I closed my short Cenovus Energy (CVE.TO) position this morning as crude oil broke below \$80 briefly and the Dollar Index rose above \$84. Myoriginal target was \$27 for this short. But considering the fact that I mistakenly doubled my position size, I am closing this trade a step above at this \$27.50 support level (see Figure 1 for CVE.TO support lines). Furthermore, the time decay on the options premium is accelerating so I needed to sell this soon. The final profit on this position is \$858.15 (after \$63.80 commission), or just over 10% in my RRSP account. Although this trade is profitable, it is a horrible trade for the following reasons.
[caption id="" align="aligncenter" width="570" caption="Cenovus Energy (CVE.TO)"][/caption]
- I accidentally bought more contracts when I intended to sell.
- Not correcting my mistake immediately.
- I risked too much at 3% (of account) initially and then 10% after my mistake.
- Peak drawdown was over \$1000 (12.5%) at one time.
- Too eager to add to my position once it moved.
- Reward-to-Risk ratio is less than 1.0, so I threw big money for smaller gain.
- Commission ends up eating 7% of profit away. That is too much.
As you can see, I made one, two, ... seven too many mistakes in this trade. Luckily, I did manage to do some things right.
- Patience. There were a few days when the price moved sideway. I didn't succumb to my emotions and dump the shares when it was nerve whacking to hold onto a loss. The price was still below my mental stop so I held.
- After the initial shock of doubling my position as the price moved away, I mentally accepted my loss and was able to study the market objectively since.
- Didn't take profit too early once the price moved back in my favour this week.
I won't be as lucky every time. Learn from my mistakes and exploit on my strengths. That is the lesson from this trade.