Good Day Tackle Traders! We are continuing our theme of being happy with whatever outcome we end up with, in a trade. If it a losing trade then we get to learn from it and if it is a winning trade then we get to profit from it. That little statement sounds great in theory but in practice, it is much harder to believe. In the last couple of blogs, we have talked about how we can ensure that the above statement is a little easier to get our minds wrapped around. In the first blog, we talked about being prepared to accept whatever the market decides and being emotionally ok with the outcome. This means looking at a chart and deciding if it goes where I expect it to and I make money then I am happy but if it decides to go nowhere or the exact opposite way then I can still be happy. It is paramount to be emotionally ready for this as well as ready to react if something does go against our original thesis.

In the second blog in this series we talked about we keep our bets so small that it can’t possibly affect our emotions and from there we can build the experience and confidence to make larger bets as our account grows. These two things are something we need to ensure before we enter a trade. This planning must always be baked into any good trade we do. However, what happens if we are ready to fire into a trade and like our moose friend above we feel we are well prepared for the trade and then things change? This is what we are going to talk about this week. We are going to discuss what we can do to make ourselves happy with any changes whilst we are in the actual trade. We are the architechs of our own trades and if we have certain skills we can re-design the trade while it is playing out.

Let’s start with the position sizing or size of the bet we make at the outset, can this be changed mid trade? Could we add to a winning position or take some risk away from a losing position? Of course, we can, we are ultimately in control. I know many of you are saying or feeling that we are not in control of the market movement or direction and you would be right in thinking this but we are always in control of the stance we take in relation to that movement of the market or the stocks we are trading. Please allow me to demonstrate this scenario. Let’s say we were being ultra-conservative in our bet sizing and we only used 10 shares of a particular stock and we believed the move to be bullish at the outset of the trade and then the market switches direction and we are able to see this through our technical analysis, could we then being even more conservative and reduce our position and overall risk by closing half the position before hitting our initial stop loss? We absolutely could and this would in effect reduce our already small risk even further. This would undoubtedly make us happier than taking a full loss on the position.

In effect, we can change our minds with new information and we can also change our posture on the trade in real-time. The first and best way to improve your trading results and thus making yourself happier with whatever comes of your trade is by reducing risk. This should be your premise whenever you decide to change initial trade parameters. The unfortunate part of this being priority number one is it doesn’t feel good until after the trade is over and one takes count of what could have been and what actually happened, meaning that if you were willing to risk $100 on a trade and you only took a $50 loss it might not feel good at first but after further review, your perspective may change. What if you are like me and you really like to win not just lose small? I know everybody really wants to win but some folks are more aggressive about winning than others and I REALLY like to win. Having said that, I understand that losing is a part of winning and that I am not going to win every time but there are things I can do more than just reducing the risk to help increase my winning percentage.

Let’s take our previous example, if we bought 10 shares of a stock and we originally thought it was going to go up but then had a reversal could we get into another position that would still give us the ability to prosper? This is absolutely possible. What if we bought those 10 shares and they happen to be really fundamentally sound and we are thinking that it may be bullish in the future even if it isn’t right now and then instead of getting rid of the stock we took a stance on the other side of the trade and bought a put option to ride down to the next level of support? This could give us the opportunity to profit from the fall of the stock as well as any subsequent rise in the stock at a later date.

The above scenario is just one possibilty and it is this posture type thinking that can give us the ability to be happy with all obstacles relating to our trades. There is a caveot to the above scenario and its a big one, you must plan for all scenarios before they happen especially the one I described above. You do not want to make these shifts in posture without having them planned out ahead of time because if you do the emotions will get stirred up and it can cause mistakes to be made.

You can see that if we bet small, plan well and build our posturing skills then we can definitely make ourselves happy with however our trades go. We will continue on this theme for a while and we will talk about more scenarios and the changes we can make to ensure our happiness in trading and our long term success as well.

For now, give some thought as to how you are postured currently with your trades and is there more planning that needs to be done to make sure you are happy with your trading.

Trade Well,

Coach Holmes