2014 Trading Review

Year End Trading Review 2014

Every year I write a summary of my trading year.  Its the single most important thing I do all year and I highly recommend it for anyone trading stocks.  The format is usually the same:  performance, things I did right, things I can improve on, strategies for next year, and a short list of basic goals.  I am debating making this write up public, but will decide later after its written.

Performance

2014 was my best year ever as as trader.  (I started part time in 1997, full time 3 years later).  I returned  183%.   I was profitable in every single month.  My last losing month was March of 2013, by far the longest streak of my career.  My most profitable month was February, least profitable was March.   I don’t feel comfortable sharing exactly what I made, but lets just say I reached a goal every trader strides for and I make a comfortable living doing what I love.  My improvement over 2013 was a sequential gain of about 74%.  Ie, I made 74% more in 2014 than 2013.  

Things I Did Right

I did an excellent job of capturing what the market was giving:  shorting extended stocks up on news.  Countless stocks were up on ridiculous, old, or even lack of any news whatsoever.    This has always been the bread and butter of my trading and this strategy provided a consistent and steady returns.  There were endless things to trade all year.  I worked the hardest I have ever worked and logged many hours.  There was simply so much to trade, research, and watch....it was at times hard to sleep.

With the help of fellow traders and things I use constantly (sec.gov, google, yahoo finance, twitter, ect) I did a solid job researching stocks.  For the most part, I felt more comfortable this year with having a better understanding of what I was trading and why.  I took my share of losses of course.... but my comfort level was higher than normal.

Unlike what I see on twitter... trading is actually hard for me.  I am constantly trying to gain an edge and usually can via research and experience.   I took an unusually large number of medium sized losses this year, mainly because of the idiotic buying of others caused stocks to do odd things.  But this also kept me from getting bulldozed in a number of situations that caused massive pain for some traders.  

I did keep a number of stocks short overnight, but made sure almost all met certain criteria (extended, up on silly news, and with a close on lower half of the chart).  A few caused stress, but the vast majority ended up working very nicely.  This change to holding more shorts overnight really did improve my performance by a significant degree this year as before I would almost never carry shorts overnight.  

I increased my size this year.  I had to force myself to do it sometimes.  Lets say I would start with a position of 3,000.  Then I would immediately add more...Not because I liked the position that much more, but just wanted to push myself on size.  I use what I call an “average sized gain or loss.”  Its a certain monetary figure.  I simply do not care if I take endless losses or gains on anything below that number.  I was able to slowly work my way up on raising that number mentally.  It seemed to help smooth out my trading.  

I paid alot of attention to ‘time.”  I think most traders spend too much attention on price and not enough on establishing rules on how different timeframes of the trading day should be traded within their own set of parameters.  Avoiding shorting strength after mid-morning saved me from lots of pain.  

I continue to improve on using stops.  This used to be a big issue for me, but has become more mechanical and much easier to deal with on a daily basis.  This goes hand in hand with accepting the fact (yes its a fact) I can take average sized losses day in and day out and it simply will never crush me as a trader.   I would remind myself at times, “I take losses every day.... who gives a rats ass.  Another train coming tomorrow.”  That mindset was really key this year as nice setups popped up almost daily.  

After years of debating, I finally took the plunge and sought counselling advice from a psychologist.  I was having major issues in my relationship with my partner and it was time we sought outside help.  It was the single best thing I have done in probably my entire life.  The counselor was great in many ways.  With regard to trading he addressed how people deal with stress, both on the physical and mental side.  After a few sessions going through how stress specifically affects me, I saw how destructive I had become with regards to trading and also how I dealt with people in general.  I will leave out most the details (although I might write this up for myself later), but I now have a better understanding of certain triggers that force me into a very poor trading mindset.  Trading with a clear head is a must and I spent years without it.  Stress will remain a huge part of trading, but I feel I have better tools to deal with it and will act accordingly.  

Things I Can Improve on

As with every year, swing longs were at times very lousy.  Its my achilles heel for sure.  I just basically gave up on this strategy, outside of doing some recent IPOs.  Very mixed bag here, but some decent winners along with some large losses.

I had one intraday trade, which I liked, but I was just too early and one of the first ones to trade the stock very early in the morning.  I thought the news was marginal, but I should have waited for the stock to trade a bit since I was a bit unfamiliar with the name.  This particular stock turned out to be one of my biggest scalping losses on the year.  This only happened one time and was just kind of a freak deal.   I have to fully understand the situation if I am the first person to trade it.  (This is very common as I up quite early in the day looking for great entries; many of which occur hours before the official open).  

I have been saying all year we are in a trading bubble.   But did I fully take advantage of that?  I have my doubts.  If I was trading this well....maybe I should have pushed myself even more.  This is a theoretical question that is tough to answer......but something I have thought about after reflecting on my trading.

I had times when I completely lost my confidence as a trader and turned very negative on my abilities and recent trading activity.  Everyone goes through cold streaks and I will always have my share of awful times.  But that doesn’t mean I should get that down on myself.  Just grin and bear it.... knowing it will turn around soon enough.

