Hey Guys,
The market had a tough day yesterday. The S&P 500 dropped 120 points. Every day over the last week has been red for the S&P 500.
Yesterday's market plunge proved to be rough on my accounts. The day started out in promising fashion when my BP option trade hit its profit target, and then my PSX stock and option trades hit their profit targets. But then the market went down noticeably, right before it was time to close all those option positions that had reached their time limits.
The result was a rough week for me. In my options account, I had 3 wins and 7 losses, and a few of those losses were decidedly heavy. Both my accounts went down in value and wiped out gains we had seen earlier in the month.
As tough as that week was, it wasn't my worst week ever, and it wasn't my deepest drawdown ever. I think it's important for everyone to understand that for a couple reasons:
1) If that week felt really hard on you or gave you really strong emotional charges, it might be a sign that you're taking on more risk than you're really comfortable with. You can consider sizing down. An ideal position size might be one where you can live through a drawdown like this without it affecting your normal day-to-day life.
2) I've lived through this before, and I can tell you from experience and from my backtesting research, it's not the end of the world. If you look back across history, there are bad weeks all the time. A single bad week doesn't negate the overall performance this approach has reflected historically. Quite the opposite: a person almost certainly will have to be able to live through a drawdown like this in order to reap the potential long term rewards of this trading approach. The big challenge is that there is real risk involved, and no matter how much intelligence goes into the trades, or much historical success they may have had, there is no one in the world who can say with certainty what will happen next in the market.
I took on some new trades today. In the stocks account, I bought a position for WPM. In the options account, I bought options for INTC and WPM.
If you have any questions or feedback, I'd love to hear from you.