Trading Capital Update for February 2015

The above charts sets out my trading capital since February 2009 to present. There was a slowdown in capital accumulation last year due to the acquisition of Mrs RetailTrader and our matrimonial home. Hopefully the bull market can resume and we can hit new highs on RetailTrader's Trading Capital Index™! 

There's not too much to say in terms of asset allocation. Apart from allocating $5k in a bank deposit that is 100% liquid for emergency purposes, all of my cash is allocated as trading capital and fully deployed all the time. I have not included CPF, property assets or any assets of any other individual in my computation of trading capital.

Trading Update: 28 February 2015

True Profits Earned in 2015 to date: US$9,546.46
All-time maximum profit earned since 2011: US$143,604.36 (new high water mark!)
Current drawdown from all-time maximum true profit earned: US$1,357.02
Change from last update: Down US$1,215.98
Directional stance: Portfolio is 58.84% bullish

You have been warned!

Not too much action at all this week. It looks like even the US markets are going through some CNY sluggishness. The largest movement this week in the 3x leveraged ETF that I am using to trade was a paltry 1.18%, indicating very little volatility this week. But that's what it is in the heart of a bull leg. You don't see crazy up days, but more of slow grinds up, and after a slow grind up the markets will stall and dip a little bit, ruffle a few feathers, rebuild momentum before resuming the move up. And that's where we seem to be for now, in the stalling part. We take a $1k+ drawdown this week despite hitting new highs earlier in the week, and can only wait patiently for the market to take its own sweet time decide when the bull (or goat?) is to continue. It is telling that I hardly looked at the markets over the course of this week because there was simply no action. So I have to look for action elsewhere ;)

RetailTrader Tries His Hand At Gambling

I just need one good hand.. to wipe the table clean!

During the Chinese New Year festivities, I was playing a card game "In Between" with my friends. For the more inquisitive folks, you can check out the rules here. Very simply, each person will take turns to be dealt with a pair of poker cards. And you decide how much money you want to bet that the next poker card you draw will be a number that is "in between" the first two cards. If you win the bet, the money is yours and if you lose, you have to cough up money into a pot. You lose double your bet if the third card you draw is the same number as any one of the first two cards.

I didn't actually know the game was also called Acey Deucey (what kind of name is that?).

As a retail trader I gamble with a plan in mind just like I approach trading. I do enjoy gambling sessions because some games can actually be good practice for trading. In the case of In Between, it teaches you how to size your positions accordingly with the probability of your hand of cards you receive. In other words, if you get a good pair of cards, you can calculate what your odds of winning money are, and then decide how much you want to bet accordingly. For a set of cards that gave the absolute best odds, I would decide what was the maximum loss I could stomach (in the event of a freak accident) and work backwards in determining what my wager was. The trading equivalent would simply be committing to a larger position for a higher probability trade, and sizing accordingly to your risk management rules.

I also enjoy In Between because I had never lost money playing the game before. Is it down to luck or my amazing system? ;)

Interestingly as the pot of money began to grow larger and larger, the stakes got higher and my friends began to get emotional. Even I began to adjust the maximum loss I was willing to take to take into account the "inflation" of the money pot. Bets began getting bigger and bigger. Even though we started with a minimum bet of just 50 cents, it was not long before the first 2 dollar note appeared in the pot, followed by 10 dollars, then 50 dollars. Some of my friends even started betting in hands that gave less than 50% probability, and even in such cases bet beyond the 50 cent minimum bet. Some of my friends bet based largely on feel and won money. I lost 28 dollars but I had a lot of fun in the process. You should have seen my face for one bet where I plonked 64 dollars for a very high probability hand, and ended up losing double (i.e. 128 dollars)! I will simply view this as a good bonding session and the equivalent of paying to watch a very entertaining movie that was at the same time educational!

What was the moral of the story? Sometimes you can go into a trade or game with best laid plans and execute them to perfection, but still lose money even though you have done your homework and calculated the probabilities, etc. This is because while we can create a system that gives us a positive expectancy (i.e. over a infinite number of games, you will expect to win), the problem with gambling is we don't end up actually playing an infinite of games, and it takes time for the positive expectancy to materialise. And in the meantime, a freak/accidental heavy loss can set you back by a lot. Sounds a bit like trading huh? You can have a best laid plan and execute it to perfection, but still lose money. No choice, you just have to suck it up, play good defence and ensure you are never wiped out in terms of capital, and play the next trade well again. Think like a casino. Casinos win money in some games, and lose money in some games. But they know that they will always win over an infinite number of games and don't lose sleep over losses. That's how it should be for trading (and gambling) as well.

