In this post:

    • How long you should hold swing trades?
    • What is a difference in holding a position for a day vs. holding for 3 months?
    • What can you gain when you stop fearing losing money?


One topic that’s seen a fair amount of conversation here lately is how long you should hold swing trades. By definition, a swing trade is anything held at least overnight, but there’s a big difference in holding a position for a day vs. holding for 3 months. Ultimately the correct duration has several variables, but the most important is your personality. What kind of trading do you want to do? There’s an infinite number of ways to make money in the market, but you first have to set goals in relation to how often you’d like to trade. Most of us don’t pursue this vocation because we want to sit in front of a 16:9 screen 8 hours a day. We want freedom. We want flexibility. We want to “make money while we sleep”, as the saying goes.

With this in mind, I began structuring what would end up being my second best trade of 2020. The trade idea began on June 15th and I entered on the 16th. My wife had been pregnant for almost 9 months and I was thinking there might be a couple of days in the very near future that I wouldn’t be able to trade. It would be nice to have a position on that might make some cash while I’m sleeping at the hospital and require little to no management. The entry is taken off of a basic technical setup – a daily Squeeze and daily price movement that tests the 21 EMA then closes above the 8 EMA in a stock near lifetime highs. I chose the October series for expiration – this was far enough out that I could hold through earnings if I wanted to, and the options would benefit from the rising volatility. Maybe not as much as the series that is directly related to earnings, but enough to combat a bit of the theta decay.

I took this entry on the 16th of June, and one week later my wife woke me around 2 AM letting me know “It was time to go”. She didn’t use those exact words, but I got the point. A few hours later we were welcoming William Gambell into the world. He’s now almost 4 months old and I closed out his PTON trade just a few sessions ago, on October 9th. These dates are a significant part of the trade setup as I’m buying with ample time by taking advantage of the rising implied volatility around earnings, and then I’m not using a technical target. I’m looking for the daily chart to continue “closing above the low of the high bar” and if that fails, noting my proximity to the 21 EMA and being willing to hold down to that level with the intention of selling 1 week prior to expiration.

pton entry - 1

If I’m using a target in time, this can make using a stop difficult, therefore I risk the debit paid for the directional calls. That makes the stress aspect of it easy as I know exactly what I stand to lose. No more, no less. Once I can get past the emotion of losing that money, it makes it easier for me to let go and see what the market might be willing to offer. If you wanted to use a stop, I would suggest manually exiting the position on a daily close (possibly 2 daily closes) below the 21 EMA. Even though I was willing to risk the entire debit of the trade, this method of using a stop never would’ve triggered, allowing my trade to make money, and also any trader that was using the trailing stop against the mean. The exit is not defined technically, but rather in time, which in this case is using the Friday prior to expiration. I don’t like holding over that final weekend because if something were to go wrong, you don’t have much time to allow it to recover.

pton exit - 2

By the time my date for exit rolled around, my $50 call that I paid $7.22 for was trading at $72.50. Just slightly better than a 1,000% gain. I’ve heard it said “I’d rather catch one trend than all the wiggles” and the phrase couldn’t be more true for myself and what I’ve found to be one of my most successful options strategies.

pton entry and exit prices - 3

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