Friday, June 21, 2013

Making The Turn / 2013 Trading Resolutions Revisited

I've winded down my trading for the month of June, since I'll be on vacation for most of next week.  And since we're at the halfway point of the year, it was a good time to do some reflecting and analyzing of my trading to date.

As of today (Friday, June 21st), I am up 15% for the month of June.  And based on the open positions I still have, it should not go down by more than a couple % points even if they are stopped.

On a longer timeframe, I have been profitable the past 6 out of 7 months.  Here is a chart of % returns based on closed trades (net of commissions) on my swing trading account for 2013.
My average number of trades have also consistently averaged around 22 trades a month.  No signs of overtrading.

I wrote the following resolutions back in March 2013.  More details here.
  1. Stop overtrading/revenge trading/daytrading
  2. Lower expectations of returns and trade small to help build solid trading habits
  3. Explore and implement other trading methods, products, and time horizons
  4. Start thinking of returns based on % risk (R), not $'s
1) Stop overtrading/revenge trading/daytrading: ON TRACK
Based on the chart above, there is no sign of overtrading.  I've only had a handful of daytrades, and it's usually because I get stopped out quickly, or had such a good winner I needed to take some off the table.

There have been a few rogue trades, but it's a small % of total trades.  And revenge trading is nearly non-existant, since I'm no longer in the daytrading mindset.  Every trade I take is with the expectations of holding overnight and for several days or more.

I have also deliberately kept my account below $25k, so that I am subject to pattern daytrading rules (PDT).  This has been one of my best decisions.  TradeStation prevents me from entering the final trade that would trigger my account to get flagged under PDT.  This helps to prevent me from overtrading, and to get into the habit of thinking carefully about each trade I enter.

2) Lower expectations of returns and trade small to help build solid trading habits: ON TRACK
Trade small and often, is something preached and practiced by @TheTradingWife.  I've also watched @TheLincolnList daytrading live and consistently profitable for over a year with generally a few hundred share sized trades.  And those crumbs add up to very impressive daily/weekly/monthly returns. 

Following their examples, I've established small position sizes as a % of my portfolio for each trade, and that easily allows me to sleep at night.  This helps me to follow my rules and let each trade properly play out without interference or sabotage.

Letting each trade properly play out means I'm building good habits.  That's huge.

In the past, I used to want to make 25-50%/month or whatever crazy expectations of returns.  But a funny thing happened when I stopped caring as much about P&L returns and started to really care about simply following my trading plan -- it resulted in being consistently profitable.

As those who play golf are well aware, when you really try and swing the club hard, the worse off the shot usually goes.

3) Explore and implement other trading methods, products, and time horizons: ON TRACK
This probably requires a separate post, but the autotrading experiment has been very interesting.  The goal was to diversify my trading via other traders/trading services.  Similar to how you can diversify long term investments between various types/styles of mutual funds.

My timing to start was unfortunate based on market conditions, so I'm currently down about -10% year to date in my autotrading account.  But I've learned a lot and still see great potential.  In fact, in addition to my Global Autotrading account, I'm also in the process of opening up an autotrading account with Ditto Trade.

Compared to even 5-10 years ago, the opportunities today to diversify your trading opportunities are amazing.  In essence, you can now outsource your trading and manage it like a business.  Simply hire and fire traders/services based on whatever criteria and business plan you setup.

Here's an analogy.  There are an amazing number of talented people out there, such as musicians, that in the past would never have been discovered.  But YouTube has created a distribution channel where you don't need to be "discovered and chosen" by the old school record industry establishment in order to reach a mass audience.

On a similar note, we're entering a new era for talented and dedicated traders who don't have the right connections or pedigree in order to gain employment at hedge funds or premier investment banks.  Platforms such as Ditto Trader are a game changer for those skilled traders who want greater exposure and opportunity.  This is just the beginning.

4) Start thinking of returns based on % risk (R), not $'s: ON TRACK
There was a recent upgrade to TraderVue that has made it much easier to track performance based on R-Multiples.  I'm still in the lengthy process of updating my trade data to support the new reporting features based on R.  But once completed, this method of reviewing performance will provide a risk based return, rather than return alone.

I'm guilty of this, but it's so easy to say "I made a 2000% return on my options trade" without understanding the proper risk context.  Was your risk or position size of that trade 1% of your portfolio or was it 50%?  Because there's a BIG difference in the impact and risk of that 2000% return trade.

And as I've said many times before, thinking in % terms also helps make it easier to scale up.  Because over time, as I meet my goals, I plan on scaling up significantly.

It sure hasn't feel like a switch suddenly turned on, at least not yet.  However, I am feeling a much greater sense of clarity and confidence with regards to what works for me, and my results indicate likewise.

But the efficiency of my trades are far from optimal.  I still make sloppy mistakes, and my execution still has a lot of work necessary.  However, my upside feels limitless.

It has only been about a  half year of consistent profitability, so in the big scheme of things, that's not much.  But so far, this track record is a huge accomplishment for me and I feel proud.  I set a goal, I'm accomplishing it, and I will continue to meet my goals and raise the bar.

It has been almost 2 years since I wrote the post about The Moment.  My moment is still here.  And I remind myself, "How Bad Do You Want It?"