Hey traders, welcome back for another edition of Notes from a Newbie.  I hope you all have been enjoying the fruits this recent bullish trend in the market has provided.  The last three weeks have been rather rewarding for me and have given me a little hope that progress is, in fact, taking place.  But out of all my recent success, there is one special trade that has been weighing on my mind.  One that I felt obliged to share with you all this week.  So, let’s have a little story time.  This is a tale of inexperience, regret, growth, redemption, and probably a whole lot of luck.  So, let’s get started, shall we?

The time was early April and roughly two months into my new trading journey. I was going through my weekend routine of finding stock candidates that I wanted to play. As many new traders probably do, I was still trying to figure out who I was as a trader and how I wanted to allocate my portfolio.  I was getting frustrated like I imagine many new traders do, because my inexperience had my portfolio going in the wrong direction.  I decided that I wanted to take a small portion of my portfolio and hold a core position of a company that I liked.  At that point, I was just looking to find something that was going to work for me.  Finding a stock that was affordable and that I liked was proving difficult.  So, I decided to consult my wife on companies that she liked.  Amidst our conversation, I remembered that she recently received a new insulin pump from Tandem Diabetes as she has been a Type 1 diabetic for 25 years.  She stated that she really liked the new pump over the other several pumps that she has been on.  So, I decided to look up their ticker.  At the time of the conversation this is what I found:

At the time this was immediately appealing to me.  I saw a good uptrend in a stock that produced a product that was clearly effective.  So as most new traders do, I jumped in.  I bought several hundred shares at $7.25ish and was now a proud investor of Tandem Diabetes.  This worked for me for roughly 10 trading sessions until my emotions got involved.  Until my amateur trading mind got to thinking.  Until I decided to deviate from my plan.  As many stocks tend to do, it started to go down and my discomfort along with my previous failures forced me to make the decision to exit trade with a small loss when it retraced to $6.75.  Want to see what happened next? Sure, you do:

Pretty impressive huh.  Hey, I said this story had inexperience and regret didn’t I.  At least you didn’t have to explain how thousands of dollars were missed out on due to a newbie mistake to your significant other, but hey I am still alive to talk about it (for now)! But you live, and you learn right? 

So, I sit and watched this thing explode over the course of the next 3 months, only this time I had learned from my mistakes.  I fought the urge to get back in every week just waiting for some sort of pull back, an opportunity. As time went on I felt less inclined to chase it and was content to just let bygones be bygones. Chalk it up to lesson 1,000 of being a new trader. I would keep an eye on it and see if I could generate a trade if the opportunity presented itself.

Well just so happens that opportunity finally came, and I decided to take a little risk to fight off a past demon.  Only this time this risk would come with rules.  I would use the 110% implied volatility to enter a bull put credit spread with 2 weeks until expiration.  I got the bounce off what I perceived to be support at $20 (a good whole number, on a stock that didn’t have many known support levels) and the following day got a good confirmation candle.  Remember how I always said repetition and success breeds confidence, well for once I felt confident in the trade I was placing.  Plus, I knew if I was wrong I was exiting at my breakeven anyways, big reward for a little risk.  The stock reacted just as I expected it to, and after 1 week I was sitting at 80% profit. 

As a good trader does I have locked in my profits and will move on to fight another day.  But TNDM will always have a place in my heart for the lessons it taught me.  I can never go back and un-hit that sell button, but I can also never replace the lesson I learned.  Was it a risky trade? Probably, but if I have learned anything its that following the rules can take most of the risk out of any trade.  And hey, getting back at an old friend doesn’t feel to bad either.  Until next time friends, good luck!

Randal