May 4, 2013

• Trading Update: 042913 – 050313

  This week was both a negative and positive. The trading/hedge position is really still in play so only adjustments were made. The adjustments from trades opened from prior weeks were negative while the adjustments for this week were positive with a net negative sum for the week.

  April is already over – that’s 4 months of the year already – already 1/3 done. It’s amazing how time flies. It’s funny how as a kid time seems to go by so slowly.

  With the end of the month comes talk of overall trading progress. The best terms to describe this month are both horrific and terrific. Woeful and wonderful. Tragic and terrific. In other words, it was a month of both very bad but very good events with the good news outweighing the bad by far.

  This month had me experience some of the worst trading results since I started posting results. Loyal readers familiar to my volatile trading curves from last year know that I’ve been able to dodge many bullets and still come out on top at the end of the month or at least neutralize the damage. Well, my number finally came up this month and the culprit was in my new trading style of delta trading – keeping two active and opposite positions open.

  With my old method of just being in one direction, I can only get burned from one side. However with delta trading, you can get burned from both sides – making it possible to lose twice as much as a one directional trader would, which is what occurred.

  What happened was is that I lightened up one side, but was wrong on direction and the market moved strongly against me. That resulted in me adding back my hedge to put the protection back on, then the market roared back the other way. That means my hedge neutralized me getting back most of those gains. I once again adjusted my position by removing the hedge and the market reversed and roared against me again, giving me two big losing trades for the month. I haven’t done the calculations yet, but I’m sure the results won’t be pretty with a big double digit loss.

  This is where posting results doesn’t make for a positive experience as losses are hard to take, and harder to make public. But that is the life of keeping a transparent journal – if I’m willing to post my big gains, I have to be willing to post the big losses. As I’ve said in the past, my performance graphs are straight up transparent as it shows my account status as opposed to just closed out trades. Since I’m still carrying a portion of the losing position, if I just reported on closed trades, a good portion of the loss would be hidden until the trades were finally closed out.

  I know traders who struggle to make consistent profits and post losing performance month after month. I have to take my hat off to them because I know it would be very difficult for me to keep posting a series of big losses. Most folks have no desire to make their mistakes public. Although uncomfortable, revealing losses helps keep me grounded and better focused on risk management. It’s a good motivator to keep risk level in check.

  So I was done in by my hedge trading this time whereas my prior directional trades would not have suffered as much from the wide market swings of the month.

  So did I make a big mistake by attempting to incorporate this new trading strategy? To be honest, I was having some thoughts about that but that soon changed as I was doing my post trade analysis.

  A big mistake, no, make that HUGE mistake that many traders or people in general do when faced with a mistake is try to forget or bury it and move on as quickly as possible. They gloss over their actions without taking time to figure out the critical details that can lead to improvements in habits or techniques. I built up my current methods by determining what works from what doesn’t and then refining them to make them more effective. Being a creature of detailed observation and analysis helped me immensely in improving my performance.

  Analysis this time around resulted in revelations that rival my best “aha!” moments to date. I uncovered a hidden error in my trading analysis and the resulting improvements are at a game changer level. My biggest weakness with directional and hedge trading was that my short term accuracy was poor. My directional trades often reflected this with having to wait days or weeks until my long term targets panned out. This always troubled me since I knew it would only be a matter of time where I got the long term target wrong and then even my directional trade could suffer the same magnitude of loss such as I just experienced.

  Well, I believe insights gained this month have solved the short term direction problem. Why so confident? I back tested my findings using data from the past and other markets and it holds up to confirm my findings. Current market behavior continues to validate it as well.

  The ironic thing about my discovery is that trying and failing at hedge trading for the month were directly responsible for it. I’m fairly certain that if I maintained just single direction trading I would not have been able to take this next leap forward. One of my greatest achievements has come out of the ruins of one my biggest failures.

  It’s a discovery that left me wondering why I didn’t figure it out sooner. It’s all about nuance and level of detailed observation. Working trades from both directions helped me to pick up on those additional details.

  The latter part of the month had me figuring out how to best incorporate my improvements into my trading strategy. I’ve already noticed a stark improvement in my trade positioning accuracy.

  Another big leap has also been made in risk management and figuring how to effectively manage the hedge part of the trade for maximum returns.
  

   

  Overall, here’s the visual for how I now feel about trading against the three threats of fear, doubt, and uncertainty:
  

   

   

   

  Okay, maybe not THAT confident, but you get the idea! =)

   

   

  • 6:21 am
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