I actually whiffed on several setups I really liked and traded in large size.  (CUBA, XBI, BKW are three that come to mind).  BKW was just a funky one, but XBI and CUBA I missed by a day and didn't keep same attacking mindset the next day.  If I like things that much on a particular day, I really shouldn’t give up on it the next day.  I do think caution is warranted when things do not do what you expect them to do, but that logic/thinking doesn’t usually go away after one failed setup.  This approach must be used with massive caution though if trading size and/or doing a sector trade.  But simply using a reasonable stop avoids all of those worries.

Strategies for Next Year

In Vegas for the trading conference, I met a trader fairly new to the market.  He is a nice guy and trying to get things started as a full time trader.   I tried to help him out with some things.  Doing this was an eye opener to me: it showed how far I have come as a trader.  I really do have alot of skills, strategies and experience that are now coming into play as the stock market opens up with countless things to trade.   Things just feel “right” to me.  As I have started to say on twitter... “we have seen this movie before and we all know how it will end.”  I just like and don’t like setups and that just comes with lots of learning, watching, and taking many losses along the way in understanding how things trade.

But having that experience is one thing, capitalizing is a totally different beast.  As outlined before, I have a better understanding of how I deal with stress and want to rid myself of my trading demons and destructive forces.  I am entering the sweet spot of my career (experienced, well capitalized, and healthy) and its time for me to really continue to push things as far as practical.  That doesn’t mean trade wild or recklessly.  It means using my skills to really max out what the market is giving me.  

Anyone at the Traders4Cause event in Las Vegas was inspired by what Michail Shadkin said along these lines.  I actually bought a stone and have it sitting on my desk.  (He referenced trading like a “stone” with no emotional baggage).  I have known Michail for over 15 years and he practices what he preaches.  I hope to continue to follow his advice and advance myself into the next trading phase of my career.  

I usually spend this area of my trading review going over specific things I want to work on for next year, but with the market being so nuts.... I am just more concerned with capturing size gains on great setups.  That is my main focus going forward.  

Goals

1. As always and most important, protect capital.
2. Continue to adjust to various changing markets and trade accordingly.
3. Improve loss parameters on swing trades.
4. Push push push myself on size, both starting and especially on things I like.
5. Keep a more positive attitude about things when I am struggling with trading during a cold streak.
6. Continue to network in the trading community.
7. Read two books on trading.  
8. Capitalize on what the market is giving. Attack when things are standing out, hide when not.
9. Continue to slaughter pigs!!!  (Can’t leave this one out!!) ha.

So I have finally gotten around to writing something.  These posts will be sporadic, and probably only when things are going poorly.  I enjoy writing.  Its something I rarely do, but does let me clear my head.

After a fantastic run of 4 months... the best of my career.... I have run into some difficulties the last two months (March and April).  Nothing too major, but some stress for sure.

The markets have sold off hard of late, especially high PE tech and biotech. Absolutely slaughtered.  I am happy and relieved I finished March in the green and April is a small positive month for me so far.

Swing longs have hurt me a great deal.  They seem to be my nemesis every year.  lol.  My preferred style of trading is some swing longs with an emphasis on intraday shorting.  That tends to smooth out my performance.  I tend to get a bit intimated and overwhelmed without swing positions.  The number of correct decisions and the timing of these decisions can be daunting at times.

But whats funny:  intraday trading is by far my strength.  My bread and butter; something I think that I really excel at doing.  It is what separates me from other traders.  Most of the time, I have no problems finding setups.  Some obviously are better than others, but I can find stuff daily to trade.  

Now the reason for this post:  I did a portfolio stop yesterday.  That isn't all that unusual, I do several every year.  Sometimes they are back to back (I did one in late March as well).   But this one was special in that I did it at the exact low of the day; then watched the market ramp huge later in the day and again the next.  It was quite frustrating.  I wasn't even down all that much; just reached a point where the market was not acting like I wanted and I had quickly reached my pain point.  I can only be a bagholder for so long; this time my pain threshold was low.  

I am sure this will not be the last time I stop at the exact bottom.  The "portfolio stop" is not designed as a market timing tool.  Its a tool to save ones portfolio from complete destruction.  The last time I did one in March, it completely saved me as several stocks I had dropped huge after.    One went from 69 to 44; another from 42 to 26.  I would have been crushed like a raisin.  

So looking forward, I want to concentrate on two things.  1.  Continue to trust my portfolio stop outs.  2.  Concentrate exclusively on intraday trading only.  Lets focus on my strength and see how that does.  Swing longs have been very mixed for me the last two years.  With the market getting beat up, lets just forget all those setups and concentrate on intraday ones only.  This will mean that I need to change my watch lists and eliminate stocks only really suited for swing trades.  

One final thought:  I think reflection and self criticism are great tools, but so is perspective.  I am up over 56% YTD.  I bet most daytraders are not even close to that, although I do know one guy having another monster year.  But most momo traders are crushed and in massive pain.  So being up is great; just relax and lets see what trading presents in the next few months.  The pick up in volatility is certainly here to stay; which is always a great thing in the long run for traders.

First post

I have decided to start a blog.  This will deal with trading stocks and the issues associated with that particular career.   I will not be sharing trades in real time.  I will be honest with myself and be upfront about the joys and pitfalls of trading stocks.

More to come.