Bad Calls

Those who cannot learn from the past are doomed to repeat it.

An old proverb that couldn't be more true, especially in the context of trading.

This page will be a dumping ground for trades that went wrong, and could have been played better. Being wrong doesn't necessarily make it a bad trade. I would actually consider a trade that went against me successful if I kept my losses small.

If I can learn from my mistakes, then this page was successful. If others can learn from them, even better.

Bad Trades

#1 6/21 and 6/22 
Bearish  IWM JUL11 79/77 Vertical Put

The picture I was looking at is below.
All the major indices turned down from their highs in starting in May.  The chart for IWM showed a clear (1)-(2), followed by a diagonal formation, which was mostly retraced and overlapping (1).  A third wave cannot be a diagonal, so it had to be either a 1, 5, A or C.   The degree of retracement told me it was likely a 1.  Then we had another big leg down from 5/31 to 6/13, which looked like a 3, and ended in a diagonal-looking formation.  This again, is confined to waves ((i)), ((v)), ((a)), and ((c)).   I decided that ((v)) of 3 could be an ending diagonal, and that we still needed 4.  The market gave me increased confidence in my 4 count when it shot up to the 38.2% retracement of wave 3 and reversed.   The momentum indicator reinforced my count even further, since it showed the maximum downside momentum in wave 3 down.
I was so bearish that I went short on 6/21, and doubled down the next day.
 
At the time there was about 30 days till the July expiration cycle, so I decided to buy vertical put spreads.  I figured even if the market meandered sideways before heading down, that would work in my favor, since I would benefit from the time decay on the short option, as long as it was under my long strike within 30 days.  It seemed like a high probability trade.  


Well, what happened next was an absolute disaster.  After going sideways a couple more days, the market went on a vicious rally.  Day after day it went higher and higher.  It ended up reclaiming almost the entire correction from early May.   
The whole time I stubbornly held onto my bearish position, thinking I could reclaim some of my losses before closing out at expiration.


Here is the updated picture, and still my preferred count.

I eventually had to rethink my counts, since wave 4 was definitely off the table.  
The market did turn down prior to expiration, but by then the options were worthless.
Summary: I had a bearish market bias, which appeared to be reinforced by a turn in the market averages at an ideal Fibonacci retracement level.  I gave myself some protection using a vertical put spread, which meant my potential losses were contained.  
I made three very big mistakes, however. 

1. The more prudent entry would have been to wait for five waves down on the subminuette timeframe, which would have further confirmed my count.  My early contrarian entry came from emotion, and being eager.  
2. I doubled down before the market even had a chance to confirm my count with five waves down.  This once again came from greed and emotion.
3. When the market went against me, I stayed in the trade, even as it traded above levels that invalidated my count.