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Friday Feature: Trading Psychology (Part 3): Emotionally Position Size to Accept Full Cost

March 6, 2020

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Friday Feature: Trading Psychology (Part 3): Emotionally Position Size to Accept Full Cost (Photo by Aaron Burden on Unsplash)

The month of February 2020 has been a very volatile month. Times like this test a professional trader’s true mental state and readiness to take on any scenario in the market. Instead of focusing on your P/L, your psychological stress level is more important. If you are in pain, you are clearly NOT emotionally aligned with the cost structure of your portfolio.

Every trade you execute, you should emotionally accept the full cost like it’s a great deal you are willing to pay. Portfolio allocation always needs to include max cost at max stress level for you to repeatedly assess if you are emotionally OK to accept it when the worst happens. My best friend and trading partner the other day blurted out that, “To be a good trader, you have to learn to treat money like it’s dirt. When you DON’T CARE, then you can remain calm, patient, and rational when chaos breaks loose.” It sounds so simple, but it takes a lifetime to master.

We are hardwired to care so much about money, it will take more than just a few weeks, months or even years to unwire. The market cannot hurt you if you have emotionally accepted every cost of your trades. During this latest bear move in the market, it’s the first time I felt relieved. It’s also the first time I felt that I have full control because I accepted the full cost of every position in my portfolio. Therefore, I did not overreact. Instead, I stayed calm to allow high probability trades to work itself out over time.

Iron Condor on Cigna Corp (NYSE: CI)
Iron Condor on Cigna Corp (NYSE: CI)

Only when you learn to accept the full cost of the trade, you are able to understand what high probability trading model means in a highly volatile environment. For example, the bear move on Cigna Corp (NYSE: CI) Iron Condor completely pierced through my profit zone. Since I still have more than 10 days left on this trade, I have fully accepted the cost and allowed probability to work for me. Of course, probability is not a guarantee, but when you are always on the highest probable side of the trade, your trading edge strengthens even in sharp moves. As fast as the trade broke down, it bounced up is just as fast.

I don’t know any of this was going to happen, I simply accepted the worst outcome first and allowed probability to work through time.


Pearl Li. The Theta Finder. In the Making.

Tackle Trading: Pearl Li.

Pearl Li previously has been a product management professional for more than 10 years working at well-known companies such as Amazon and Nielsen Company. She took the leap in 2016 with Elite Legacy Education to learn about building long term wealth through financial market trading/investing. In 2018, Pearl happily left her job to pursue investing/trading fulltime producing theta style trading that generates monthly cashflow. She is thrilled to be a voice on the Tackle Trading platform to share her transformation as she goes through various phases of her growing experience.


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