What Happens When You Deviate

I have my strategies that work very well for me. They may work well for you too. Bear in mind, there are countless trading strategies to make money on the market, and you can certainly devise your own. This is not a “one size fits all” approach. In all fairness to our tribe, we encourage independent investigation so each trader feels comfortable with his/her own methodology. However, what I found was that if I deviate ever so slightly from my proven system, I find myself deep in the weeds. All too often, I lose. And there’s no reason for it.

For example, several weeks ago, I abandoned my tried-and-true approaches to pursue two “out of the box” trades.

1. I pushed the envelope to make that one last trade after I had reached my daily goal. It was a calls position that I felt would have worked well, just to take one more gain for the day. Despite the risks associated with going past my goal, I forged ahead. As it turned out, no sooner had I made my purchase than the market turned south on me, forcing me to hold my position into the following day and beyond. I ended up with a loss. Besides the financial pinch, what pained me more was that I knew better, yet I had still strayed. I still ponder why I did that.

2. My second mistake was, again, a drift away from my usual strategy to play the Nvidia earnings. In the past, when Nvidia surpassed the analysts’ expectations, this stock soared, taking SPY with it. My trade was long out, cheap options on SPY, expecting Nvidia to push SPY up. What happened next was mind-boggling. The earnings were released, better than forecast, and SPY shot up over ten points in post-market trading. I couldn’t wait for the market to open the next day! As excited as ever, unfortunately, a federal court determined that President Trump had overstepped his authority with tariffs and the ensuing uncertainty roiled the market, sending SPY back down to wipe out any premarket gains made. What lined up to be a home run on my far-out calls turned into a dud. I sold for a substantial loss.

Time to reassess my approach. I checked my log (yes, I still log my trades) and determined my sole error was in deviating from my trading plan. Had I stuck to the blueprint, I would be thousands of dollars richer. My greedy self surfaced to take unnecessary risks, and, deservedly, I got burned.

I can handle financial losses. It’s the loss of self-control I find to be most painful. Everyone falls off the wagon from time to time, but before I veer off the beaten path the next time, I renewed my vow to consider how I would feel if the trade doesn’t work out. One must always plan for when the plan doesn’t go according to plan. Reading this gives you the opportunity to learn from my mistakes, so hopefully, you don’t make the same ones. It is too easy to digress but before you hit that final key, consider the risks. You know what works; why chance it?

Stay with the plan. Plan your trade and trade your plan. If you did your research properly, there should be no surprises.

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Create great trades!

Hugh