"Trade" Of The Day Review

I admit it. I dumped those SPY 134 puts this morning only to see the market completely fall apart. Not good. Or was it.

As far as I'm concerned, it was. I did the right thing, if only from a discipline standpoint.

I bought the puts yesterday near the close looking for the S&P to fail at 1340. When that late-day ramp up happened, the trade was instantly over for me . . . the reason for putting it on was nullified. But it happened so fast that I didn't get out of it, and I went home with a losing position.

I figured the move was suspect and that it would be retraced. When I saw I was correct this morning, I got out of the trade, even though it was starting to work. Yes, the loss had turned into a profit. But it was still a bad trade as far as I was concerned. It only looks good now (or stupid) because the market cratered.

Bottom line, the reason for dumping the trade was this: when you make a mistake, fix the mistake. Just like the old adage "The first loss is the best loss," it's important to enforce discipline in your trading. Allowing yourself to be rewarded by mistakes breeds bad habits, and is eventually just as destabilizing as holding onto a mistake that turns into a loss after you didn't fix it when you had the chance.