Hey y’all,
If you’re in our free ProsperityPub Telegram channel, you might have seen my video yesterday bemoaning the difficulty of exiting a trade at the right time.
Well, let me tell you the story in greater detail…
Last week, I entered a trade on Sea Ltd. (SE), from Graham’s On the Clock Stocks strategy. I even shared it in the newsletter!
Here were the details:
Now, I know nothing about SE to tell you the truth. And maybe I should have done my research a little bit better.
But I trust Graham, and this strategy, based on a calendar of stocks that move at particular times of the year, is pretty impressive. Plus, I was itching to enter a trade. So I jumped in!
And here’s what happened shortly after I jumped in…
Predictably, the stock moved sideways to down immediately after I entered.
Pretty soon, my options were down 20… 30… I saw them get as low as 45% down!
And I had to think: was it time to bail?
The options didn’t expire for another few weeks, but I was nervous… and like many rookie traders, I didn’t have a great action plan for what to do next…
Despite my reservations, I stayed in for one more day, and fortunately, SEA started to recover.
By yesterday morning, I was already in the black, looking at a 10-15% gain. I thought about closing, but I figured I still had time… might as well watch it for a while…
And that’s when I really set myself up for failure.
Because price is volatile, and options prices are even more so.
Mid-morning, the stock dropped suddenly, and my options fell off a cliff, going back to a nearly 40% loss.
Now, to be very clear, I was trading two contracts here. So nothing terrible was going to happen to me, even if I lost 100% (that’s why you should never risk more than you can afford to lose).
But still, on the roller coaster of trading, I was on the part near the end of the ride where they flip you upside down, and I wanted to get off.
By the time the stock stabilized, and I was back at a 15% winner, I was done with the emotional highs and lows, and I took my money and ran.
But, as you might expect, SE continued to climb, and if I still had those options, I’d probably be at or near a 100% winner.
Oh well! No use crying over spilled milk, as they say.
But there are two clear lessons I’ll be taking away from this…
First, trust your experts.
They are watching these trades closely and know their strategy, when they plan to get in and get out, and what a stock is doing.
I even had the benefit of sharing an office next to Graham and asking him about it, and I still got nervous.
That’s an instinct I’ll fight in the future.
Second, know your gameplan before you get in.
What do you want from a trade?
Do you want a 100% winner? A 50% winner?
And what are you willing to risk to get it?
If I’d told myself clearly before I started: “I want to chase a 50% winner and I’m willing to accept a 50% loser to get there,” I never would have had any issue.
Even as the stock got lower, it never touched 50%, and so I would have been in the trade at least until I got a 50% return, if not more overnight.
Unfortunately, I didn’t follow that advice this time… but I will in the future…
So, what trade will I place next?
I’m not sure yet… but I might release the details over on Telegram. So I hope you’re following us there as well.
To your prosperity,
Stephen Ground
Editor-in-Chief, ProsperityPub
P.S.: If you want to know more about the awesome strategy that helped me find this win, you can check out Graham’s briefing here!
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