Here are some of my thoughts on how to handle losses. This week I had a loss on the call side of gold. Gold had a huge run up in volatility and price.
Gold went above the bollinger band early in the week and kept rising with the bollinger band.
While I had sold calls at 2300 and 2350 expiring in 81 days and the current gold price is 2207 for /GCM, the increase in volatility as well as the upward price stopped me out of the trade.
Here are some thoughts on how to deal with losses in a trade.
- Realize not all trades will work out. While the trades I do at thetatraderz.com have a very high win rate (90.1% of credit spreads in 2023 profited, and all of my covered strangles and monthly low delta puts profited), there will be losses. It could be difficult to deal with a loss thats greater than the wins since we typically stop out at 3 times the premium received.
- Let the percentages play out. While Steph Curry is one of the best shooters of all time and has a lifetime 90.9% free throw %, that means he missed 9.1% of them. He still won many accolades. I dont think he over thinks when he misses 1 shot.
- Have a trading plan knowing your possible profit or loss BEFORE taking the trade. This is KEY. I have members at thetatraderz.com that do not have a trading plan, they see a loss on a position and get worried about it. This is one of the main things I help members with on 1-1 zoom sessions. I have a written trading plan knowing where I will take profit or stop out and I followed the plan. Sure, gold might revert back down and could end up being a winning trade. Or, it could keep going up and cause bigger losses.
Having a written trading plan helps with creating a habit. I wrote about this one the following post
Following the steps above can help develop a mechanical and consistent plan that will keep you from blowing your account and continue to let the percentages play out in your favor over the long hawl.