A student I’m coaching had a question on a particular trade and wanted to know what to do about it. Naturally, the first question I ask is when you entered the trade what type of trade was it? They answered it was a swing trade. I’ll get back to the rest of this story momentarily. Let’s all take a jog-down memory to the first time you were ever introduced to trading. How did you feel? I can imagine there were all sorts of emotions going through you at the time. You ultimately decided or perhaps you are in the process of making said decision that you were going to give it a try. One decision you were faced with to make early on was on the type of trader you are going to be. Do you remember which one you chose? Are you still that type of trader today? The truth is, well at least for me is that I didn’t know what type of trader I wanted to be. By default, I was an investor, a passive investor to be exact because I had a 401k that I did nothing with. Other than that, I had no idea what to choose so I decided I was going to be all of them all.
Probably not the best approach as a beginner. I’d enter a trade as a swing trader but apply position trading rules whenever fear or greed would creep in. I’d turn a position into an investment and kept this cycle going until I hit the reset button. Not having a clear approach on how to execute and manage a trade, you can turn any good setup into a bad trade. I enjoyed swing trading however, swing trading with options as a beginner was not a good idea when I lacked knowledge in exactly how options worked. I knew to look at trends, levels, and patterns as they related to technical analysis. My problem was a lack of patience. Not waiting for confirmation, I was aggressive with my entry, greedy with my target, and very loose with my stop loss if I even had one. My risk tolerance? What’s that? I did not even consider how much I should be risking per trade. Swing trading with stock is the approach I should have taken but you couldn’t tell me anything! I wanted to trade options and that was it! I had to make some adjustments, so I did. I was too emotional swing trading options. I shifted to position trading for cash flow. This approach gave me some balance and consistency. That allowed me to focus on swing trading with options and be more patient with my swing trades.
Back to the question. The trade was a swing trade on $MCHP (Microchip Technology). Swing trading goes from pivot to pivot and the chart below highlights 2 pivot points. The stock reached a level of resistance near $160 on the first pivot. The stock then pulled back and found support around 154/155 and made another run up to $164 for the second pivot. The current price is at a known resistance level in the $165 range. This level is also where the student had targeted for profit-taking. The trade was a bull call vertical 150/165 15 Oct monthly expiration on confirmation of the 2nd pivot. The question was what to do about the upcoming split on October 13. The answer simply is you will not be in THIS trade anyway so you do not have to worry about it 😊. The trade has a 50% ROI so far. Being that this is a swing trade, the stock price has now reached the level of resistance and is in the price range they planned on taking profit, so take your profit from this trade, wait for the next set up and rinse and repeat. If another setup forms and you decide to enter another trade again, now have a plan on what you are going to do with the split but as for the current swing trade, this ride is over.
This goes back to what I mentioned earlier about me turning swing trades into positions trade based on either greed or fear. We’ve all been there and we learn over time to apply the rules appropriately. To learn more about these swing trading rules, do not miss our special webinar on Monday 9/20/2020 on our YouTube channel. Click on the button below to go to the YouTube page and set a reminder. This way you won’t miss when Coach Matt Justice goes live.
Tonight, however, is our monthly Women in Trading Webinar. Go time is at 8:30 PM EST. See you there and invite a girlfriend or two.
Until next time Traders!
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