Thursday, December 20, 2012

A break from radio silence

Has it really been about 2 months since my last post?  A lot sure has happened since then.  Hurricane Sandy certainly disrupted life for a while, and when I returned to trading sometime in November, it's pretty clear I wasn't ready.  I was back from my hurricane hiatus, swinging for the fences, looking to make it big.  Probably as a way of lashing out at life's challenges. 

I was having upwards of 20-30 point daily P&L swings (both profit and losses) trading ES with only 1 contract.  I even had some overnight sessions with the flighty and volatile soybeans, trading late into the night resulting in 20 or more point P&L swings on a single contract. 

The only problem is that for every 20+ point day, there were more days where I lost 20+ points on 10 point range day.  Big recipe for disaster.

Yeah, I wasn't watching my all.  And I paid the price...big time.

Although my forex account has quietly gained well over 150% for the year, I ended down in my futures accounts over 70%.  Luckily, in absolute dollars, I had started with a minimal sized account just to trade, so there's hardly any impact to my overall financial condition. 

But from the psychological capital perspective, I was hit hard. 

I usually think primarily in percentages of portfolio, and when I took the hit in November, I wasn't even thinking in terms of percentage of portfolio risked (only thought how much $'s I could/should make).  In hindsight, this is simply not acceptable.  This is not what a professional trader does.  This was pure gambling.  In order to prevent myself from truly blowing up all my accounts, I took preemptive action and transferred money out.  Time out.

I've learned through experience that it's so easy to destroy your money with reckless trading, but so much more difficult to accumulate profits.  All it takes is one bad day of senseless trading to wipe out days/weeks/months of hard work.  It's a similar concept trusting someone -- what takes years to build trust with someone, can be forever broken in just moments.  I need to respect this concept.

During the darkest hours, I admit, I had thoughts of quitting. 

This doesn't happen often, but I needed to think of an alternative life to trading, and strangely enough, this usually brings me back to trading.  Trading is something I've been planning on doing full time for the past couple decades, and I've realized after careful consideration that there's no better time than now to continue charging ahead.

By the 2nd quarter of 2013, I will have been trading full time for 2 years.  It sure does seem like I've been at it a lot longer.  I remember hearing many others say it takes on average 3-5 years in order to become a consistently profitable trader (for those who even make it that far), and I always thought I could accomplish it in a year...or less.  Sure hasn't been the case.

Where has this trading journey taken me so far? 

I started it all in early 2011 with stocks, and after about half a year, I lost about half my account, literally all the losses were commissions.  I was breakeven on a gross basis, even with all my revenge/rogue/impulse trades.  I discovered that there were certain defined setups that worked very well for me, but just couldn't be patient enough to avoid the revenge and rogue trades.

As an escape, I decided to switch to futures which had more leverage and no pattern daytrading rules to worry about, and ended up losing over 70% in about a year.  A little less than half of my losses were due to commissions.  Unlike stocks, I definitely had a gross loss trading the ES and nearly all of my losses came on a handful of weeks where I went on tilt and got sucked down a death spiral of revenge trading. 

In hindsight, the leverage/tick size/contract size of the ES emini in relation to my account size really put me at a disadvantage.  I couldn't size down below 1 contract and reduce risk/scale out of positions as I easily could with stocks.  My thought was that if I couldn't be consistently profitable with 1 contract, why even bother sizing up?  I was stubborn to try and make it with an all-in all-out trading style using 1 contract. 

What and how I'm doing now

And due in part to this last experience of pain, I've recently escaped again.  However, instead of focusing more on forex (which has continued to work relatively well since I started trading full time) I've decided to explore stocks once again and for whatever reason, utilizing options heavily. 

I'm currently trading with a very small equities account and don't want to get triggered as a pattern day trader, so I only swing trade.  This restriction has reigned in the revenge and rogue trading significantly, since I can only execute a few trades a day and thus have the time to think them out.

During December to date, I've only had about 18 trades, of which over 70% are winners with a profit factor greater than 3.00.  In comparison, a bad revenge filled day from the past would produce more than 20 trades with an accuracy of < 30%, so this is significant change. 

I am hopeful and optimistic that maybe, just maybe, I'm starting to make the turn.  But then again, I've had this feeling before...which then lead to me to overconfidence, which then led me to falling off the discipline wagon in spectacular fashion. 

So I am determined more than ever to stay the course of maintaining a consistent and disciplined trading process, rather than focusing on P&L.  I also have to credit the stock trading room I've recently joined, which has making a big difference in the way I think and trade.  More about that in the future.

2013, here we come!

Since I'll be traveling over the holidays next week, this year is essentially over for me and I'll be shutting down.  So this will likely be my last post of the year. 

I'm really looking forward to seeing my old friends and family back in San Francisco.  Hard to believe it has been about 2 1/2 years since we moved from the beautiful Bay Area, so there will be a lot of wonderful catching up to do.

I look forward to 2013 with renewed optimism and confidence.

Happy Holidays to all, and best wishes for a great 2013!