Ah Boys to Men 3: Frogmen - Some Thoughts

*Note: Minor spoilers may follow for the movie Ah Boys to Men 3: Frogmen (2015). 

Having watched and enjoyed the third instalment of Ah Boys to Men, one scene struck a chord in me. In case you don't know, the movie is about a bunch of young Singaporean men who are enlisted to be elite naval divers. The movie details them going through their training phase and the scene I want to talk about involves 2 of the trainees.

Trainee 1 is a Hong Kong gangster (nicknamed Black Dragon after his very conspicuous tattoos) who constantly bullies Trainee 2, a smart alec called Aloysius Jin Sia Lan (vulgarity not intended, so he says) who just can't help rubbing Black Dragon the wrong way with alarming regularity with his unsolicited advice on how to do things the right way. 

Aloysius the peacelover

You don't mess with the Black Dragon

Black Dragon is a bad boy with badass shades and gang connections and a bunch of gang cronies who follow him around (when he is out of the camp), who likes to throw his weight around, intimidate people and treat his parents with disrespect (not all at the same time). Aloysius, for all his irritating traits is really a peace loving, God-fearing boy whose hobby appears to be reading books like Mixed Martial Arts for Dummies and lives by the philosophy "make love, not war". 

Throughout the movie, Black Dragon is constantly scolding and pushing Aloysius or knocking him on the head when they are in the bunkcabin. Aloysius plays peacenik and never retaliates at any provocation from Black Dragon, opting to retreat every time things get physical. Things never get too serious.. until one night where things got a bit more heated. Black Dragon starts giving Aloysius hefty shoves and begins punching Aloysius. Out of self defence, Aloysius starts retaliating which only has the effect of angering Black Dragon further. Before we know it, we have a full blown duel on our hands (with the rest of their platoon mates watching them from a safe distance), and after an robust exchange of blows and kicks and arm locks, Aloysius bests Black Dragon with his superior strength and swiftness of movement. Black Dragon slumps to the floor somewhat dazed and humbled.

Aloysius then reveals that he is actually proficient in all sorts of martial arts imaginable - taekwando, muay thai, karate, jiujitsu, MMA, and some more I think I missed. And he tells Black Dragon that despite the fact that he was obviously more powerful than Black Dragon in a physical confrontation, he never retaliated because he pitied Black Dragon for being such a flawed person who has no real friends or love. Aloysius says this in between sobs because it is not in his peacenik nature to use physical force. Things had escalated to such an extent that force was required. 

Power, in a book.

Somehow this scene hit me because it shows great strength on the part of Aloysius, and I'm not talking about just physical strength, but more of emotional strength. In life, there will be people who will do things that irritate us in our daily lives (whether intentionally or unintentionally). But if we can look at what others are doing from their perspective (perhaps they are operating at a lower level of consciousness like Black Dragon was), we can look at their actions with compassion and opt not to retaliate. After all what good would that do? Instead, is there anything we can do to help them? To be able to see things in such a perspective, is strength.

At the same time, I wonder if what Aloysius did was an act of the highest consciousness. Is there any way he could have acted that would have been even more appropriate? 

Trading Update: 21 February 2015

True Profits Earned in 2015 to date: US$10,762.44
All-time maximum profit earned since 2011: US$143,463.32 (new high water mark!)
Current drawdown from all-time maximum true profit earned: US$0
Change from last update: Up US$822.06
Directional stance: Portfolio is 57.95% bullish

The Chinese New Year rally appears to be in swing as the S&P 500 and the portfolio hit new highs together. As promised, it has proven to be a slow grinding journey up with the S&P 500 putting in a modest little green candlestick this week. In a bull market, the market tends to grind higher in a boring way, and that's exactly what we are getting now. And when the market gets too boring, we'll get a pullback once in a while to spice things up a bit. When the markets are not really moving much, there's nothing much a Singaporean retail trader can do, except eat, drink, and be merry during CNY!

Just one more kueh bangkit, please. I promise I'll go for a run tonight.

I did mention last week that a reset of the portfolio may be necessary if the bullishness level of the portfolio drops below 55%. This is what I expect to happen when the market carries on rising. Well apparently it's risen so slowly that a reset has not been necessary. So we continue to wait.

Stay healthy, stay foolish!