Largish mistakes in trading

Hyphenating the word mistake leads to miss-take. So a mistake is the result of taking something the wrong way. Often this is not the case though as a mistake is really a lapse of judgement, not following an instruction or rule or even just being impulsive or emotional about something.

All of these qualify for the miss-take that I started with an old trade.

I have been trying to follow a particular methodology in my position sizing which has been morphing along the way to where it is now. I am placing maximum 4 contract trades if the setup is a low risk and going as low as 1 contract for higher risk setups.

Another factor has become where we place our stop loss, mentally. Up until this week we have often held trades overnight in order to take advantage of the potential gap up in a stock the next morning. This has led to holding trades for many days in some cases, longest is 30 days now and is the main reason for my post topic...more on that later. Now we are exiting all trades before the end of the trading period in order to stick with the idea of "day trading" and also due to many people not being able to manage a trade past the initial time frame of one to two hours.

I have to keep in mind that smaller contract price does not equate to lower risk, in fact this is often the reverse. Today we traded front month options or options that were expiring in April... expiring today. While an option expires out of the money it is worthless so trading options that expire today is quite risky and VERY volatile. I kept trades to 2 or 3 contracts only and made out OK considering.

I also have to keep in mind that a larger price does not equate to less risk, depending upon how it is traded. I entered an oversized $10 option trade with my average cost of $9.30 last month. I watched it drop to the $4.20's and had the opportunity to exit after that at $10. I did not as I was holding out for breakeven at the time of $10.10. For the sake of 10 cents I let the trade go to zero and lost 100% of the capital in play. That is un-acceptable for a day trade.... but I did this three times, all last month. If nothing else it gives me some losses to cover some gains going forward, mot the ideal though.

In all I dropped all of my March profits times 2. Considering that I had, up until this point, been doing very well as I made 50% in three weeks on a $10,000 starting capital.

Had I exercised proper management in trade size that would have been a $1000 at most for the large trade, $500 and $400 for the other two. Even at that I should have exited at near breakeven and been down about $20 on the larger trade and maybe as much as $100 for each of the other trades... total of $220.

Lesson learned.

Going forward I have shrunk my trade size considerably and look forward to increasing it slowly as my account grows up to a maximum of 5 contracts per trade.

My stats are not up to date as these trades have messed with my overall numbers.. I'll look at these later and see where I am at.

I did run a duplicate spreadsheet to track all my trades as if I had used 5 contracts for every single trade that I placed in the TFSA, I will do the same for the Margin account sometime but the $10 options would not have made it to 5 contracts regardless so I will not use that one, seeing as proper management would have had it only loosing $20 or so I feel that optimized sizing and management would have had me stay out of this larger risk anyway.

The trouble with 5 contracts right now is that I could not run all the trades as I would run out of capital. Seeing as we are exiting all trades on the same day I likely could bump up to that level soon, perhaps start with three per and see how that would have fared... three I could have handled and it sure makes placing the trades easier as there is not 2 seconds wasted figuring out the sizing for the trade.

Jeff.