AT #19: $500 to $74,580 Challenge Week 2

Ruben Leija

Read time: 3 minutes

There comes a point in our trading career where it feels like every one is saying calls, and your trading plan says puts. Do you go with the crowd or against the crowd?

This week felt like that. A lot of traders I looked up were playing longs and I was shouting shorts.

It was a friendly reminder that as a trader, having conviction to your trading plan is an important factor to being successful.

In this Email

Stats for the week
Trading psychology
How I close a losing trade

Stats of the week

Number of trades: 12
Profit: +$1,196
PnL %: +122%
Account value: $2,170
Position size per trade: $250-350
Tickers: $SPX | $SPY

Last week I ended the week with an account value of $974, and this week I closed it at $2,170. That’s a 122% increase from last week, and a 334% increase from the original investment in only 10 trading days.

I’m extremely content with the progress of the account, the goal is still to hit $5,000 to really get the ball rolling.

Trading psychology

Having a sound trading psyche is essential during volatile and choppy days.

It’s important because having calm, focused, and discipline in the face of uncertainty will help you not get caught up with your emotions and make impulsive decisions.

It helps you stick to your trading plan, and make rational decisions.

A handful of my trades went as low as -70% in value before skyrocketing to 60% and +400% return.

I ask myself one question to keep myself calm and focused, and that question is…

Is my trade invalidated?

If it’s not invalidated, I stay in. In my mind, I get into a trade because of the chart, not the PnL of a trade.

If the trade gets invalidated, oh well. I take the loss and move on.

This can sometimes lead to -80% loss on the trade – this is because I’m trading zero-day expirations. The story would be different if I picked a further expiration.

How I determine when a trade is not valid anymore

Take a look at this chart, before the giant gap and the huge uptrend. How would you trade this?

What’s the stop loss? And to make it trickier, you have to pretend it’s a zero-day expiration contract.

Answer, and then I’ll give you my trading plan here.

Here’s how I would have traded this:

Clearly there’s demand on the box I created; So my trading plan would be to enter in calls in the box, and put a stop loss when price closes below the box.

This kind of price action movement is very tricky, and most traders get stopped out and lose because they’re so focused on the PnL of their trade.

A lot of traders make this mistake, and actually miss on hundreds and even thousands of dollars.

This kind of price action movement will get you 20% positive and then -50% in a blink of an eye. Just because that happens doesn’t mean the trade is invalid or that you should get out.

The chart is clearly telling me that the trade is still valid, and the option contract can comeback to life.

If you’re one of those traders who sets a percentage stop loss, get rid of it. You’re going into a trade because of the chart, not the PnL of the trade.

With that said, this can mean that your trade can go lower than -40% and even -99%, to counterbalance for that, make sure to size in appropriately for your trading account size.

Let’s say you have an account of $10,000 and you went in the trade with $300, and the trade got invalidated at -50%. You only lost -$150, which is 1.5% of your portfolio.

Do you really care? No, because you still have $9,850 to trade with.

Conclusion

Remember this +90% of traders fail to be profitable and successful. Do the opposite of what those failing traders do and watch your skills improve 10x.