Well comparing the current years return with last year’s provides some interesting info for my short term trading account……
In 2007, I traded stocks amounting to $300K in transactions. Note, I said “transactions”, not sales, as in I didn’t make $300K…although that would have been awesome if I did. For 2008 my stock transactions went up to over $3 Million – a great than 10X increase.
The explanation for that has to do with the fact that I added more money to my account so I had more liquidity to do extra trades, and I had less overtime at work which allowed me to spend more time focusing on trading.
Now for performance: in 2007 my net return was about 15%, and my goal at that time was to improve on that. Well, 2008 was the year of Wall Street’s meltdown so was I able to get a better return? The answer is…my return for 2008 was over 35%!! Not only that, but it would have been even more had I not taken some big losses in day trading mistakes.
The time I was able to spend indulging in additional trading has painted a clearer picture of where my strengths lie. I now know that I don’t really excel at “day trading”, as in buying and selling stocks on a minute by minute basis constantly watching the stock chart during the day. In my opinion, it’s too close to Vegas style gambling and comes with all the emotional excitement – and emotions are a bad thing when it comes to trading stocks. My biggest losses last year were the result of day trades going from bad to worse. The worse thing is, I look back and can clearly see they were stupid trades from a longer term view. As punishment, I made a “play by play”chart of those big losses so I can always see them and never forget what happens when you make stupid mistakes.
On the other hand, I also now know where I my true strength in trading lies – longer term position trading. This is where you analyze a stock and make a forecast for it’s future movement based on current business and market conditions. It typically takes longer for trades to pan out – on the order of weeks to months, so there’s no day trading immediate excitement, and in reality that’s a good thing. The excitement comes later if your trade performs as expected and results in a good profit.
My goal for this year is to take what I learned from all that trading last year, and apply it to this years trades. It’s all about striving to gain the superior skills that come from combining book smarts with actual experience. Even in today’s rocky economy, there are a ton of opportunities to make money in this market.