I mentioned this in a previous blog and talk about it from time to time in chat. After last week, I thought it prudent to dig into this a little deeper:
Often the trades that are the most difficult to take are the ones that pay off the most.
You know, the ones that scare you a little or even A LOT. The ones with the crazy spreads. The ones that freak you out a bit when you’re looking at them. You say to yourself, sure that chart looks good by OMG how much do I have to risk? What if I get the rug pulled out from under me?
But what if you don’t… What if the rug stays put?
For me, these trades are the ones that make me queasy in the stomach. Seriously, I get a little nauseous and feel like I may throw up. Years ago, this nausea used to scare me away. FAR AWAY. Now with a bit more experience under my belt, I use this nausea to my advantage. When I start to feel sick to my stomach AND the trade is meeting all my parameters, I tell myself I may be onto something. This could be a BIG trade. Of course, it could be a rug pull too. But honestly, more often than not when I see a trade that’s “super-duper” tough, it leads to a super-duper pay day. Why? Simple: You must risk $ to make $$$.
If the market always allowed you risk to a mere $.05 to make $5, EVERYONE would be a Day Trader because it would be easy. We all know Day Trading is freakin’ hard! The market isn’t going to allow to your risk a nickel to make five bucks. That’s just not how the markets work, not even close. Any student of “R” knows that is a ridiculous goal and would be an extreme exception not a norm.
In short, you must risk $ to make $$$. Sure, the spreads on OMER were stupid. Anywhere between $.20-.40 PLUS you must account for any move to the downside. I know, I get it. MYO? I blinked and the bids dropped by an additional $.25 for a few seconds. Crazy! So crazy, I typed it out in case someone blinked and missed it. But you know what else? You know what the exciting part is? The freakin’ upside potential IF it gets moving. MYO - $7.18 upside. OMER - $2.33 upside. EPZM - $1.29 upside. You get the idea...
Those are some serious “R” trades even with the risk.
Remember, you can always control your risk with proper position size. I did NOT take these trades with size. When I take any trade with smaller size I always remind myself I can’t scalp these for $.10-.20. That’s not what these trades are all about. I will ALWAYS go into entry protection mode after selling SOME, but I must also allow SOME SHARES to ride. The “Wayne 100” was built for these types of trades. I got sick and tired of missing the BIG moves so I figured out a way to stay involved.
Last thing on this topic: Really, this is all about listening to your gut. Trusting your gut. This takes time. A LOT of time. Be patient, you’ll get there. One day, I’ll listen to my gut even more and take these with SIZE too. I’m not there YET… In the meantime, I’ll continue to go from feeling like I’m going to be sick to saying why in the heck didn’t I take that trade with MORE size?!?