Trying to learn from my mistakes

Mmmm, where do I begin? I've not been blogging for a while, so getting this out is a little more difficult than what I remember.

I'm sure we all remember the recent market correction? The one that we, technically, haven't yet come out of? Yes, that 12.3% pullback on the Allshare Index that undoubtedly rattled the cages of the over-geared and under-prepared. How many casualties that correction claimed, I do not know. What I do know though it that the way I played it, was completely wrong.

To be honest, I saw it coming. A mile away. Although I did nothing and watched the slow-motion train wreck with pain filled eyes and a very frayed feeling soul. I was stressed. I saw the daily ALSI chart close below the medium term trend line. The channel that the ALSI had been trading in since the bottoming out of the previous crash, had just been broken. I knew I had to short it. I knew I had to hedge my longs. I knew there was a unique opportunity to make money. I did nothing.

Fair enough, for the long term equity investor, staying long is exactly what you do, always. But for the short term trader/weird-trading-portfolio-builder-and-trader-hybrid-whatever-I-am-thingy, staying long is not always the best option. Granted, the strategy that I use to trade (not as much a strategy as a conceptual framework within which I trade) is one that favours being long over short, but that does not mean that I can justify not taking the short when it was so obviously clear. So why didn't I take the short?

This is where the tricky part comes in. I didn't take the short because I was already long, too long. My rules are simple, DO NOT GEAR AT THE TOP OF THE MARKET. Simple.

I had geared at the top of the market. Not much, mind you, but enough. I was geared 1.6x when the trend line broke. Why was I geared 1.6x times when I was, according to my rules, not supposed to be? Simply put; I was on a winning streak, overconfident and greedy. So there I was, looking at the clearest short in years and my internal bias refuses to let me acknowledge what I am looking at. Mistake number 1.

The next phase I did rather well, I think, to stick to the game plan. Buy into weakness, allow the market to fall, gear into the correction. Don't get scared. The market fell and I stuck to the plan, calm as calm as calm can be. Soon enough though, the gearing gauge clocked 3x (if you remember I was over-geared to start off with) and the market hadn't come down enough to warrant 3x. My colleagues had pale faces, their stress heightened mine (because saying that I wasn't stressed would be not just a lie, but a bad one too), we worked each other up... thoughts turned to the worst case scenario. The idea of cutting it all, taking the punch on the chin and going to cash was toyed with, discussed, considered. I banked my first losing trade at the very bottom. Mistake number 2.

Now at this point you should notice that if it weren't for mistake number 1, mistake number 2 would have been more easily avoided. Alas, it was for mistake number 2.

Eventually, as indicated by the height of my panic, the market had started to bounce, and by this time, seeing as I had now taken the view that I need to get out, I refused to believe that it was actually going to bounce all the way up. I saw the bounce as a bear trap, a fools rally, I sold into it. Some trades I banked at losses, some I broke even on, some I actually made a profit on. The accounts recovered to the High Watermarks, a little above in fact, and I took the opportunity to get out of, in hindsight, all the winners. I went to cash, wiped my brow and felt grateful that I got out without losing a cent. 

Had I stuck to my rules, I'd still be in the likes of WHL, CML, SHF and PSG... and more. The accounts would have been much, much higher above their High Watermarks. 

I think the real lesson here for me is that; all the mistakes I have made over the last 2 months stemmed from just one, lack of discipline. I got cocky and thought that this was easy. It cost me. Now though, I need to be careful to not be too hard on myself and keep reeling in the pain of leaving money on the table due to poor trading. The market moves on, and I must move with it. Except now I need to stick to my rules. A difficult as they can be to adhere to, I need to stick to my rules.