Right Analysis. Wrong Result.

Sean McLaughlin
July 3, 2024

File this post in your "Trading Is Hard" file folder.

Back on May 29th, I published a bearish trade idea in Nike $NKE.

Here’s what I said about it:

[$NKE] appears to be hanging on the precipice of a potentially large fall. The company will be announcing earnings [in late June] and I think that might be the final nail in the coffin to send this stock lower (if not sooner).

I don’t know about you, but to me, that chart does not look healthy.

We’re going to enter a bearish bet with defined risk that is counting on earnings making us some money.

One for the good guys! My analysis turned out to be spot on! Here’s what happened in the aftermath of earnings:

Pretty awesome right?

Not so fast.

Notice the purple circle? That’s where I entered my bearish trade.

Notice the red circle? That’s where I exited my bearish trade on a stop loss above that horizontal line at $97.

I missed all the gains. In fact, I lost money on this idea.

Why?

Because I followed my rules – rules I’ve put in place to protect my account from bad trades and bad losses.

Sometimes I don’t like the results, but that doesn’t make the rule bad. It doesn’t make the process bad, either.

If I were to beat myself up about missing out on this gain in $NKE, I would be engaging in a process called “resulting.” If you’ve read any books by former poker professional Annie Duke, you’d know this is a very bad habit that needs to be broken.

In my experience, most of my biggest wins have come in positions that began to work nearly right away. This stock wasn’t working for me at all from the time I got in until the time I exited. I had 18 trading days of irrefutable evidence that the trend was not my friend. I couldn’t argue with these facts.

Yes, my thesis involved waiting for the earnings catalyst. But risk management supersedes everything else. And when my position hit my “uncle point” above $97 per share, I had to honor that rule.

In the grand scheme of things, sticking with my process will save me from larger losses that will more than make up for the profits forgone on this one $NKE trade.

So we shake it off and move on. There is no other way.

Sean McLaughlin | Chief Options Strategist, All Star Charts

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