#1 Lessons learnt revisited

by admin on May 10, 2012

In my previous post #1 First sale gone sour!!, I mentioned about two key lessons learnt.
After several weeks of reviewing and soul searching (:D), I came up with some additional points that I felt were important as well.

I will be using a method that Michael Hyatt mentioned in one of his podcast How to Benefit from Setbacks and Failures .

Acknowledge the failure

First of I must admit I did not have a well thought of plan prior to my first execution. In my mind I was having two different plans which causes the additional losses.
One of the plans was to exit once my loss exceed 100% of the premium collected.
Another was to exit only if the price drop below the previous low of $5.91 on 15 Dec 2011.

Take full responsibility and Mourn the failure

I did feel a bit emotional while exiting the trade due to the dual plans I had in my mind which were competing with each other.
Nevertheless I do have to take the full responsibility of the loss although I did eventually follow one of the plans with some additional losses. πŸ˜€

Learn from the experience

After that day I kept on reviewing and asking myself where had I done wrong or should there be a change in plan?
During the process I note down several points as follow:

1) To collect at least $350 or wait for high volatility.
eg. If I were to sell a put at strike $5.20 on 29 Mar 2012 (high volatility due to prospective planting report on 30 Mar 2012) for a premium of $250. I would be able to close the contract on 10 May 12 and make a profit of $200.

2) Sell far out of the money contract and look for at least 2 times the daily limit ($0.40) based on the support/resistance value.
eg. For July 2012 Corn contract, the previous low was $5.91 on 15 Dec 2011 so a rough strike price could be $5.20 ($6 – [2*$0.40] = $5.20) which I showed as an example in point 1.

3) Follow your plan strictly and do not enter if you are not firm and very firm about the plan.
eg. I think one of my major mistake was I had two plans for stop loss to begin with. πŸ˜€

4) Too eager to enter.
eg. I was so eager to enter that I tried to force an entry. I could have waited for the price to move closer to $6.00 before I took any action. More of my first sale information could be found at #1 My First Corn Sale!.

5) One new thing I learnt was that there were old crops (May and July contracts) and new crops (Sep and Dec contracts). Ending stocks mostly affect old crops and weather news affect new crops.
Another way to look at it is that old crops were last year stocks and new crops are stock that have yet to be harvested during the Sep to Dec period for US.

6) There tend to be some ‘noise’ along the way that causes the price to fluctuate up and down. For this point I am still currently researching and looking more into this.
eg. July corn price was on a downward trend during Mid April 2012 due to several concerns like exceptionally good weather for Corn planting in US, China economy slowing down, high ending stocks during the April 2012 WASDE report. However it seems like all these news were more like ‘noise’ as the support price of $5.91 was not broken. More information during the mid of April can be found in the following links:

US grains fall on slow growth in China (from http://www.brecorder.com)
Crop prices called mixed – livestock prices lower (from http://www.cattlenetwork.com)
CBOT corn ends down on bearish USDA stocks forecast (from http://af.reuters.com)
GRAINS-U.S. corn futures slide on Chinese growth, crop-friendly weatherΒ (from http://af.reuters.com)
Corn futures close lower on Wednesday (from http://www.cattlenetwork.com)

Change your behavior and enter whole-heartedly into the next project

I must admit that I do have some fear in entering my next trade due to an unsuccessful initial attempt. However the more I fear the more I should try to overcome this in order to grow.
Therefore I will continue to look into other commodities and at the same time wait for any Corn signals to entry. πŸ˜€

Cheers and do feel free to share if you have met with any difficulties with your option selling? πŸ˜€

Disclaimer:Β The author is not a licensed financial advisor and the information is provided for educational and information purposes only.
Trading commodity futures and options have large potential rewards but also contains a high level of risk and is not suitable for all investors.
Only risk capital should be used when trading futures or options.
None of the information provided constitutes a solicitation of or a recommendation to buy or sell any futures or options contracts.
Please seek the advice of a professional financial advisor before investing your money in any financial instrument.

{ 2 comments… read them below or add one }

Dave May 19, 2012 at 2:25 pm

It definitely hurts to lose money in the first trade. On the positive note, it creates opportunities for you to strengthen your emotions. A Psychology plays a very big part in the money-making journey.

Have you gotten into Soybean 2 weeks back? If not, it must be ‘fear’ that has been residing in you.

Lets place down all the fears that you have on a paper. Write down all of them. When you finally say “arh.. har..”, you would have found that real reason of the fear (which is non-existent).

All the best!!

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admin May 25, 2012 at 2:12 pm

Thanks Dave for the guidance, great advice, I think I will try to write up a post on my fears πŸ˜€

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