What a wild start to a year. Worst start for markets since 2008, but we’re still above 2015 lows 1830. The headlines and price action have been negative, but the opportunity for active traders has been tremendous. For me personally, its been a stellar start. Not just because of the performance alone, but how I’ve stuck to a process. A lot of the lessons learned from 2015 I have incorporated into this years strategy.
For now, I remain cautious of excess and herding behavior. They’re prone to overshoot and clearly this year, that’s where the big opportunity has come. For example, getting long under 1830 ES for a spring board back to the 2016 VWAP at 1908. As simple as it sounds, that was the layup trade for Jan. I’ll continue to watch for those traps and divergences; they’re happening when sentiment is off-sides.
Anyhow, I’ve been through very hot streaks in the past, and every single time the draw downs happen due to sloppiness; not doing the work, spreading out too many trades, not sticking to a process/losing focus, and at a larger level – failure to see a shift in dynamics and changing strategy if necessary. I’ll be watching these carefully and sharing the progress.
“Life has no pause buttons; dreams have no expiry date; time has no holiday, so don’t miss a single moment in your life.” – Ritu Ghatourey
- Become a well rounded investor. I started 15 years ago in banking and educated in fundamentals. I spent countless hours on excel. But then I learned the art of trading and got spoiled by the ‘easy’ riches. In return, I learned a few bad habits. These can be digested in easy markets, but in challenging ones like 2015, they can be haunting. I need to spend some time re-learning the basics. Maybe i’ll start by exploring coursera
- Rekindle the network. I’ve had the benefits of knowing and working with many great people. But working on my own last few years has brought me farther away from those that I can benefit from. I spend more time on twitter, a lot of smart folks, but it’s less of a business network. Never forget, a network is the most powerful tool in business. Big deals are made over personal relationships, handshakes or at the bar.
- Be bold. With that vast amount of underproduction, it’s clear the equity window is tighter. Typically, there are only 1-3 very good ideas a year. The rest of the time is a struggle. Be picky and patient or perhaps there is a lower hanging fruit elsewhere. I prefer to stick to what i know, but i’ll keep an open mind. Perhaps that involves a taking a trip to India and exploring opportunities or opening a RE fund on the side with a friend in the biz. I’m not sure yet, but i’ll be preying on new trends.
- Write and Read more. Not only does this exercise the brain but it also sparks new ideas. Stay active.
- Health, Family, Friends. Like many, I’ve seen the ups and downs. At the end of the day we can work so hard but have no memories. As I reach the 40 mark, I don’t want to be left in a position where I have worked so hard, but never experienced life or the world. These days, i’m more envious of those active, traveling, running, eating than seeing their p/l statement. In 2016 I need to try getting away from the phone as much as possible and cultivate more personal experiences. Anyhow, I’m running a 15k next week with my very close friends. That’s a start.
Hope everyone has a great 2016!
First off, a quick review of lessons learned in 2015. Few days left and S&P is closing near unchanged for the year after all the hiccups and whipsaws. Based on these new dynamics, I think it’s important to remember that it could shift again, so it’s key not to convert the lessons learned into bad habits.
- Be mindful of herds. When to follow or fade.
- Think different. Patterns can be deceiving.
- Plan to be imperfect. It’s ok to lose antes as long it ensures you can win the stacks.
- Learn who/what/why is on the other side of your trade. Sometimes there’s opportunity where others are struggling.
- First site of fire, don’t be scared to jump in to take advantage. Top of waterfall => Get out on splash. Some clues VX1>VX2
- Execution pays. Get paid for your ideas and risk taken. Be patient, let the trade develop, trust your work. Not much else matters.
- Plan for less follow through days; 53% up 47% down days
- Rising vol environment
- more 1%+ days in indexes
- Prey and pounce
Happy New Year and Good Luck in 2016.
It’s been a while since i recorded some thoughts. Been very busy, poor excuse, but I hope to get back to form if I want to evolve and move forward. Not much else to say.
Today was a good day. Best trade was 1988.50 out 2015 for +26.50 ES on the intraday trade. By no means this is a nailed it trade. I’m only thrilled because i traded with plan and had patience to follow it through. I stayed active with bias and managed risk. What else could I have asked for. Things worked out today and i’m grateful.
Per a request on twitter, i’ll briefly discuss the thought process. as usual, it’s important to understand the narrative along with the chart. (rising fear mainly around high yield capitulation, FANG, XLE)
- VIX above 20 – higher vol/variance/risk, above bollingers
- ES was water falling multiple days and under bollingers
- Sentiment extremes, DSI, IV of VIX, VX1>VX2, relative detrends ES
- Breadth extremes – NAMO, NYMO
- Positive divergences on ES 60, 120mins
- Bias was to buy a dip but be patient with range moves for potential reversion into FOMC at minimum.
- My risk ranges for today:
Going forward, i’ll watch for a constructive low to hold near channel lows with reversion to at least to 2040-2060 range pre fomc.
Remember, price doesn’t pay.. its the execution!
Note: This is a working declaration; Rule #13 – Stay flexible.
Trading is an elite performance. Not everyone can do it. Like any professional I need to put the time in to improve. Below I put together a working list of intangibles I believe will keep me on track for FU trading going forward.
- Model 3 high probability ideas – trades that present 3R+ risk/reward ratio. Don’t waist my time with scalps, stick to trades with high confidence factors.
- PATIENCE, PATIENCE, PATIENCE – 90% of my time should be spent lurking like a lion
- Try hard NOT to scale – I need to get paid on the RISK I am taking. Let the trade come to fruition before thinking about exiting.
- Hit Hard – great setups are rare opportunities, so size right.
- Accept losses – its part of trading, but DON’T GET EMOTIONAL. There is no forgiveness for revenge trading and bad executions.
- Respect Stops – I should know where i’m wrong. There’s nothing wrong with taking a stop and folding your trade. There’s always another trade.
- Plan for Variance – I can’t be perfect so watch how markets trade around key areas or events. I can dabble before pouncing. But be swift and quick to make that decision.
- Embrace volatility and risk – I can’t win big without being a little uncomfortable.
- Prey on where others will be trapped, or where they will ‘fold’.
- Have an understanding of other participants; are they weaker, stronger, herding or aggressive. You’re competing with the smartest of the world, possibly less information – it’s always a poker game. They are waiting for you to make a mistake… Don’t
- Listen…. Mr. Market is talking to you. There is a tempo. He doesn’t give a shit if I have bills to pay or would like a new Lambo. He is telling me to get in or out of a trade. It’s an art, but learn to open your ears and eyes.
- Milk the trade – when you’re in the zone stay calm and steadfast with strategy. DON’T GET SLOPPY (see #1).
- Stay flexible – Learn to reverse a trade or exit early if it doesn’t feel right, else see #3.
- Be humble – It’s a lonely world. Life is short. Share any success with those close to you or less fortunate. volunteer, hug the kids. Learn to love things that are not material.
- Rinse and Repeat the process
Trading is only fun if i’m executing well and winning. Follow rules or be unhappy.