How do you handle it when you find yourself on the wrong side of the market? How do you deal with plunges and unexplained rises that put your positions at risk? Do you find yourself making grave errors and mistakes due to some blip or abnormal market beat? As an options trader, I know these are difficult predicaments. We try as best we can to keep the emotions out of our decision process yet we are all human, and when money is on the line there is just no escaping the fear and greed. So, with that in mind, let's figure out some ways we can bypass some of the bad outcomes that result from fright and fear.
Markets move with tremendous speed and quickness. Trying to find our 'happy place' in trading is akin to entering a freeway with traffic blistering by at breakneck speed. Further, the change in direction is quite sudden, we need quick reflexes, agility and good eyesight or we'll be trampled. This past week saw some of that speed as the markets nosedived on Thursday and Friday. A change in character? Just a correction, nothing to be seriously worried about? As always, we'll have to see how things develop but certainly there was some damage done Friday.
After Thursday's loss and hold of support the market 'seemed' to want to go higher on Friday. That would not be the case after some surprising news hit over debt troubles in emerging market countries. The timing of this latest news is quite interesting after the US just finished a remarkable year in 2013, but the troubles had already been known. The futures reversed sharply overnight as 'risk off' mode was evident. The market drop was fast and swift all day long, trampling bulls in its wake. With potential negative news over the weekend, who wants to hold anything long? That's a change in behavior - but it might only be temporary.
How did I react during the selloff? Was I trying to catch downside trades? Pick up cheap stuff? As a trend trader, that's not my style. Was there a short term trend? Most definitely, but bearish trades for the most part have been akin to picking up nickels in front of a steamroller. Shaken but not stirred would be my answer (as I had long call and short put spreads working). It's understood that this market has not had a big correction for a long while, and I really could not tell you if this is the start of something bigger. The charts/technicals are my guide and this looks to be another buying chance (much like the 4-5 we had prior). When you're on the wrong side of the market results it's not easy, but allow yourself time to figure out rhythm and speed and move at your own pace.
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