I’m going to start right off and tell you that everything I did this week went wrong.  Honestly, it was the worst week yet.  You already know I’m going to be real and put myself out there.  I’m not going to go into exhaustive detail of what went wrong.  But what I do want to discuss is how to define “wrong.”  Specifically, when is wrong wrong?  When do you find out you’re wrong?  And when do you accept it?  I say that because you can know you’re wrong and hope you’re not and in the hoping, you become more wrong.  So let’s start off by setting the stage with 2 trades from this week and then discuss risk tolerance and risk management.

It all started on Tuesday.  The market was having one of those funny mixed days that really don’t like.  There was a couple of what I thought to be opportunities that day to short, specifically AXP and GILD.  The entry points were in line with my strategy.  BUT, then the market turned on me.  And I knew I was wrong.  Instead acting on the knowledge that I was wrong, I hoped.  WORST place to be in.  DON’T do this.  Not only that I left both positions open overnight.  Still hoping!!!  This is a comedy of errors people.  I’m shaking my head as I write this.  Wednesday opens up more and both my stops at 2% kick in.  Feel free to let me have it in the comments!!!

So there is the set up.  I know ii was just 2 trades, but there was lot going on my head once I was in.  Specifically around risk tolerance and risk management, which are detailed below:

  • Risk tolerance – You already know that I have a very complicated relationship with holding overnight, as I detailed in IM Strategy.  I don’t like it.  AT ALL!!!  I’ve been burned by it countless times.  However, I have back testing that proves that if I let them ride, it can be very profitable.  That right there is a dilemma folks.  My back testing also tells me that the likelihood of missing this bad 2 times in a row shouldn’t happen very often.  So is this an outlier or is my back testing skewed and averages are going to catch up to me.  Either way, why don’t I want to do it?  Is it too much risk for me to stomach?  At this point, I can abandon holding overnight or I suck it up, possibly make money and get used to it.
  • Risk management – Up to this point.  I’ve define my trades being wrong at 2%+.  The question I have for myself is this.  Is it really necessary to wait until I’m down 2% to know I missed?  If I’m being honest, every trade I’ve ever made that lost that much money, I knew was bad long before the stop hit.  So why did I watch it get away from me?  Because I was hoping I wasn’t wrong.  That’s a bad spot to be in.  What would happen if I cut my losses sooner?  Like when I first knew I was wrong.  Obviously there is room to improve how I manage my stops.  But first I have to define when my trade is wrong.

There you have it Innovators.  As real as you know I can give it.  I know that catching corrections will always be at the core of my strategy.  But as any good trader will tell you, refinement is always required.  And in my case that means better defining when I’m wrong.  Therefore, narrowing my exit points to mitigate risk and increase profit.  The question to answer for me is, would there be more profit by cutting my losses earlier and never holding overnight than letting them ride?  This may be a case where I just say I won’t do it anymore and adjust accordingly because the risk is more than I’m willing stomach.  But to help me determine the best course of action I have to continue to journaling my trades to see which is better.

Let me know what your thoughts are below and as always don’t forget to share these adventures and follow me on social media.  I hope you have the most profitable week yet!!!

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