When you’re making good trades in quick succession, it’s tempting to become overconfident and feel invincible.
But this is a trap that I want you to avoid…
Professional trading is often a story of taking two steps forward and one step back.
No one in the stock market — not even the most successful trader on the planet — has a 100% win rate.
Remembering this fact, and adjusting your risk management accordingly, is crucial. If you don’t, you could potentially wipe out a series of hard-earned wins with one brutal loss.
SPOILER ALERT: This almost happened to me yesterday.
After nailing two killer trades last week, I made a blunder trading a particular crypto stock.
With that in mind, keep reading to see what led to yesterday’s loss, how I could’ve traded it better, and why eliminating overconfidence is critical to your trading success…
What Went Wrong with My COIN Trade
For anyone who missed my trade breakdown on Wednesday…
I identified a clear sympathy play opportunity in Coinbase Global Inc. (NYSE: COIN).
On August 23, I bought COIN 8/25/2023 $76 Calls for $2.06, when COIN was trading around $75…
By that afternoon, COIN was trading up 5%, reaching an intraday high of $78.24.
I sold my calls in the mid-afternoon for $3.05 — a gain of 48% in less than four hours!
But I thought the rally could continue…
And when I saw a big dip in crypto stocks on Wednesday, I tried to execute a dip-buy play on COIN.
So, on August 30, I bought COIN 9/8/2023 $84 Calls for $2.89.
I was expecting the crypto sector to bounce after a mid-morning dip.
But unfortunately, this time, I was wrong…
COIN continued downward with its peers, tanking as much as 4.7% to an intraday low of $78.90.
The Next Trillion Dollar Chipmaker After NVDA (Not AI)
Is this little known chipmaker the next NVDA?
It has nothing to do with AI, but this company’s patented chip could generate NVDA sized gains in the coming months…
Companies like Microsoft, Intel, and Google are all quietly racing to be at the forefront of this new phenomenon…
But unfortunately for them…
This one small company holds the key to this revolution…
What’s worse, I was too slow to cut this losing position…
I didn’t close the contracts out until 12:30 pm Eastern when COIN had already dropped from $84.50 to $81.
I sold the contracts for $1.64, taking a 43% loss in three hours. There’s a lesson here…
WARNING: Always cut your losses immediately!
I won’t sugarcoat it, this was terrible risk management on my part. I allowed recency bias — favoring recent events over historical ones — to cloud my better judgment.
But just because a sympathy play worked last week doesn’t mean it’s gonna work today, tomorrow, or next week.
If you’ve faced this dilemma recently, I’m here to help…
Here are some additional tips to help you avoid recency bias, overconfidence, and a lack of risk management…
Focus on One Trade at a Time
If you’re trying to track too many trade opportunities simultaneously, you risk missing the ones that matter most.
Our brains can only pay attention to so many things at once.
You should try to zero in on the ‘play of the day’ and tune out the noise…
Then, don’t let your recent trades influence what’s happening on the day.
Treat every trade equally. Remember that each setup is a unique puzzle.
General confidence is great for traders, a personality trait you should nurture…
It helps you stay focused on what matters. It also helps you make appropriate decisions in the moment.
Confidence gives you a firm footing in your trade ideas and enables you to act swiftly when a five-star setup presents itself.
That said, confidence is a double-edged sword. If you’re not careful, you can get overconfident.
And I promise you this: any time you start to feel invincible in your trading, the market will humble you.
Go Back to the Basics
What should you do after making a subpar trade?
Go back to the basics.
There’s a reason you made it this far, and you need to focus on what will keep you moving forward to your ultimate goals.
Whether that’s focusing on supernovas, buying basic breakouts, or shorting reversals … Find out what’s worked in the past for you and return to form.
For me, that means looking for put-buying opportunities on overextended charts.
Take a Break
If all else fails — take a break from trading!
Sometimes you may need to step away from the screens and charts for a short period. Go outside, get some exercise, and breathe the fresh air…
Don’t forget what you’ve learned or fall behind. Just give your mind a short vacation from the markets.
Your brain is vital for trading, right? So, respect its needs. And part of what it needs is rest.
After all, we’re heading into Labor Day weekend with the market closed on Monday.
This is the perfect time to relax and recharge. Then, come back to the market on Tuesday, ready to crush.
And speaking of crushing the market…
Are You Ready To Take The Next Step?
Here’s the truth … I wouldn’t be a multi-millionaire if I hadn’t joined Tim Sykes’ Trading Challenge so many years ago.
And I want you armed with all of the tools necessary for success in the stock market.
So, if you’re passionate and dedicated, ready to take on anything the market throws at you, then I’ve got something for you…
My mentor, Tim Sykes, has helped traders learn to succeed for years. More than 30 of them (including me) are now millionaires.
Are you ready to take your trading game to the next level? Do you have what it takes to face the Trading Challenge?
Let’s find out…
I’m excited to see you there!