first losing week in over 5 months, and it was quite the loss at that. One of the major drawbacks to trading theta (selling puts or calls), is that your risk is unlimited. Given that, any major swing one way or the other can really hit your P&L hard. To counter this, I usually hedge or trade strikes a few SDs away from the current spot price. However, last week was not the case. I got greedy, and I CLOSED the put I had bought on MRNA as a hedge right before earnings, as I wanted to save money and avoid theta on my short position. I was expecting only a 7% move on MRNA given earnings, but man I was wrong. 11/5/21
I woke up and was greeted with a warm welcome by MRNA. The company missed EPS expectations, slashed future revenue and crashed over 21% in the pre-market. I had sold about 10 puts at different strikes and that drop crashed way past all of them. I lost about 10k in 1 min of the opening bell. So how does one deal with such a hit? How do you recover so early in the day to trade for the rest of it? How does one have the fortitude to shake it off and grind back your loss? Well , honestly here is the truth about it.
EMOTION MANAGEMENT
This is actually what separates a successful trader from a losing gambler (reddit trader). I honestly don't think a lot of this can be taught or explained. I believe some people have the inherit nature to persevere from huge P&L hits. Being able to detach yourself from your emotions is easier for some than others. But there are a few things that can be used to help. This skill is something I have cultivated over the years from playing poker and trading ,since I was 18. This has made me numb to emotions from losing or making money.
Experience- Nothing is better than having dealt with circumstances before. Trading longer, means you will have had more of these down swings. The more exposure you have had to such events, means that you will slowly become more comfortable with them. After years, you will not just be comfortable, but numb to them. You will learn, if you are successful that is, that these swings are inevitable and that you are skillful enough to able to climb back out of these holes.
Confidence- Believing in yourself is key to being successful. However, being arrogant is a different thing entirely. Arrogance will lead to mistakes, will make you trade as if you are gambling in Vegas, and will not lead to profitably. Confidence is acknowledgement of your skillset, not faltering when things get rough, and knowing that you can make mistakes, but can improve on them. You know that you are a winning trader and slight set backs are just exactly that , a slight set back.
Meditation- Having emotional balance is key to trading. Trading on emotions is guaranteed to lead to losing money. So why not follow the Buddhists and gain emotional control?Meditating daily and doing yoga, will help you manage your emotions , give you a centered mindset, and will give you a skillset to fallback to, when these downswings happen. You can take a deep breath, gather yourself for a few minutes, and go right back into trading like nothing happened.
Short Memory- Meshing in with meditation, it is key to have a short memory. This doesn't mean to forget about your trade at all. First, note the trade , figure out the mistake you made and where you went wrong ( you can do this later in the day, and it is possible nothing was wrong , the market just turns sometimes). Then ,just move on. That money is gone, it isn't coming back. You just need to let it go as if nothing happened, and focus on the next trade. Make the next best decision. Get back into the market and trade as you normally would have.
Vent- It is always good to have a trading partner. Whether it is a trading coach or friend that you bounce ideas off of . Someone who understands the feeling of getting slapped by the market. It is good to lean on these people (for a brief moment don't be a whiner) and vent about the trade. Bitch about it a bit. It helps. Then move on.
Cry- Yea don't do this . THERE IS NO CRYING IN TRADING. Grow a pair and follow the above steps. If a bad trade ruins your day, effects your mood, or causes you to lash out at the people around you.....TRADING IS NOT FOR YOU. DON'T BE AN ASSHOLE
I hope this helps and gives your a brief glimpse in to what trading is like. As always, I am always honest about my trades, post my accurate P&L, and share with you the truth of what my life is like. With all the highs, there are some lows.
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