Justin's note: Today, we’re handing off the Dispatch to our good friend, master trader Jeff Clark. Below, Jeff shares one of the most important lessons for achieving long-term success in the markets…
By Jeff Clark, editor, Market Minute
“Don’t look back.”
That was the advice the angels gave to Lot and his family as they led them out of the city of Sodom, just before it was destroyed by the wrath of God.
Whatever happened to the city after he fled was no longer Lot’s concern. It was no longer any of his business. He couldn’t do anything about it.
So, “don’t look back” was the angels’ way of saying “Look forward. There’s nothing to gain by watching what happens behind you. Focus on your future and what is ahead of you.”
As the Bible tells us, Lot’s wife wasn’t all that good at following directions. She couldn’t resist the temptation to look back and see what happened to the city she just left. And she was turned into a pillar of salt.
Who knows? Maybe it’s because too much salt can lead to high blood pressure and heart problems. Maybe it’s because a pillar of salt is fragile, yet immoveable.
Whatever. The bottom line is, Lot’s wife shouldn’t have looked back. And neither should traders.
Once you’ve exited a position, whether for a gain or a loss, it doesn’t matter what happens to that trade anymore. There’s nothing to be gained by looking back at it. Focus on the future and the opportunities that are in front of you.
If you look back, you run the same risks as Lot’s wife – not that you’ll be turned into a pillar of salt, of course. But that you’ll be rendered fragile and immoveable.
Think about this…
If you’ve taken a profit on a trade and then choose to look back at it, then one of two things will happen…
The position will reverse. You will have sold at the perfect time. And you’ll expect to be able to do that consistently in the future. This leads to overconfidence and the belief that you’ll always be able to get out of town just before the market gods unleash their wrath. This is a dangerous thought process.
The position will go on to even bigger profits. You will have sold too early. And, even though you took a good profit on the trade, you’ll feel bad because you could have made so much more. This leads you to question every future trade. You’re more inclined to hang on longer than you should. And you may not be able to get out of town in time.
If you’ve taken a loss on the trade and look back at it, then even if the position continues to fall you’ll still feel bad about having taken a loss.
And, if the position turns around and starts to move in your favor, then you’ll likely start hanging onto other losing trades longer than you should – hoping they’ll start moving in your favor as well.
Traders have nothing to gain by looking back at trades they’ve already exited. You can’t change your decision whether it’s proven brilliant or stupid. All looking back will do is paralyze you, like a pillar of salt, on future trades.
I bring this up today because I’ve received a few comments from folks who took profits on an Oracle (ORCL) put option trade I recommended going into earnings last Thursday. We sold early on Friday morning for an 80% overnight gain. But some folks were disappointed because they could have made more than 100% if they had held on just a bit longer.
To them, I say it’s important to understand that longevity as a trader has nothing to do with achieving the maximum profit on any one position. It has to do with consistently taking profits on trades as they reach your price targets.
You’re NEVER going to consistently buy at the low and sell at the high. Trying to do so will eventually lead to missing out on good trade setups, and holding onto trades longer than you should.
So, avoid the temptation to look back at the trades you’ve exited. Be happy with your decision to get out of town. Focus on the future and don’t look back.
Lot and his family left Sodom and prospered in the neighboring town of Zoar. Lot’s wife looked back and was turned into a pillar of salt.
Best regards and good trading,
Editor, Market Minute
Justin’s note: If you’re interested in hearing more from Jeff, I urge you to check out his free Market Minute newsletter. It hits my inbox at 7:30 a.m. ET every trading day, and tells me everything I need to know about the coming day’s market action. Since it debuted earlier this year, it’s quickly helped me become a better trader.
And if you’re interested in trading options, he also has a free “Guide to Option Trading” you can download right from his website. You can sign up for the Market Minute with just one click right here.
P.S. Also, keep an eye on your inbox tomorrow…you’ll be receiving an exclusive video with details about Jeff’s lucrative trading strategy—one that will help you win 90.2% of your trades every earnings season.