There is a great question to ask when a trade is going against you and it helps break the grip your emotions can have on your trading. No one likes to lose, but only losers try to wish a bad trade to be profitable.

“Would I take this trade today?”

Keith Harwood reminds me of that often enough that I have it drilled into my head. Our bargain option trade turned against us today and I am using this opportunity to practice being objective.

Here is a list of the pros and cons for staying in this trade and what I am going to do.

We looked at this trade as a cheap option play to leverage weakness in tech. But it is also a position we had looked at back in September as a longer term strategy. Let sort it out.

Cons

It has already dropped 40% and that breaks a loss tolerance for a lot of trading strategies. Hard to argue with sticking to your rules.

The move today did break the trendline that was part of the reasoning for staying in the position.

Earnings are a wildcard and could give tech the boost it is desperate for right now.

Pros

While tech did rally a bit today, other sectors did much better. Industrials had winners that doubled techs gains (GE, CAT, and ETN up over 3%) supporting the argument that money is rotating out of tech.

The downtrend on the weekly charts is still intact and the contract has almost 2 months to expiration.

Tech is overbought and is due for more selling.

Trading is all about personal choices and making trades that fit your own rules. Hopefully, some of this info helps yo make the call that is right for you.

I would choose to stay in on this trade and have put a big asterisk next to it that reminds me I broke my own rules. This is a long term play in my book and the potential for a bigger drop is too strong. Not sure what indicator shows how strong your gut is, but mine is definitely driving my choice.

None the less, we’ll look at a new trade tomorrow.

Keep learning and trade wisely,

John Boyer

Editor

Market Wealth Daily