Home > seldomawake > Wherein Whole Foods Eats Me Whole

Wherein Whole Foods Eats Me Whole

Another insightful contribution from our friend @seldomawake. My takeaway is a lesson I’ve had to learn the hard way a month ago about always sticking to stops. ALWAYS. Have a plan before entering for multiple scenarios, not just the best case.

Another key point to be made is that exits are just as important as entries, if not more. @seldomawake and I (@codertrader) entered $WFMI with that descending trendline break as the key to our entrypoint. I entered the trade after I noticed an intraday cup and handle being formed, with a goal of 65/share in mind. I exited at just under 65. Our friend @seldomawake did not. The point is that the same trade made by two different people can end up very differently for each participant. He did a lot more research than I. In this case quick thinking and technicals prevailed over the fundamentals without a clear plan. I’ve made the same mistakes before; we’re both learning and improving.

Know when to get out before you enter the trade. Enjoy! Please leave comments below. ~@CoderTrader

I am told that the thing new traders are best at is taking profits, and the thing new traders are worst at is taking losses. I’ve been told this over and over again, yet I manage to keep proving it to myself… again and again.

Letting winners run is hard, and cutting losers is harder still. Why is this? Today, while reviewing a failed trade, I think I stumbled on a clue. Come along with me as we play the “Let’s See What Went Wrong Now” game. (As an aside, I hate this game…)

Let’s take a look at my adventure with Whole Foods ($WFMI). The subtitle for this adventure will be Why All My Shopping Will Henceforth Be Done At Publix.

I knew that April was seasonally strong for supermarkets. I watched $SVU report, read the conference call, and liked what I saw. I then picked my target: $WFMI.

The technicals looked good. I saw the long-term uptrend, and I saw that we were retracing back to the uptrend line. I waited for the bounce, then went long with August 70 calls on the break of the 20SMA. As with all my trades, on entry, I grabbed a notepad, and wrote down the defining parameters (“borders”) of the trade::

1. Profit target: 20 (or +1 on the call).
2. Timeframe: Out in four days if no strong up move. Will take whatever profit I have.

Oh, I then thought, I suppose I should specify that other thing too..

3. Loss target: A break of the uptrend line.

Great! Now, I was done. I had Just Put Money To Work! I was Going To Be Rich!

I sat back and watched as.. the stock did nothing. I wrote some code. I watched some more. The $WFMI still did nothing. Stocks were popping left and right, and I know I missed at least two great opportunities on $QQQ… but no, I was in a trade, I had a plan, and I was going to Trade the Plan.

I know from experience that if I had hit my profit target, or even come close, I would’ve been out like a lightening bold. I would’ve taken the money and run so fast several axioms of special relativity would have been violated.

But when the stock broke support today? I had a clear sell. I was down 20%, which was sizable.

I opened up my broker page, looked at the position, keyed in the order to close the position…

…and froze.

After sitting on the position for a few hours, and having it do nothing but drop (now with bonus theta!) I think I’ve figured out why I froze on taking the loss.

I really have been treating loss targets on the trades as an afterthought. I’ve had a great year, and I’ve literally let myself get sloppy. And, as a result, I’ve lost about half the money I made YTD in three of the four trades that went wrong this month.

I don’t think traders — certainly the ones I know in person — are pessimistic people. I certainly am not. In practice, this means that in any trade, I focus on the loss aspect just as an afterthought.

So, here’s what I’m going to do to compensate:

1. If the stock doesn’t move within a day, I’m closing the trade. There are simply far too many good opportunities out there for money to be sitting in a lazy stock.
2. I will focus on the loss target before anything else associated with a trade. I will work to quantify the risk, and when the target is met, I will actually exit, instead of freezing.

You’d think I’d have learned this by now. But… nope

Happy hunting, folks, and I hope this has been helpful. If it makes you some serious money, when you’re down in the Southeast, buy me lunch.

…just not, y’know, at Whole Foods.

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