The Rise and Fall of My Trading Confidence
The first three months of me selling options went well. Very well. For a moment it looked like I was going to be able to break out of the whole worrying about money thing.
That was me when I first started, sitting pretty with a 70% return on my portfolio. I felt like I had cracked the code. Every stock pick seemed golden, every trade was working in my favor, and I was already mentally spending my gains.
When I was forced to buy stocks they would rebound and I would make even more money for the month.
Then reality hit hard.
When the market crashed, I watched as my 70% gains evaporated into thin air, eventually landing me at a brutal -30% loss. It didn’t feel good.
But pain is the best teachers. So take a moment to learn from mine instead of your own.
The Emotional Trap
Looking back, my biggest mistake wasn’t picking bad stocks or timing the market wrong. It was letting my emotions drive my decisions and not having a plan for a market downturn. When things started falling, I held on thinking “it’ll bounce back” or “this stock is down 50%, it has to go up soon!”
That’s the classic emotional trading trap that destroys portfolios.
I kept telling myself that since my stocks had dropped so much, they were “due” for a rebound. But the market doesn’t care about our feelings or what we think is “fair.” Stocks can stay down a lot longer than we can stay solvent.
And if you loose 50% of your portfolio you need to gain back 100% to break even.
Meet my friend the trailing stop order
After taking a moment to reflect it was clear I needed to limit my losses with trailing stop orders.
Here’s how a trailing stop works in simple terms:
Let’s say you buy a stock at $100 and set a 10% trailing stop. If the stock rises to $120, your stop automatically moves up to $108 (10% below the new high). If it keeps climbing to $150, your stop moves to $135. But here’s the key – the stop never moves down. If the stock drops from $150 to $140, your stop stays at $135, ready to sell if it hits that level.
It’s like having a safety net that rises with your profits but never falls with your losses.
The Coffee with Marcus Method: 3%, 6%, 9%
I discovered this approach through YouTuber Coffee with Marcus, who uses a simple but effective system with three different trailing stop percentages:
- 3% trailing stop: For very volatile stocks or when you want to lock in gains quickly
- 6% trailing stop: The sweet spot for most situations – gives the stock room to breathe while protecting gains
- 9% trailing stop: For longer-term holds or less volatile stocks where you want more wiggle room
I decided to adopt this same system, but with my own twist based on technical analysis. Will add an affiliate link at the bottom, there isn’t too much literature on options trading and the wheel so this is a great place to start.
In short they like to focus on growth stocks.
My own risk management
Often stocks with high premium (the money the buy gives you to make the bet) goes something like this:
- The stock price is very high and people believe it will crash back down.
- The stock price is low and traders are rating is low based on its momentum swing.
I always always always choose option 2 if it is near its traditional resistance level (selling points the stock has previous bounced back from) the stock typically will bounce off this resistance level.
I usually also look at robinhoods service on what the experts are rating the stock as a buy, hold, or sell. No, I don’t think any research I do will provide much of any additional value at this point.
Lastly is to diversify, one of the greatest burns I have had was when the Chinese state decided to just exterminate their entire private education industry.
That was not a good day.
Trading Without Feelings
The biggest benefit of trailing stops is the protection they provide, protection from your greatest enemy, yourself!
When you have a systematic approach that automatically manages your exits, you remove the emotional decision-making that destroys so many portfolios. While also preventing future mistakes when the stock price goes back up and you think “if only I had stayed in the stock longer I would have so much more”.
Your trailing stop becomes your objective, emotionless trading partner that follows the rules no matter what. Protecting both your losses and gains if the market goes back up.
The Bottom Line
Trailing stops won’t make you a perfect trader, but they’ll make you a more consistent one. They won’t catch every bottom or top, but they’ll keep you in the game long enough to learn, adapt, and ultimately succeed.
Your future self (and your portfolio) will thank you.
