RUT Weekly Calendar Trade #13 (Part 2)

Yesterday I reviewed weekly trade #13, which ended up losing money.

I reluctantly consider this trade a failure. With the market never under my control, the one thing I do control is adherence to my trading plan. I am not unique in tweaking my trading plan based on a news announcement. If this constitutes the majority of traders then I want to be different. I have no reason to think anybody is any better off because they listen to news. I think it’s just a matter of luck when such positions work out profitably.

I’m here to be serious and disciplined. I need to work harder at sticking to the plan.

I strayed from my plan by taking off risk earlier than usual. That doesn’t seem like such a horrible thing on the surface. I still left myself a good chance to hit the profit target were the market to move lower but I did leave it as a directional trade. Had I followed the plan, the trade would not have been directional and would have still been vulnerable (perhaps more so) to a big move either way.

Equally important but less frequently understood, I believe, is the fact that risk may come from missing out on potential profits as much as from taking big losses. If this trading plan wins 75% of the time then it may be a worthwhile endeavor despite a poor average win/loss ratio. If I do not adhere to the plan and I realize some periodic losses in place of winners then the overall average return may be much worse or even negative: not a strategy that makes good business sense.

Trade #13 would have lost whether I stuck to the plan or not. Should I stray again in the future, I may not be so fortunate.

One other note: this trade has wide breakevens and a positive horizontal skew at inception. Unlike last week’s trade, however, this one lost.