Yesterday, I was long June puts on the IWM, and they were not doing well. Wednesday’s mega-rally and Thursday’s follow through were brutal, but I held on. During my tastylive show, near the end of the trading day on Thursday, I shared the IWM chart and mentioned how I didn’t want it to “pull a retail on us”.
What I meant by that is explained with the next chart. You see, the retail fund XRT was sporting an exceptional sine wave pattern, just like the IWM. Indeed, it was better. However, once it broke out of the pattern, it never looked back. The pattern was wrecked. Thus, what was on my mind was the terrifying prospect that this would happen to IWM as well. You can probably see in my eyes the moment when I thought “I better get OUT of this position the moment the show is over!” So that’s what I did.
Thus, I scared myself out of the position where I’ve marked with a red arrow. Friday morning came, and the /RTY was down some, to my chagrin. It started to rally, and I tried to talk myself into getting back in, but I didn’t. Once it started falling again, however, I re-entered the position (green arrow).
Long story short, I cost myself money by scaring myself out of a position based on a supposition instead of actual price action. Who knows, maybe I was right the whole time, and this position will get blasted to smithereens again…………but as I stand here now, me talking myself out of IWM was a psychological error.
