On Hold

I am continuing to hold the BIDU option. It is still profitable as BIDU has traded mostly sideways. However, hanging onto this trade has caused me to let other trades pass by. That is not always a good decision. I could have taken a rather quick $3.00 profit. I decided to let this trade work further to the downside. That, unfortunately has not happened.

This is always a choice faced by traders. Do I hold onto a position in the hope of a greater gain? Or, do I exit with a small gain and move on to what could be a more profitable trade? Defining your trade parameters ahead of time will help make this decision easier. Normally, I would have been satisfied to take a 2-3 point profit. Then again, taking such quick profits takes you out of the game. Looking back at two previous trades, I was barely stopped out of the TSO trade below $97. Now, two weeks later, it has traded above $111.

Another trade was the Potash option. I had bought a put option and was stopped out. When POT gapped up to $172, it went on to make new all time highs. I believe it has traded as high as $187. Two specific capabilities that could benefit a trader is the ability to quickly reverse a position. And also to be able to re-enter a stopped out trade. Moves such as these do not come often. Being able to take advantage of them can certainly help the bottom line.

By keeping a journal, the trader will have a record of such trades. The trader can then go back and make adjustments to their strategy. Knowing where you have been can offer clues to figuring out where you want to go. Of course, in this case, a trader could trade in and out for a quick 1-3 points and also hold a few positions for the longer term of maybe 1-3 weeks.

Again, the key is to not get burned at the stake when you are wrong. The only way to do that is to either have cast iron rules for stopping a loss (that are always followed) or use options to hedge your position. That can get very expensive, especially if a stock trades sideways for a period. Discipline and consistent action can keep your account above board. If is often the failure to act decisively at the first warning bell that freezes a trader into block of stone. Those stone blocks that you see littering the trading roadways are traders who have crapped out due to inaction and a lack of serious planning. You may think this doesn't apply to you. Give it some time and it definitely will.