My Broker Says I’m Losing Money, But I Know I’m Not

My Broker Says I’m Losing Money, But I Know I’m Not

Trading can be a mental game, at least for me. I use to trade with very directional trades. I was delta positive when I believed the market would be bullish and delta negative when I believed the market was bearish. All of my trades were theta positive so they could work in a sideways market too, just not as well.

Inevitably, I would have losing trades when the market changed direction but I would minimize those losses or turn them into profits by adjusting the trade to the correct trend and adding trades that take full advantage of the new trend.

My mood use to change with the market. When the market was moving with my trades, I was happy. Any day that the market didn’t move with my trades I was not happy. My broker really didn’t help either. On the days that the market didn’t move with my trades my broker would show a loss. That did not help me. That red text on the screen did not brighten my mood. I am not a big fan of the color green. In fact, I really don’t like most shades of that color except for the shade my brokers use to show my profit. That shade of green makes my day. I would not have a green room in my house, drive a green car or ride a green motorcycle but I sure like seeing green when I log into my broker.

Of course, one day does not ruin a trade, at least no my trades. In fact, the trades I used and still use do better the longer it takes to get to certain price target. So I should not have been upset when my broker showed a loss. However, I still was. Notice that I am using past tense. I now see that daily profit/loss the way I used to.

What I’ve come to realize is that my brokers’ software has no idea how my trades work. The software doesn’t know that my trades are getting stronger as time goes by or that they have a better chance of working as time goes by. It doesn’t know that it is not where the market is that day that makes or breaks my trades. It doesn’t know that all that really matters is that the market is where I need it to be in the long term. For my iron condors, all that matters is that the market is between the shorts near or at expiration. For my diagonals, all that matters is that the market is where I need it to be before my short expires.

What I’ve come to realize is that my brokers’ software just tells me how my account is doing compared to yesterday. I have had many many iron condors and diagonals reach full profits when my brokers’ software said I was losing money for most of the trade. The software is REALLY bad with iron condors.

Many times my broker shows that my iron condors are not doing well. In reality, as long as the price is between my shorts at or near expiration, I will make a very nice profit. The price can even go outside my shorts during the trade. Boy does my broker show a loss then, but even that doesn’t matter. As long as the price comes back, the trades work just fine.

The same is true for my diagonals. The broker will show a loss but the longer it takes for my diagonal to work the more the short decays. That means the equity doesn’t need to have as large of a price movement for the trade to reach my profit target.

To further assist my mental game, I trade complimentary trades on the same equity. I’ll trade iron condors and diagonals. If my equity is bullish my bullish diagonals are making going up in value. If the equity is stagnant, my iron condors are decaying like I want them too. The longer it takes the equity to rise the better both trades will do. When an equity is rising and stops at resistance and pulls back a little, my broker shows my bullish diagonal losing money BUT I neither make nor lose money until I close that trade. When the equity puts back a little, typically my iron condors are showing improvement. So the broker is showing my diagonals losing money but my iron condor making money so that helps my mental game and keeps me positive. The more positive I stay, the less likely I am to make an adjustment to my diagonal that can end up in a loss. I let my trades work as they should and stay in them so that I can close them for a profit.

So don’t look at your broker’s profit/loss. Know and understand your trades, how they work and how you should work them.

Ken Bailey
OptionsANIMAL Instructor

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Ken Bailey

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