Trading Update: Annual Update for 2014

True Profits Earned in 2014: US$36,943.07
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!

Trading Update: 27 December 2014

True Profits Earned in 2014 to date: US$39,384.88
Current drawdown from maximum true profit earned in 2014: US$325.96 
Change from last week: US$1,344.91
Directional stance: Portfolio is 57.38% bullish.

The year-end is near. It's been a short week with markets closed for the Christmas holidays. The markets are continuing to hit new highs but without the ferocity of the rally we witnessed last week. Truly a Santa rally. The rally appears to be winding down in anticipation of the next pullback. I did some old-school phone trading again to rejig the portfolio, given the rally earlier this week. So now, the portfolio is primed to make more should the rally wish to continue. Should the pullback come, then it's hold-on-to-your seats time until the rally resumes again. There are 2.5 trading days left in the calendar. All I want now is for the portfolio to cross the target threshold I have set for this year. Then all would be well! I expect to update again sometime in the first days of January 2015 to do a major yearly update.

Trading Update: 20 December 2014

True Profits Earned in 2014 to date: US$38,039.97
Current drawdown from maximum true profit earned in 2014: US$1319.10 
Change from last week: US$1,030.71
Directional stance: Portfolio is 55.56% bullish.

It's been a good week on paper, and most importantly besides locking in some modest gains, the portfolio is finally (at long last, way way overdue, you get the point) aligned with the intermediate trend, which is 2100+ to 2500+ as the next top for S&P 500.

The pullback that I was waiting for certainly did not renege on its promises. It came with a flourish and the markets dived fiercely for a few trading days, hitting sub-2000 lows. It was certainly no wimpy pullback. However, the markets bounced off from the bottom with such a ferocity that by the time we had to concede that the pullback had ended for good (i.e. no more "one more leg down" to squeeze more short profits out of the pullback), quite a good bit of the profits I had gotten from being short during the pullback had been eroded. I did however make some gains from the move up after switching to a bullish stance, hence the drawdown amount is looking pretty docile this week.

On hindsight, I should have booked my profits much earlier on in the week, but as Gordon Gekko said in Wall Street: "Greed is good." I guess not, this time! I'm motivated by greed (to extend profits) until fear (of losing money) overrides the greed (actually like 99.69% of us probably are).

Speaking of Gordon Gekko and trading in the 80s.. interestingly enough the specific counter I trade requires my trades to be placed by phone for some reason. Yup, even in 20152014. Even if my broker claims to offer its clients a state-of-the-art trading platform, with colourful charts, the ability to place complicated trade orders, cutting edge news updates, etc. but at the end of the day yes I have to call in to talk to fumbly traders and scream the names of countries like "SELL 999 UNITS OF ARGENTINA BRAZIL CHINA LIKE NOW!!!!" and wait and prance around my room holding my phone as they take their own sweet time to place the trade while the markets move against me. Really old-school but it makes me feel like one of Gordon Gekko's disciples in the "good old days".

All this talk about Gordon Gekko makes me want to re-watch my favourite trading movie, which very aptly is set during Christmas in the good old 80s - Trading Places! For everyone reading this, please have a good Christmas! and I will see you again next week.

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.

Trading Update: 6 December 2014

True Profits Earned in 2014 to date: US$29,531.96
Current drawdown from maximum true profit earned in 2014: US$6925.88
Change from last week: -US$4941.82
Directional stance: (Still) awaiting a pullback.

The bull market is relentless? But like a spring, the further it is stretched, the more violently it is going to coil back. Sell signals are starting to appear. Hopefully it will be a more fruitful year-end.