Systems can easily be destroyed by fear. I have had a recent run of bad luck when it comes to options trading. I would say that some was bad process as well but a lot of that was also the fear. First was the fear of not taking advantage of a rare green day a couple Friday’s ago and watching myself turn an acceptable loss into a bad one, and then came everything after.
Mistakes and behavior changes compounded to turn winners into losers and to sell losers before they became winners. Riding the waves is part of the game and the current market was extra rocky. Or should I say the market of the last two weeks. There is one catalyst left but it doesn’t matter that much itself. While fund managers and market makers care about the Bank of Japan the average investor doesn’t.
The problem with slumps is when current bad results start changing behaviors. Process is more important than results and each bad trade becomes a lesson even if it shouldn’t. I did learn two valuable things. Hanging onto a winner into a binary event isn’t the best idea. I would have done much better if I had simply sold my $767 SPY Friday option when it was up and then bought a much lower one later in the day. However we don’t know the future and rolling down to $763 is very likely to still workout.
That isn’t the behavior that worries me. What I noticed in myself that worries me more is fear of action. I looked at Nvidia $215 Friday expiry yesterday and said no at a $210 price. It felt prudent, but then the stock went from $213 to around $216 this morning and is likely to keep going up as the pressure of macro events continue to ease. There is still oil and Iran but we saw in April and May that mattered little and the market still hasn’t priced in recent earnings.
The issue is when fear enters the equation and we let it change our behavior. Recent losers doesn’t mean the process is bad. I can’t control positioning or fear from other people or that stocks the move heavily in one direction or the other start moving flat. In other words I can’t let other people’s fear become mine, because most people overvalue present conditions and the conditions tomorrow aren’t the same as today and we never know when tomorrow will arrive.
David Huzzard Writes 