#41 - Take What The Market Gives You When Trading Directional
Hey everyone. Welcome back to the daily call. On today's call, I want to talk about why we should take what the market gives us when trading directional. We actually just finished up a trade here in EWZ that we sent out to members. It was a directional trade I guess by nature because we got a technical sell signal in EWZ using our indicators from the signals research which have actually been working out really well on a lot of trades. Now, they don't generate a lot of signals which is a good thing I think, but when they do, they've actually been very consistent and very good at predicting turns or stops in the market. We got a signal recently for EWZ that it was reaching a level of maybe overbought and it was going to turn around. We did a directionally bearish trade. We sold a very tight call credit spread. We didn’t sell far out of the money, we sold just a little bit out of the money, give ourselves a little bit of wiggle room in case we're wrong, but still, we want to collect a pretty decent premium. This is a directional trade and I think the takeaway here is that when the market moved down just literally four days later, had a pretty good move from like 44 down around 40 or so, that was the exact move that we were looking for. Now, we entered this position with about 50 days to go until expiration, so we had a lot of time until expiration, we could’ve obviously held onto it. But we saw the market make the move that we thought it was going to make. It just happened to make it really early in the cycle. Now of course, it could’ve been later. It could’ve happened much later in the cycle, but it didn’t. The takeaway here for me again is that when the market gives you an opportunity to take money off the table and in this case, we had our 50% profit target in four days, you just take the freaking trade off. You don’t wait around and get really, really greedy. What’s the old saying? Like pigs gets slaughtered in the market? I think that a lot of people still waited around to see, “Hey, this was a good move early. Maybe it’s going to continue.” I got those emails from people like, “Why are we taking this off? It’s just starting to fall apart.” etcetera, etcetera. Now, what we’ve seen in just the last couple of days is just four days… It took it about four or five days to actually drop. Now, four or five days later, it’s back above the highs, the original highs when we got into the trade. Again, that’s the lesson here, is that you don’t know if the trend that you’re looking at right now is going to continue or not. If you have a profit, if it’s around your profit target, I’m not saying take a dollar out of every trade, but when you’re starting to hit your profit target or very close and you feel like it’s a good time to take this thing off, go ahead and take the trade off. There’s nothing wrong with banking a profit and living to fight another day with a trade. It’s a culmination of lots of trades over your lifetime, so if you’re a little bit off on this one and maybe it did run a little bit further than you think, so what? Move onto the next trade, just get another trade on, work the system and hopefully things will work out for you in that sense. I really, really want to talk about this today because I think it’s really… Now obviously, it’s timely for what we’re doing when we’re recording this and I think it’s just really helpful just as a reassurance to know that if you want to take things off early and if things go well early in a directional trade, don’t think that your luck is going to continue. Your luck maybe running out and you might have to take things off a little bit sooner than you think. As always, hopefully you guys enjoy these. Until next time, happy trading!