People ask me about the biggest changes I’ve seen since I began my trading career more than 40 years ago.
Without doubt, one of the most significant is the sheer amount of information traders now have at their fingertips. You can readily follow every move in the markets in real time, especially with the help of the phone in your pocket.
You can watch prices fluctuate tick by tick, monitor your favorite technical indicators, and receive alerts whenever something moves.
On the surface, that sounds like a huge advantage. After all, the more information you have, the better equipped you are to make smart trading decisions.
But if you’re not careful, constantly watching every tick can do more harm than good.
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Consider a stock that has fallen sharply into oversold territory.
After studying the chart, you believe the selling is overdone and a rebound is likely over the coming days. So you buy a call option to capture that anticipated move.
You’ve done all the analysis, identified the key price levels, and have a clear idea of how you expect the trade to develop. But almost immediately after entering the trade, the stock starts dropping.
You start sweating every single tick lower, and you start questioning your original analysis. Rather than giving the position time to develop, you decide to cut your losses.
Later that afternoon, the stock finds support and begins moving higher. Over the next few days, it rallies just as you’d anticipated. As it turns out, you were right about the trade. But you let short-term price movements override your thesis.
That’s one of the dangers of watching every tick. The more closely you watch a position, the easier it becomes to confuse ordinary market noise with a genuine change in direction.
To be clear, I’m not suggesting you should enter a trade and forget about it. When something significant happens, you need to be prepared to act.
But there’s a big difference between monitoring a position and micromanaging it.
If you’ve entered a trade based on an expected move over the next week or two, don’t make decisions based on what happens over a mere five or 10 minutes.
The important thing is to establish the trade’s criteria before you enter. What price levels are you watching? What would tell you that your setup is no longer valid? And what developments would justify closing the trade early?
Say you buy a call option because a stock is holding an important support level. A decisive break below that level could be a legitimate reason to exit the trade. On the flip side, a small intraday dip that leaves the broader setup intact is something entirely different.
The key is to distinguish between a move that genuinely changes the outlook for your trade and one that merely makes you feel uncomfortable.
Of course, when it comes to trading options, you also need to keep an eye on time decay and changes in implied volatility. You can’t ignore a position because the underlying stock hasn’t moved much.
The point is to focus on the factors that actually matter to the trade rather than getting caught up in every minor price fluctuation.
That’s where well-placed price alerts can be useful. Instead of watching a chart all day, you can set alerts around important levels and reassess your position when there’s a genuine reason to do so.
Over the years, I’ve learned that successful trading isn’t just about knowing when to act. It’s also about knowing when to leave things alone.
Sometimes, one of the best things you can do for a well-planned trade is to give it the time and room it needs to work.
After all, just because you can watch every tick these days doesn’t mean that you should.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
