I didn’t realize that I had so much influence on the price of gold.

After riding a small long position in the Market Vectors Gold Mining Stocks (GDX) a lot longer than I should have while the price sank lower and lower, I gave up in frustration Monday and just decided to dump it. You can guess what followed: GDX rallied more than $1 Tuesday (only to give it all back Wednesday).

Maybe no other traders have ever abandoned a position and then had it turn around the next day to move in the direction desired. A position may seem to make sense, but you run out of patience because it never quite comes around within the time period you expect. You reach the give-up point. And the market just waits and watches to see when you hit that point so it, perversely, can move on without you.

Market analysts have a name for this experience – the “puke point.” Not a very delicate name but an apt description for what happens when investors/traders reach a point where they can’t take it anymore.

The GDX trade started out well enough. Sell a put at a strike price below the market price, then take ownership of 100 shares at what seemed to be a reasonable price. After all, with the international economic situation perpetually seeming to be on the verge of chaos and the prospect for rampant inflation, many gurus/experts were touting the value of gold. What could go wrong with a gold-related position as insurance protection?

Well, enough was enough. GDX can do what it wants now. This is not to suggest that gold prices won’t move higher or that some type of gold or silver investment isn’t still a great holding in a market portfolio. My GDX loss won’t have much of an impact on my account, and even though I may think I turned the market around, the market will little know or care what I did.

The only positive is that a losing trade reinforces – again – some trading lessons we all should know:

  • Believe the charts, not the chatter of “pundits” making their case. What does the market say?
  • Don’t get hung up on your own opinion of what a market “has to do.” What does the market say?
  • Stay within your comfort zone. What loss is too big for you to stay? Take the small loss before it becomes a big loss.
  • Always think risk first when you enter a trade. Plan how you will handle that worst-case loss scenario if it should occur.

Puking is not a pretty sight when you are forced out of a position, but once it’s done, move on to the next trade. There will be another opportunity. Who knows? It might even be in the GDX or some other gold-related position.