Trading Update: 13 December 2014

True Profits Earned in 2014 to date: US$37,009.26
Current drawdown from maximum true profit earned in 2014: US$0 
Change from last week: US$7,477.30
Directional stance: Portfolio is 54.69% bearish.

What a difference a week makes. The US financials continued to rally on Monday and the drawdown hit a high of US$8k+ before the long awaited pullback arrived. Thanks to the dip last night and the large move down on Wednesday, the drawdown has been wiped out and a new high for the portfolio was achieved.

Do I deserve a pat on the back for this? No, one reason being that my portfolio is still bearish-leaning and would need the pullback to continue in order to make money. The thing is that the expected pullback has met its minimum size requirements and a bottom could occur anytime. I would not want to sit through what should be a fierce rally with a 55% bearish stance and will need to find a chance to rebalance the portfolio to a bullish stance during the next market hours. This is because the current indications are that the next move for the S&P 500 (after it bottoms after this pullback is over) is likely to be a move to 2100+ at least, with potential to hit even 2500+. So the deed is done only when the profits are booked by resetting the portfolio to a bullish stance in anticipation of the rally. I would have loved to have booked the profits last night but it doesn't make sense to wake up at 5am to close out positions so I'm hoping the futures on Monday do not throw up any upsets. There is also a bonus that the pullback would continue. That would be nice. Ah the tussle between greed and fear. It doesn't help that it's close to the year end and there are some targets I would like to hit for the portfolio for this year. And I am within smelling distance of those targets.

But even if I booked profits for this pullback leg, it has been bad trading on my part in the past few weeks. Why is it so? That's because the outlook of the markets had changed such that moves to 2100+ to 2500+ are likely. In light of this, continuing to maintain that bearish directional stance and waiting for the pullback to happen was trading against the trend. In my view, I should never trade against the mid-term trend (i.e. trend for next 6 to 1 year), especially for the trading strategy I am employing. Waiting for a move against the intermediate trend in order to make money can get hairy and takes out some of the emotional capital out of you. Make no mistake, it's bad trading on my part and I need to sort out the positioning of the portfolio before the rally begins. Making money this way is like picking pennies in front of a massive road roller nearby - one day you are going to get crushed by it. What I should have done as per my trading rules was to take the drawdown on the chest (when it was about the US$2k to US$3k range) and start over with a bullish tendency.

Regarding my bad trading point above, an analogy would be like in football - would you rather play badly and win, or would you rather play well and lose? In my case, assuming I book the profits, it would be like playing badly and winning. Scrappy play but somehow the opponent makes a mistake and gifts your striker the ball in the penalty area, your striker trips and his foot happens to touch the ball as he stumbles and falls on his butt and.. GOOOALLLL wtf! In football, it's all about the 3 points - but in trading, while it's all about the money, the methodology is sacred. Trade in the right way, and given an infinite amounts of trades, you are going to make money - even if you may at times lose money despite trading the right way. Learn to see yourself as a casino - once you have that 0.000x% edge, you are going to make money eventually, given an infinite number of trades. That's the gist of my favourite book on trading psychology - Mark Douglas' Trading In The Zone.