Hi Mike,
First of all I would like to thank you for writing The Playbook! I’m not quite through it, but I’m already finding it extremely helpful and valuable.
I wanted to share some challenges i am currently having regarding a situation where there is conflict between certain rules I follow for establishing when to close a position and one of my outcome goals.
Before i get into explaining the circumstances I would like to give you a few bullets that summarize my trading history and style
* I’ve been trading for 4 years, but only recently early this year I have started noticing a difference by focusing on keeping a trading journal, establishing routines and focusing on process in everything I do.
* I hold trades between 2 and 15 days with an average of about 8 days
* I risk no more than 1% on any given trade.
I am having an issue with one of my outcome goals which states that I must make a minimum of 300 dollars per week which is about 0.75% of my total trading account. Currently I’m holding a position in APPY and trading the potential breakout. If I were to close APPY today I would achieve my weekly outcome goal of reaching the 300 dollar mark. Also, today being Thursday, it is pretty much the end of the week and that is a reason I’m considering to close my position even though my target levels haven’t been met. The problem I’m having is that I’m contemplating with the idea of closing out the position based on an outcome only and overriding my Reason2Sell rules.
Whenever I have doubt on acting or not acting on any of my open positions I suspect that there is a flaw in my trading plan or in my thought process. I am aware that process goals, such as sticking to your routines and following your rules are very important and should always be valid and respected, but I believe outcome goals are also important to have. The issue is that I may not be using the outcome goal correctly.
So these are the possible actions I could take:
Action 1
Add an additional Reason2Sell, which states the following:
If my weekly outcome goal of achieving a minimum profit of 300 is reached then I have the option of closing my positions and overriding my sell target rules.
The problem with this option is that I may end up closing out some trades that have further room to run and potentially leaving profit on the table. I could re-enter the trade next week, but I may end up missing out on the trade if there is a big move with a gap up. Also, the reason I am closing the trade has nothing to do with the price action, but it is solely dependent on an outcome goal. I believe the latter may be the bigger issue.
Action 2
Let the trade play out and don’t worry about my weekly outcome goal. The trade may turn into a loser, but that is expected. I need to stick to my plan and trust my setup.
Action 3
Maybe there is a problem with setting a weekly outcome goal. Setting a weekly outcome goal may not be a good idea given my trading style. I’m not a intra-day trader. I’m more of a swing trader with a hold time between 2 and 15 days. So I should remove the weekly outcome goal and keep my monthly outcome goal which is to be profitable at the end of each month.
Personally, I believe Action 2 and 3 are the best ones to take.
The outcome goal has lead me to think i should override my trading plan. My conclusion is that my trading actions should always be based on my process rules for trade entry and trade management and should not be based on meeting certain outcome goals. Outcome goals are achieved by having a good process in all aspects of my trading plan and following it without deviation.
I may have answered my own questions to an extent, but I still would love to hear what you thought.
Thanks for making me a better trader today.
@mikebellafiore
1) You need weekly and monthly goals as a trader. Keep them.
2) Do you exit this position until there is a Reason2Sell? If doing so causes you to miss your weekly goal, well then work on finding more good setups. Your job as a trader is to control risk. It is not to make money. If you short-circuit this trade you are not controlling your risk properly. You need to find more trades like this. Learn to hold them for the Real Move. Trade them bigger. Build from the setups that make the most sense to your trading brain.
Do not exit good trades that are working until there is a Reason2Sell. As an example, I bought $FB for a swing trade at 40 recently. No Reasons2Sell for me has appeared so I am staying in this position (though the steep up move through 44 was close to becoming one of my Reasons2Sell). And though locking in ten percent is very tempting, it is not the right thing to do for my trading style. So I hold and wait for a Reason2Sell.
I hope that helps.
You can be better tomorrow than you are today!
Mike Bellafiore
Mr. Bellafiore is long $FB, $WLT and $AVNR