Don, all good points on exiting.
I've tried to draw an anology to playing and winning in options. Its difficult to convince a first time observer or first time winner because it really does look like a pot of gold is just around the corner. INTC moves up and down 3-5 points every few days it seems, just buy calls at the low and puts at the highs... easy money.
The odd thing is that options work well for first timers remarkably well. Whats the reason for this? Very simple, I can relate that from my own experience. I bought IBM Jan calls some 18 years ago or so, put up a couple of thousand, thinking that their sales were better than what the market had priced the stock at. Sure enough, three days later I sold them for a 50% profit after commissions. I couldn't believe how fast that money was compared to buying shares or compared to getting a 6% bank deposit return for a year!
The trades continued, each doing really well. The key element was that I was SCARED when I was trading. When the profit was there I sold and kept the money, the second it started to lose (hey, I could lose a whole year's interest at the bank in one day!), I sold before the trade went negative. If I took a position and it immediately went negative, I sold the second it got to par to close to it. I had that hole in the stomach feeling when I bought and it wouldn't go away until I sold.
FEAR was the guiding hand to good trades.
After a while I actually let myself get used to losing a few trades. I let some slip so badly that I rationalized I may as well not even sell the damn things if all I could get were 3/16 on a 2 pt buy.
That's the fatal mistake, I made friends with my losses, became indifferent to the negative balance because I mentally remembered how quickly profits could grow when I was right... therefore I held out for more money when trades went my way. 50% wasn't good enough, I had to have doubles, quadruples, get the latest takeover play and run an option at 1 buck up to 8. Of course the odds quickly went against me playing that way...
Being unwilling to sell quickly at the slightest loss, devastated the most valuable asset in trading, CAPITAL to play the game. The other axe that fell was swinging for the fenses, not taking easy money off the table when it was free.
Geez this sounds like Optons Anonymous or something <g>
So I got out for a long time, then went back in and the same course of events took place.. trading small and scared leading to cavalier and bigger trades. The pattern is common after talking with others.
Now I trade for the surest hit I can find, don't go for broke and if the market says my money is about to be reduced in value... I tuck my pride into a sell order and get out as quickly as possible. The results are consistent for the most part and every year since then has been good.
Goodluck... its a sellers world, and buyers beware
Jim |
