Current drawdown from maximum true profit earned in 2014: US$3,276.10
Change from last week: - US$2767.77
Directional stance: Portfolio is 58.78% bullish.
Annual returns: 10.18%
Looking back
So, the year closes with a "bang" of sorts (pardon the pun but my last memory of last night was watching Big Bang perform during the New Year's Day countdown on TV). The portfolio seemed destined to hit new highs before I hit the bed last night but instead the markets went into a woozy and suddenly I have a drawdown. That's trading for you. But as you can see, the "nice figure" annual return target has been hit and I can say this has been a satisfactory year (from a trading perspective). It would have been nice to hit 40k in absolute figure profit but yeah, greed is good.
I did not manage to hit the heights of 2013 (20% returns) or the great year that began this journey, 2011 (27.6% returns). If you think about it and just stare at the charts for S&P 500 in 2013 and 2014, 2013 and 2014 are very similar. Generally part of a steady bull run with some dips along the way, which are opportunities to make more money, distributed at points during each year. I look at my trading records (and look at them again) and can't quite explain why performance was twice as good in 2013. In fact, there were quite a few times in 2013 where I allowed greed/loss aversion tendencies to get the better of me and traded "wrongly" and this caused the directional stance of my portfolio to be veered a little dangerously in one direction (where the risk of large losses grows, i.e. not ideal! Danger, Will Robinson!), yet it was from positions like this that, when the market direction turned eventually, I was able to reap in copious amounts of profits. In 2014 I was more disciplined and stuck to the rules largely (except for the weeks where I first began this blog), and yet "still like that". Could it be that the parameters I've set as to how bullish and bearish I allow the portfolio to become are somewhat more conservative? Am I "outgrowing" the safety nets I built for myself in the initial years? Could it be that it is time to open up the floodgates a little, and be amenable to risking a larger drawdown in the hope of larger returns, in order to take things on to the next level? Again, pardon the football analogy but is it time to give my players more freedom to express themselves rather than being obsessed with marking, constantly staying in position and tight defence? Is it time to be Liverpool rather than Chelsea? ;)
I have no answers at this point and probably will need to pore through my trading records again to see if there is anything else I can glean from the past.
Above is a chart depicting my trading capital since June 2011 to date. Naturally, the trading capital does not quite correspond to trading performance because it is contingent on other factors, such as (but not limited to) my salary/bonuses and expenses. The dip in 2014 which "interrupted" the steady progress over the years can be proudly attributed to my acquisition of Mrs RetailTrader and our matrimonial home :)
Looking forward
As I alluded to above, it is time for me to relook the strategy to see if it can be tweaked to increase the profits. If 2010 saw version 1.0 of the methodology being implemented, and 2011 version 2.0, and 2012 version 2.5, and 2013 version 2.7, it's time to take the methodology to the next level - version 3.0. What I mean by this is to continue to refine the "rules" for which the portfolio is managed, i.e. its bullish and bearish limitations, and parameters for maximum tolerated drawdown. Of course I don't believe in absolutisms and false dilemmas, any changes I make will be evolutionary and nuanced, I'm not expecting to make any 180 degree wholesale changes. Tweaking will be the name of the game for 2015.
S&P 500 looks set to continue the bull run (there is not enough complacency in the markets as yet) and the current indications (which can change in an instant so please do not rely on anything I say here on market direction for your own trading purposes! These updates are intended more to share my thoughts on my trading process than to provide any sort of advice) are that the markets can go all the way to the high 2100s to 2500s before topping. So I say we enjoy the ride up and when the bear market is confirmed, the portfolio will need to switch to "bearish" mode. Based on past data the portfolio tends to perform better with volatility, which will be present in large amounts in a bear environment so I am actually looking forward to the next bear. As I told a friend my age yesterday, the upcoming bear could be the opportunity for people of my generation (who did not have much capital to "cash in" on the financial crisis of 2009) to really grow our pot for retirement (go big or go home!). Of course, step by step. It could be that this bull market (which is really a relentless one, as it is a reaction to the crazy fierce bear of 2008-2009) could go all the way to 2016 so let's be patient, bank the bull market coin first, continue to save and accumulate capital for our trading "warchest" and take things step by step (and remember to enjoy life on the way).
It's difficult to set targets for 2015 because ultimately you cannot control when the bear market wants to begin but hopefully I can at least hit 10% returns again for next year. And never forget rule number 1. Beyond that I hope to recapture the performances of 2013 and 2011.
In the more immediate timeframe the markets seem to be taking a breather and we can expect the S&P 500 to resume the rally from hereon, or more probably after more of a pullback has taken place (somewhere in the low 2000s). So we can expect some more short term pain for the portfolio before we get back into business. As we only have one more trading day in the US before the weekend, my next regular trading update will be on 10 Jan 2015 instead of 3 Jan 2015.
Cheers and here's hoping for a good 2015! I wish each reader health, happiness and wealth!
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