I had my levels planned for this before I even saw premarket prices. Entry at 15.75, Stop at 15.50 (a strong support area), TP at 18. That's a fantastic 9:1 RR.
I wanted to size up since
1) I'm risking so little
2) This name rises quick, sometimes over 10% in just two days
3) 15.50 support has been validated often
Unlike most of my swings, I'm willing to reenter long if I get stopped out then price action shows I got out on a fakeout. Also, I'm willing to flip my bias and get short if 15.20 can't hold.
Wow, lots to take away from this one. Where do I start?
Below are all 2/11 Trades:
Sold my call when 15.50 support broke, kept loss small by following rules. That's good. Not bothered emotionally by this loss, that shows improvement as a trader. Accepted this loss and kept it small instead of denying it and holding a loser. (Wouldn't it be awesome if I could do that more often?)
Got a good fill on a put when 15.50 level rejected on retest. Holding for large move below 15.20 gap with a tight stop at 15.57. This 15.57 level was important because it represented a higher high. I added another short lot near 15.57 resistance, with the idea that, if this level held, I was sized up for the move down. Ironically (this is usually logical thinking) I believed that my risk was small because I got short right by my stop loss, meaning I would only lose a few dollars on the move up because I expected the level to break slowly, not quickly due to breaking news. If it broke slowly like levels usually do, I would have time to get out for a small loss.
My thesis of a downtrend towards the gap would be proved wrong if it made a higher high. It approached 15.57 and held right under it until 10:22 AM (13:22 on this chart)
At 10:23 AM, breaking news came out that HYLN was releasing a next-generation battery. This was a strong positive catalyst, a new product with amazing capabilities.
I sat there, shocked by the news. "My trade was so strong and logical, where did this news come from?" I was frozen. I waited to see if the move up was just because algos picked up on the news story, saw how positive it looked, and got in. After it held that level I got out of my short right before a giant move up from 16.00 to 17.00. This was a good job cutting my loss.
I wanted to get fully out but all contract buyers and sellers disappeared. The spread on the contract I paid 2.43 for was 0.50 to 3.00. Also, I had to leave to meet up with a friend at 10:30, so I held the last contract and walked away from my screen. When I came back, HYLN had reached 19.00 a share, but my contract wasn't selling for much less than when I sold at 16.00. This was because implied volatility had spiked like crazy. This IV bump saved me lots of money, even though this was my biggest loss in a long time.
My entry on the call contract on 2/10 was great, I followed my stop rules when I sold after my level was broke on that call. I reentered short at a good time on 2/11, and sized up at a great time too. These were fantastic executions. I cut my loss on the first contract quickly and took advantage of rising IV on my second contract exit. So where did I go wrong?
The problem was not that I shouldn't have been short in the morning. I'd get short on this setup at 13:16 again if the same opportunity presented itself. The problem was my reaction to breaking news.
I was looking at this exact chart when breaking news came out. That gives me an edge over almost every other trader. A stroke of luck meant I was in the right place at the right time. Instead of getting long when I became aware of the news, I was in denial. I was short, but I didn't need to have such a strong short bias that I refused to see the long thesis.
A smart, experienced, mentally calm trader would've exited at 13:23 or 13:24, and sized up on the long move. I was too stubborn to see the long move.
Sure it doesn't feel great that I left thousands of dollars on the table. But I'll miss out on moves every day for the rest of my trading career. You can't watch every stock in play at once. If I miss an opportunity I don't see, that's not a problem. But I was looking at a chart with obvious potential, and my mental stubbornness kept me from attacking the opportunity.
What bothers me is that I could've flipped my bias and been long, but I wasn't willing to switch my trade thesis. I wasn't willing to admit defeat. Would I rather be right than profitable?
Also, my trade setup was only supportive of my short bias. I only had call contracts on my watchlist (the place I easily access contracts when I need to make decisions). I should always have both call and put contracts on my watchlist so I can move either to my active trader. If I had both contracts on my watchlist today. I could've easily loaded call contracts up at 13:23 and been in a large position by 13:24.
Lesson Learned: Take advantage of breaking news trades by getting long early, and with size. Be willing to switch your bias if the chart trades "against you". Have the mental clarity to avoid getting frozen while trading. Have the mental clarity to detach from your position and trade what you see, not what you want to be true.
|2021-02-10 11:12:45||19 MAR 21 15 CALL||buy||$2.490||long|
|2021-02-11 12:29:19||19 MAR 21 15 CALL||sell||$2.260||0|
|2021-02-11 12:43:11||19 MAR 21 16 PUT||buy||$2.440||long|
|2021-02-11 13:16:51||19 MAR 21 16 PUT||buy||$2.430||long|
|2021-02-11 13:24:54||19 MAR 21 16 PUT||sell||$2.220||long|
|2021-02-11 14:40:33||19 MAR 21 16 PUT||sell||$2.040||0|
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