Grim Reading -or Sage Advice

Terrapin Trader,

How To Trade Badly

While browsing on a trading forum I came across this http://failedtraders.com Some of the headings seem to state the obvious, but if it’s obvious,why do we do it? I am frequently irritated by the use of the word ‘obvious’ and for me it devalues the ensuing words. Interviewees often say ‘obviously’, prefacing the ‘obvious’ statement that follows. No need to say anything then-right? Obviously our team could have won if we scored more goals/points/runs. Sport needs little analysis after the fact it seems to me- a bit like accounting- you’ve spent the money, move on!

Nothing in Trading is Obvious

When you are ‘in the moment’ making the choice to take the trade, you should have done all the analysis. You know you can be wrong. It’s at that point that nothing is obvious. You are entering the ‘Twilight Zone’ where any manner of events can change the trade. Nothing prepares you for the trade at that moment but you can be prepared for most eventualities once it is entered.

Defining a Failed Trade

The book’s headings seem to outline most common causes, but we trade options. Our world is not ‘win or lose’.We do not gamble, we manage risk. Any kind of endeavour requires risk to get reward. So we take a trade that ‘fails’- like the current trade 11* straddle costing 181.5, and currently worth 178. Our risk is perfectly managed, and we might close out today for a tiny loss (1.9%). If this was any kind of business, suffering the occasional 2% loss would be perfectly acceptable. A failed trade is not in our realm-markets can go against us, but we manage, and keep those losses as ‘the rent on the shop’. We do not fail, options traders are better than that. Obvious really.

*see update

Published by Terrapin Trader

First found out about options in 1995.From the arcane magazine Exchange and Mart! First trade- a covered call on VOD in 1999. Made 10%,VOD almost doubled. That's when I realised I was not a good trader,and I was forgiven thanks to the amazing world of exchange traded options

2 Comments

  1. I’d say a ‘failed trade’ in our world is a situation where insufficient analysis had been done. The ‘what ifs’ had not been addressed-like selling naked,it’s uncontrollable, unless you have a rock solid plan- ie close out or adjust when premium goes against you by n%. Letting bad trades run is a twofold killer- it runs you over then comes back to run you over in reverse, by depriving you of the next opportunity. That’s for another post

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