It’s easy to get caught playing the game of “if I had….”, so that’s the technique for me to practice at the moment: coaching myself or victory by not interfering and making peace with my past decisions. In this case it’s my dceios not to add at regular intervals, so I can focus on letting this one run, the purpose being not to get caught out (stopped out) of a big move. In this case it makes sense, the pair is volatile and the factors driving the trade are unclear. How is this different from my cocoa or copper trades? I think it maybe feels like there are so many more different variables at play in this trade and whether that’s an illusion or I’ve conceived the story that way I can’t tell. All I know is that in this moment the most important thing for me is to stay on this winner and follow it as far as it goes and the only way I can do that without exposing myself to getting stopped out is to not add to the initial position.
Finally on a winner with gold. A couple of false starts, went long gold mini (YG) 16th April @1754 and 27th April @1734, got stopped out @1679 on 28th May.
Then went long again at 1767 thinking it had finally broken through on 22nd June. Took that all the way up to 1799 on 14th July before I rolled into the full size gold contract GC @1802 for August.
Sat on that position all the way through to now, haven’t added a second unit. That’s my current conundrum. If this is a long term move then I don’t want to endanger my position by getting into a situation where my breakeven price becomes endangered, I get stopped out and then it continues higher. For this stage I’m just going to sit on it. Have been doing a lot of internal reasoning recently, most of it goes along the lines of having a position with a protected entry is just so much easier to stay on, so I’ll just sit on that. The second / alternative line of reasoning goes along the lines of all sorts of rationale for pyramiding into the position. I think for me right now the most important thing is to have a mentally stable position which means not adding to it. Should gold continue on a big run then I will still get a great outcome regardless of whether I’ve pyramided the position or not.
I’ve been doing a lot of work recently both preparation and development across a range of areas both from a technical side in the sense of building my programming skills and also from a level of emotional development for my trading. I came across this today while reading a book called Letting Go and it is the second of which by the same author that I’ve read recently:
“Feelings are the accumulation of thoughts that ultimately come from attachment to an idea or an outcome so what is the outcome that I’m attached to that’s causing the problem”
This is very similar in theme I feel too what Ed Seykota deals with in the Trading tribe which is basically that if you don’t deal with your frustrations they will tend to come out as losses in your trading and mistakes that you repeat.
The book that I am reading is by David Hawkins who has some fantastic insights mixed in with some quite strange theories. The good parts in my view is that the theories can be ignored but the observations are quite valuable for dealing with emotions. He has a table which deals with different emotions and mental States ranking them from most negative to most positive. I printed it out and put it on the wall near my computer so I have a reminder there of when I’m feeling a negative emotion to look at an emotion further up the chart then identify what I would need to be thinking in order to feel that emotion.
To give you an example when I’m feeling angry about not having enough time to do something I feel is important then one of the emotions further up the chart is courage. Now you might be thinking how can I translate courage into an action when it’s me who is losing my time to somebody else. The answer is that it takes courage from me to put someone else first and connected to that are some of the other emotions further up the charts such as willingness, acceptance, reason and love.
Now whilst you might think this is all a bunch of explaining away not getting a result with emotions and that it’s unproductive – the key takeaway is to not hold onto the anger, to accept that I have made the choice to prioritise doing something for someone else, it could have the benefit of not feeling guilty for being selfish which leads to pressure to make money from that specific trade (justifying my selfishness – it’s ok I made money, it was worth it) and I also don’t try to squeeze in a trade a bit later to ‘catch up’. It’s all just about building a complete acceptance that I’ve missed this trade opportunity and that’s OK because I did something meaningful for someone else and in the end, for me.
I think taking time out is a really important part of recovering emotionally as a trader and that is definitely something which applies to me at the moment. After being wrong on the US equity markets and general risk off sentiment I needed some time to recover and get back in control of my decision making rather than trying to chase a recovery win. Also doing something outside of trading which has a positive outcome and has a building aspect to it was another good idea, in my particular case it was looking to climb some mountains overseas which will require some planning and also some goal setting as well as an amount of satisfaction from completing the task. All things for me to look forward to. Even did some things on a more basic level like cleaning around the house polishing up the car after I made a stupid mistake and ask for help on how to fix it from my dad. That has added momentum to do positive things again so that’s great.
