The Power of the Automated Candle Trail: How to Lose Small And Fast

Four trades today.  Two one-and-done's, and two attempts to short SPY at the moving averages.

Only one trade worked.  Three losers.

But the key is to lose small and fast.

And, honestly, I have a hard time doing this.  It is so easy for me to "give it a little more room."  Or "give it to the VWAP."  Why accept defeat when it's still holding above support?  

How many terrible trading days have started with an innocent little thought like that?  For me, more than I care to admit.

Trading discipline is one of the toughest things to master.

When I first got certified as a SCUBA diver, I was eager to go on my first dive.  Living in land-locked Atlanta, there aren't that many opportunities to get to the ocean.  So when we were visiting my sister-in-law in San Diego on Christmas Day, I found myself in a very thick wet suit on a boat that was rocking wildly in the not-so-peaceful Pacific Ocean.

My first dive outside of the warm, crystal clear waters of the Caribbean was in freezing, dark, murky water, heading down to a wreck at 90 feet.  My assigned "buddy" on this dive was no buddy.  He dropped like a rock without any warning, and the last thing I wanted was to be left alone in dark kelp forests, so I went chasing after him.  By the time I caught up with him, we were at 90 feet.  I shined my flashlight down to my fins and spotted the bow of the boat just beneath me.  Huffing and puffing into my regulator after that hard swim, my regulator came out of my mouth!

Now, I had done this drill a few times, retrieving it, putting in back in my mouth, and clearing it.  But that was mostly in a pool and a couple of times in a quarry.  Sweet, sweet air was never far away, certainly never with 90 feet of dark, cold water between us.  This was a very different experience.  This was not a drill.

Somehow, I managed to pretty deftly retrieve the regulator and get it back in my mouth.  I think I even blocked it with my tongue and pressed the button to clear it.  But I was simply not comfortable at that point.  I was winded, had still taken in some water, and was literally in over my head.  This was my first certified dive!

I gave my "buddy" the thumbs up sign, which does not mean everything's okay.  It means we have to go up.

So why did I go from trading discipline to that story?

Because, honestly, that controlled ascent to get to precious air without getting a lung-expansion injury was an amazing exercise in discipline.  In case you're not aware, you cannot just swim up to the surface while breathing compressed air.  As you rise and the water pressure decreases, the air expands.  If you go too fast or fail to breathe properly, you risk the compressed air expanding within your chest cavity.  So, as much as I wanted to get from 90 feet below to one foot above immediately, I had to do it slowly and carefully.  And I did.

So how is it that I can control my breathing and my innate lust for air, yet I can't find the discipline to close stupid trades that go against me???  It's absolutely crazy!  Is taking a loss worse than drowning??

Even today, while Trade Unafraid was taking nice small losses and ending the day positive, in my manual trading (which I believe will be coming to an end soon), I ended up taking home a position that I really should have let go, but I couldn't bring myself to take the small loss.

I can talk about it rationally.  I can write about it sensibly.  Yet, when it comes time to "accept the loss" and close the position, I think I'd rather get the bends.  Human beings are weird people.

Trade Unafraid (I still can't decide if that's the name of the product) has a lot of powerful features.  Algorithmic selection of the best option contracts is awesome.  Instantly setting multiple profit targets is huge.  Automatic trailing candle stops is fantastic.  Trading multiple positions at the open is a game changer.  Automatically trading bounces off of Exponential Movings Averages (EMAs) frees you from having to watch for them and risking missing them.

But perhaps the most important benefit of all is that I no longer have to wrestle with myself to follow my own rules.

I traded two one-and-done's and two EMAs.  (I actually traded six OAD's, but four of them were filtered out.)  Only one of the four trades today worked out.  But I had one nice winner and three very modest losers.

Had I traded these by hand, I'm sorry to say that I doubt that the three losers would have been so small. My $100 green day might have been a substantially larger red day, and I would go into the weekend feeling terrible.  Instead, I set these up and didn't even realize they were happening until after they were closed.  It's kind of neat to "find" $100 like that.

I had ample opportunity today to close my manual trade for a couple of dollars profit, a couple of dollars loss, a loss of $8 or $12 or $24.  But I rationalized that these are at-the-money August monthlies; they'll be higher on Monday.  So I've got that to worry about over the weekend.

So now I'm risking the entire position.  And I can't tell you how often my long options expire worthless.  It's probably my worst habit, holding for that elusive bounce.

My robot is flat and has nothing to worry about over the weekend.  Smart robot.