Kevin, I have started learning M3 about 2-1/2 months ago. April expiration is my 2nd cycle of live M3 trades. Right now my current M3 position has 2 DIMC and a combination of 14 short and 14 long puts. We have about 23 DTE and I am ready to start exiting this trade. Initially I started Apr expiration with 2 lots as per standard M3 guidelines but now I am not sure what should be my profit target for my current position ( for one or for 2 lots)? My intention is to remove 50 % tomorrow (but keeping 1 DIMC for May campaign) and to remove the remaining 50 % next week.
Also I would like you to ask a question how did you learn to remain patient and continue to sit tight with your flat T+0 line position. I almost made the adjustment yesterday when my delta was close to negative 40 but then realized that I should stay put and stick to the guidelines and make no adjustments unless necessary. I remember very well from the book "Reminiscences of a Stock Operator" that most of money are made from sitting tight and not trading when you have a winning position. "Man who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make the big money."
How did you develop this invaluable skill for M3 trader?
Thanks in advance.
Sergei.
Hi Sergei,
You'll first need to work out the profit targets and exit timing as part of your trade plan and ensure that plan is properly back tested. Although we can be trading the same M3, but different M3 trade plan will call for a different decision on adjustments as well as profit taking. Therefore, it's difficult for me to say whether it's now an exit point for you.
On your question about being patient, I wish I could tell you that experienced traders are immune to emotional influences and are able to stick to trading plan easily. But that would be a lie. Reality is greed, fear and regrets are well and alive. The difference though is what is done in response to these emotions. Here's what worked for me :
1. Firstly - I back test everything to death to intellectually convince myself that the plan works. Only with that I can quiet down the subconscious whisper that pops up occasionally..... "maybe this time is different".
2. Then I try to reduce external noise as much as possible. One example is financial news. I used to pride myself in knowing everything that's happening in the market. I read financial news, watch CNBC, subscribe to newsletters, keep a calendar of major events, etc... My belief was being in the know would give me an edge. The reality turns out the opposite. News overload caused me to doubt and deviate from my plan. Now I have a rule to turn off CNBC and not read news on major events, eg. unemployment rate, GDP etc... 1 to 2 hrs before market opens and pay little attention to them in general.
3. Simplicity - I used to trade with 2 to 3 monitors with a dozen charts to monitor correlated assets, market internals and various technical indicators. Now I have zero. I know many people will disagree with me on this one. But my conclusion after using them for a few years is that these are noise that didn't help my trading while causing anxiety and deviation from plan. The simpler I made my trading, the better the performance. The less indicators I use, the more I am able to trade my plan.
4. The nifty new strategy - sometimes I learned a new trick, took a new class or read something online, I would be in a rush to implement it. I would find excuses to use the new adjustment techniques and to blend them into my trade plan prematurely, without giving it enough thoughts on their effectiveness. Again, this will cause doubts, anxiety and confusion which will result in poor performance. The point here is not that we shouldn't try new things but we need to be patient in properly back testing and understanding what we are getting into before weaving them into our plan.
Well.... these are my experiences. Not sure if they would work the same ways for others. But after I practiced them, I felt I was able to control my emotions much better and resulted in much more consistent results.
Hope that helps.