Cool stuff going on!

Well, I feel that I should share a little about the cool things that are happening in my life. It's important to remain grateful for the lives we have and the people and things in it.

I started writing for www.JustOneLap.com recently, which is an amazing experience as I get to share the ups and downs of this trading game with people and also get some of the things that I hardly have anyone to talk to about off my chest.

I will also start doing some charts for a website that provides trade ideas to people on a subscription basis fairly soon. I don't want to give away any details here yet, but the concept of the site/service is very cool and I am super excited to get started!

It feels like opportunities are coming my way and I am really starting to fulfill my destiny. Well ok, there is a long, long road ahead, but it really is starting to feel like I am making progress. Sometimes it can be a little scary and overwhelming also, but all in all things are really going very well.

Reminding myself of the truth

I've been thinking about and analysing the trades that I've done over the past few months and have managed to come to a conclusion - of sorts - about what has been going wrong. I think the main problem has been that I have allowed myself to take views. In other words; I've allowed myself to project my expectations of what I believed the market 'should' do onto the market. When there is enough fundamental data to base an expectation on and you are a long term equity investor, then sure, it makes sense to do this. But if you are a shorter term trader, as essentially I am, these types of expectations can really be very dangerous. Having an expectation about what some certain point in the future will look or feel like almost always leads to disappointment. Over the longer term rationality will prevail, but in the shorter term sentiment and momentum rules the day. I have to remember that it is not my job to predict the market, but merely to follow it and to take the opportunities that it makes available to me.

In order to do this I need to create the right mindset that will allow me to flow in and out of the market without bias or fear. The best way to do this is once again stick a bunch of sticky notes to my screen that constantly remind me of Mark Douglas' 5 Fundamental Truths of Trading. So written in barely legible crab scribble, I will be stcking the following truths to the bottom of my screen:

1. Anything can happen.

The world, and the market, is completely and totally random and cannot be predicted. If you can fundamentally accept that anything is possible at any given point, there is no logical way that you can hold any expectations about what 'should' happen. And therefore forming a bias or a view is irrational. Anything is possible and it is your job to react to the changing environment.

2. You don't need to know what is going to happen next in order to make money.

Self explanatory I think. If you just follow the market the opportunities to make money will present themselves. Anything is possible remember.

3. There is a random distribution of wins and losses for any set of variables that define an edge.

An 'edge' is what your rules gives you. A setup for a trade... a set of variables that indicate to you that an opportunity exists. No strategy works all the time and no system will get every trade right. The more you trade the more probable that 100 losing trades in a row becomes. Likewise the more probable that 100 winning trades in a row becomes. None the less, the distribution between winning setups and losing setups are mostly random and unpredictable.

4. An edge is nothing more than an indication of a higher probability of one thing happening over another.

Seeing as nothing can be predicted with certainty and that anything is possible, all we can do as traders is to put the probability of success in our favour. Our edge gives us this, but we must remember that just because it is probable, doesn't mean that it must happen.

5. Every moment in the market is unique.

Every single day countless people interact with each other all acting on what they are interpreting about the markets behavior. Just because a chart pattern repeated itself  few times does not mean that it will repeat itself again. It is impossible for anything to ever truly be repeated exactly like it was before. For that to happen each and every person interacting with the market will have to do exactly what they did before in exactly the same sequence. Even if one person is not at their desk, or is in a different mindset, that pattern that you are banking on repeating will not be exactly as it was before. In fact, it may not work at all. Every moment is entirely unique and different and remember, anything is possible. 

Accepting these 5 Fundamental Truths of Trading sounds a lot easier than it is, although I believe that they are vitally important to anyone's success as a trader. They need to be engrained in your mind and always be at the forefront if your thoughts. This will leave no room for expectations to creep in and make your life difficult. If you haven't read Trading In The Zone yet, do yourself a favour and read it. 

Happy trading.

@TraderPetri

4 August 2015

Back to the drawing board

I’ve been tracking my performance for some time now and have recently completed another full year cycle of recording statistics about my trading. I am sure by now most readers are aware that I have been having a bit of tough time in the market over the past 3 or so months, so I don’t need to elaborate on exactly how rough it’s been seeing as you already know.

None the less, I have spotted a few trends in my trading performance over the past year that I intend on either stamping out, or improving upon. I have been making use of a volatility and probability based strategy that allowed me to get some great runs out of stocks like Telkom, Capitec and PSG. During times of market turmoil however, my strategy suffers. What I can now see by making use of the historical data I have, is that during the times that the market is trending higher my strategy tends to outperform rather well. However, during times that the market is moving sideways or coming down, my strategy takes strain, and often in excess of the market.

The idea is for the strategy to accumulate good quality stocks during tough times, which works very well. Although I think it will work considerably better as a long term equity strategy and not as a short term derivative strategy. Granted that during the ‘trending up’ times the strategy works well.

Knowing this allows me to be able to switch between strategies during different types of market conditions. Therefore I intend to refine my strategy over the next few weeks in order to be more adaptable to different market conditions. I need to trade more conservatively when the market is moving sideways and I need to be more willing to short when the market is moving lower, and I need to stick to what has been working during times that the market moves higher. I know that switching between these different trading styles is within my ability, I just need to formalise a set of rules for me to follow when the appropriate times come, as well as a way of identifying the changing market conditions in order for me to be able to recognise when I need to switch between styles.

This gives me a lot of homework to do over the next few weeks. It may sound tedious and like hard work, but trading for a living is tedious and hard work. Therefore I am more than willing to put in the time refining and back-testing strategies every year. My goal is to constantly improve my trading and this is to me a logical way to take stock of where I am and what I need to do in order to improve.

The most valuable lesson I have learned over the last few months is that trading is about survival. Yes, sticking to your rules is of the utmost importance and is the only way in which you can ensure that you are protecting your capital when times are tough, but every now and then we need to re-evaluate our rules to make sure they are still relevant. The market is always evolving and we must evolve with it if we hope to survive.

Some homework for you as well; go and look at each of your trades over the last year and try figure out how you could have done better, regardless of the outcome that trade had. It may make you feel a little stupid every now and then (as it surely does to me), but I assure that you will spot some sort of pattern of mistakes that you make and that fixing those mistakes is easier than you think.

@TraderPetri

22 July 2015