Currently I’m long the US dollar by being long Euro US dollar put options so if I was picking something which was not aligned to that trade I would want something which is long a commodity / short the US dollar. Looking through the list of possible trades we also need to consider that the long US dollar position is also a risk off trade so I need to look for something which is a risk on or neutral trade. Oil is a bit of a confusing one because the trend is strong and it is in the right direction but a higher oil price is generally negative for growth unless it’s a demand-driven price rise, which in this case I would say it is not. Lean Hogs is probably a perfect example of what I would want to add to my portfolio but that horse has already bolted so to speak.
Sugar is an interesting example because in the bigger picture I have a bullish perspective on the price moving higher, as it fits quite a few of my criteria for my most successful trade:
– coming down from a major high in the last 12-18 months
– after coming down from a 30% or more fall, then the price has stabilized sideways for at least 9 months
– the moving averages have converged from the 15 day all the way up to the 200 day
– the price has attempted to move through the 200 day average at least once and failed.
One thing which is not occurred with this opportunity so far is the price moving back to within 1.5% of the old price extreme. This is the most obvious entry point from a good risk/reward perspective. Based on the May contract I’m not sure that the price will actually get there though so it’s a question of whether I take some risk now and if so it through what product – options or outright? I think the outright is at a good level in the short term but not close to the long term low.
What interesting thing which I have noticed after riding in my trading journal is that I have tried taking a long-term view and then taking long term positions as well as taking a short-term of you and then taking short term positions but accommodation witch support if I took the time to do the complete analysis is that I could use a long-term Outlook to take short-term positions and that might be quite profitable given in the money trades I’ve had previously. Ones that come to mind off the top of my head include the recent move in t bonds, the move in where the value of my options spiked, the move in the Dax, the move in the VIX index, so I suppose aside from that major trade setup what I’m generally good at picking from a profitable perspective is identifying the big picture setup and then trading the shorter term action. The issue has then become that I hold on to the position because I’ve got a long term view but then I get taken out in the chop or the longer term view turns out to be wrong once the short term move has evaporated. So I should really move to a rule where I take profit if my account is up by 30% unless I have a proven big win at trade setup which I’ve already identified as being either the one described above, or the 19% retracement rule.
Just got back from 2 weeks holiday in China, some interesting moves over this time.
Major surprises for me were:
- the equity markets continuing to push on, I really thought they would fail near the 200 DMA.
- cocoa spiking with a large rally, circa 10% up to 2450.
- Orange juice CRUSHED all the way down to 106.
- grains have continued lower
- oil continued higher.
not so surprising but perhaps reassuring
- palladium finally having a pull back circa 10%, was into the very high %’s distance away from the 200 DMA so betting on the 10% pull back when the price goes more than 18% from the 200 DMA would have lost money quite a few times.
- coffee continuing lower to 90 after I had put options at 97.50 and 88, but clearly I wanted to have a larger position size than longer time frame. This is another mistake for me to correct because it frequently appears to be an issue for my profitability. It was also an example of the situation I describe below with having not taken partial profit on a short term spike then keeping the remainder to maturity.
- 100 x 127 call options on April 26 expiry 10 yr note.
- 103 x various euro put options with strikes between 1.04 and 1.075 which will likely expire worthless and so tonight I will look at a limit order to set for capturing any volatility if there was a spike.
- While I was away I was thinking I often have options which have a highly profitable spike and then drop off and rarely I have options where the underlying continues and makes the options at the money or in the money. I have previously realised I can solve this opportunity decision by always taking more than 1 position and getting out of half of my position on the first profitable spike and leave the remainder to run and see if it becomes profitable. The modification to this thought I had while I was away, was to weight this by how likely I thought the outcome was or history tells me the outcome is. So if I assigned a 20% probability to the options becoming at the money then I sell 80% of my position on a short term favourable move and the remainder keep to expiry.
- looking back at my two largest winners, neither of them were related to an underlying macro view. I have had two big winners which were both related to a specific trade set up and that was it.
- on the other hand all my losers have been related to either holding on to a view or a losing position. So either way a losing position has only lead to me holding a bigger losing position and rarely recovered enough to generate a big profit. The main takeaway was that my short term views might have some pattern recognition value (with an unknown level of accuracy as I have not collated all that data on my trades), my medium term macro views 3m-1y are not reliable enough to make money, my medium term pattern recognition views need half the position size and double the time frame to be profitable.