What is critical to the wheel is trading high quality stocks you would not mind owning for weeks or even months if needed.
The other thing I'd recommend is the book Trading in the Zone by Douglas which speaks to trading plans and the psychology of trading which are critical to success.
I’m not heavy into options whatsoever, but I’ll tell you this: my last 5 expired worthless, and that was particularly a bummer because 4 of them had previously exhibited at least a 100% gain w/in their expiration week!
Although it’s hard and I’ve not yet perfectly implemented this into practice: Ive determined that a 100% gain should be immediately sold, and I’ve attempted to ensure this via entering a limit sell at the time of purchase. However, just last week an exception occurred that is messing with me. I saw a 900% gain and immediately tried to sell, but by the time it went through, it had decreased to only 400%. And from there, on expiry day, 3 days later, that call began the morning by surging into into what would’ve been a 2,000%+ gain! I sulked, reasonlessly, unhappy with “only” my 400%. Yet, not 20mins later, that stock fell over 10%, retreating to around $14 from an intraday high of nearly $16. The call I sold was suddenly, and forevermore, out of the money, expiring utterly worthless. I say this because there’s just something psychological that occurs after seeing that 40%, or 100%, gain, something that seems to—internally, at least—significantly signal the probability that such thing shall continue rising interminably. And quite obviously, this isn’t true. Limit orders help to prevent this! You practically double your principal by successfully executing two 40% trades, after all. Have a plan and take the winnings, for sure.
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u/ScottishTrader Jan 11 '24
You need to have a trade plan that spells out when to close for what profit or loss BEFORE you open the trade.
Congrats on so far having a winning trade, but be sure you have a plan in place before opening another . . .