Markets are never wrong. Opinions are often.
— Jesse Livermore

If you are honest with yourself, like really really honest, you will know that often have to throw your opinions out the window when it comes to trading. The most successful of traders aren't those with the best trades necessarily, but rather those that have the ability to adapt most quickly. The markets are simply Darwinism at its finest. Eat or be eaten. Adapt or die. 

Whether you're talking about companies that fail and eventually go out of business (Radio Shak) or trades that take too long to materialize the markets are inevitably the same in nature. It is a zero sum game and binary in nature. For every winner there's at least one loser. If you remember this and learn to execute setups that are positioned for your optimal success you will likely not suffer. That said, it's very simple for me or anyone else for that matter to point out a list of cliches that mean nothing and make us sound like we know what the fuck we're talking about. It's something completely different to put those actions into actionable items. 

One of the many reasons traders often fail is their inability to adapt to changing market conditions and their stubborn reliance on hope. It is important to know your limitations as a trader and to adapt and learn when it's okay to press your luck and when it is good to walk away. 

I will attempt to stress this example with a recent trade we made on CMG. 


I first highlighted CMG to subscribers on November 20th as a long shot short. We highlighted the short when the stock first broke support on news of spreading E.coli concerns. We focused on the following week's out of the money 530 puts and those who took the trade were paid handsomely. 

A couple of days later, we entered short on CMG again. The thesis was CMG would struggle to get over the ten day moving average. Again the thesis was correct, yet the stock did not move as we'd hoped/expected initially. As Friday rolled around we re-entered the short position in CMG, this time again targeting the following week's 530 puts. Once again, E.coli news struck and the stock was crushed on Friday. Our puts traded from 2.6 to 12+ on that Friday and we were able to offload our risk for a profit. We then took some of the profits and rolled down into lower strike puts to keep the trade on. That evening after market close, we were blessed yet again as Chipotle cut its guidance. As Monday morning rolled around, the stock opened significantly lower and our puts paid once again. Pre-market I highlighted to subscribers not to chase the trade short as it traded into 497 support int he pre-market that morning. 

CMG Highlighted with levels on December 2nd

Since then, the stock has been a little wonky. We've tried to short it again into the ten day except this time it did not cooperate. This is a very frustrating incident and is the important topic that I am focusing on in this post. 


As I stated above, to be a good trader you have to learn to adapt. Last week CMG had the perfect storm of events that should have obliterated the stock. On Monday the stock opened at 515 after the company cut its guidance on Friday after the close. In the pre-market the stock touched our highlighted support from December 2nd (497). Subscribers were alerted to cover their short and wait for the setup again. 

I want to fast forward to Wednesday where our thesis was that CMG had been failing against 560. We entered Jan 530 puts against that 560 range and held the puts overnight. When we took the trade, the thesis was that CMG was trading into ten day MA resistance and into an hourly downtrend. We also highlighted 584 as an extreme case upside resistance. 

CMG 1 Hour Trend Line

The next day we (unfortunately) woke up to a press junket by CMG's CEO along with other sympathy news and rallied. We were met with our upside resistance target of 584 quickly and subsequently added to our trade against the 580 price point. 


On Thursday afternoon various reports online indicated that a store in Seattle was closed that day for health violations. This closure came after the CEO's apology and news of more illnesses spread. The stock futures also pointed to a much lower open in the overall market. Our thesis was proving true yet again, especially with the sea of red in the stock futures. That morning I alerted subscribers that the odds were in our favor for this stock to be taken out to the woodshed. That said, I highlighted many different scenarios and time frames and presented them with various charts for possibilities of what to look for. 

To my/our dismay, CMG's stock opened down just marginally after the health closure, other bad news, a downgrade, and an overall obliterated stock market. After about two hours of babysitting the stock I alerted that I will be taking a loss on a bulk of my position and will not keep the risk on the table. 

Though CMG was still below our final stop out point, I believed that the market was telling us something. There was every reason for this stock to crumble yet again and it was seemingly behaving strong (relatively) in a weak tape. Rather than allow an opportunity for more upside pain, I felt that it was prudent to take the risk off and address that risk elsewhere. With every reason for the stock to be down another 30 points, it wasn't. It held up nicely and seemed to be unaffected by the SPX's dismantling. 

The point here is that sometimes the market gives you every reason for your trade thesis to pan out the way you want it to. If it doesn't it is important to (re)evaluate your positions/thesis. It is okay to adapt to current market conditions and know your threshold for pain. Being diligent, cautious, and prudent is not a bad thing when it comes to your adaption of risk. When your thesis does not pan out appropriately in the timeframe that you are setting, it is very important for you to adapt with what the market is presenting you. The key to solvency in any market is preservation of capital. Again, the most important aspect and the key to solvency in any market is capital preservation. As a trader it is important to remember this as capital is more than just cash, it is opportunity. I always try to remind traders (and myself) that taking a loss is not a bad thing, losing your money because you did not take a loss is. As with other trades, I will continue to watch CMG and wait for it to set back up so I/we may re-enter again.

Copy of CMG Failed Inspection

CMG Still in Weekly Downtrend


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