Market Trading Updates of Updates – The Big Catch Up

I have been mostly MIA with regard to trading updates for the last several months during the revelation that Xanga was preparing to close its doors and possibly reopen under a new version on a “pay to blog” model, and my full-time transition to my WordPress site- so there’s quite a bit of updating to do….

During this “blackout period” I’ve been dutifully trading on a near daily basis. Trading this year has proven to be a big challenge and rough sledding. I guess one could call it “The Sophomore Jinx” after my prior highly successful 1st year of keeping and blogging my full portfolio trading results.

To catch folks up who are unfamiliar with my Xanga blog, I had committed to studying/learning how to be a successful trader/investor, success being defined as the ability to earn enough by my trades/investments to make a living – making it my primary income as opposed to the salaried route working for someone else.

I had been trading/investing for awhile, but I made a commitment to making learning to day trade well enough to make it my profession priority one in 2010 and spent more time and effort than ever before reading books on the topic of trades and investments combined with daily trading and analysis and keeping records of all my activities along with resulting gains or losses.

By 2011 I was using all that I had learned in 2010 to move forward with trading. It was a year where I started to see the first fruits of my labor with more consistency in my gains although I was still getting mixed results with some losses thrown in as well. By the end of 2011, I felt that I had acquired enough experience to be a successful trader. I kicked off 2012 with making the decision to post my trading results every month to make my progress public to my readers. The year had several instances of high drama with swings of greater than 15 – 20%, but overall, there was a solid consistency in getting gains and the overall year was a big success by any standard. I had indeed arrived with the capability to earn my keep trading the market.

I figured 2013 would be even better as I worked to smooth out some of my rough edges that put me in some high intensity roller-coaster trades the prior year. What I didn’t know is that the market had something else in mind as it “leveled up” on me and gave me a new set of challenges.

All of a sudden, I started having more difficulty in predicting day to day movement, but my long term predictions were still accurate. What usually unfolded was despite my knowing where the market was heading in a longer time frame, I was getting beat up trying to trade that movement in the short term. After such a successful prior year, it was a painful experience being spun around and beat by the market time and time again.

It felt like this mentally:

No need to point out which one is me.  >.<

So was 2012 just a fluke? No, I never doubted my trading ability, but I did realize that an upgrade in my methods were needed. My methods were working for the long term view, but were failing in the short term. The answer to why that happened lies in the chart data.

The market data this year is a lot more frenetic and volatile in the short term than it was last year.

To show you an example- here’s chart data of ES futures from 2012:

Chart of GLOBEX~@ESU2

Now here’s the same corresponding chart data for 2013:

Chart of GLOBEX~@ESU3

The day to day volatility is much greater this year that is was in 2012. This extra “volatility” is like kryptonite to my method of using trend line analysis to predict future trends in the short term, and it raises the difficulty for me to find the right entry and exit areas. It also greatly increases the risk of getting stopped out of one’s position as the market zigs and zags by significant amounts.

The net result was my original weakness in getting the right entry area was made a lot worse. It is all kinds of frustrating to enter a position, get stopped out of your position on a strong counter move, only to have the market reverse again and go to exactly where you thought it would. It’s even more frustrating when you thought one’s skills had progressed beyond getting caught up in this type of problem.

The market behavior this year basically demanded I solve my problem with short term entries if I wanted to move forward- and that’s where my focus for the much of the year went- staring at charts for hours and looking for commonality in behavior with trend line support and resistance.

It was pretty much like this:

Just replace the equations with chart data. =)
Weeks then months went by with me staring at and analyzing chart data, trying to establish order in the chaos. As fate would have it during my down time in NYC, while I was staring at chart data only since I wasn’t trading, I finally managed to make a good amount of progress picking up the cause-effect connections. That led to a much needed recalibration of my chart analysis techniques, and a restoration of my ability to deduce likely upcoming trends.

The end result is more successful market encounters:

This video is nearly identical in analogy in dealing with market behavior. It wasn’t until Tom Cruise’s character calmed down, concentrated, got in the zone, and started mentally seeing his opponents moves beforehand (battle precognition)- enabling him to finally get a draw in battle. Being able to see what the market is likely to do gives you a jump on your position compared to those who are less certain.

The best part about my updated knowledge is that I now believe I can analyze chart data at its roots – meaning if the data takes on new characteristics in the future, I shouldn’t have a problem in updating my analysis and methodology for it. What I now know would have greatly helped in keeping me out of tight situations last year.

In time I will resume performance updates, and I will include all the missed updates so you can see for yourselves the highs and lows of my struggles this year.

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8 thoughts on “Market Trading Updates of Updates – The Big Catch Up

  1. Efficient market hypothesis theory states stocks function on a random walk and prices eventually correct themselves. Yet speculators go on a perpetual quest to seek for arbitrage opportunities. I suppose this is a bad time to say that as a couch potato investor, I enjoyed nearly 20% ROI in 2013.
    Yes, I simply got lucky.

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    • Yes, that is indeed what “market theory” states, but that theory only resonates strongly in academia versus those who actually engage in professional investing/trading. While it is true there there are legions of those who speculate and attempt to use discretionary or system tactics to generate profits that wind up being unsuccessful, there exist a proven number of a smaller subset of folks or groups that have success doing just that, and do it on a repeated basis as to rule out luck being a prime factor.

      Market theory also states that one can determine the approximate true value of a stock by knowing its overall assets, earnings, interest rates, and expenditures, but very few if any have generated superior returns using that “theoretical” value as a key to either buy or sell a particular stock.

      You have to ask yourself how many professors and scholars that subscribe to random walk or similar theories have amassed great or even moderate wealth with their information. Then go to those who continually generate big profits year after year and ask them how they believe the market behaves. I would certainly lean towards those who are actually applying their knowledge with success versus those who aren’t.

      While having luck on one’s side is nice, one has to have skills to ensure repetitive success over time, and those skills are attainable.

      Your ROI of ~20% is excellent. For the year of 2012 I was generating returns on a monthly basis that exceeded that figure on several occasions. This was done through active daily trading as opposed to just holding on to a position and letting it fluctuate over time. My ROI for the year was well over 100%, and I wouldn’t attribute the 100’s of trades it took to achieve that to simple luck. =) If you’re interested I can provide you the links to my blog where I posted my returns, which I used my brokerage software to do for authenticity of my trading activities and performance.

      I will be the first to tell you that actively trading the market isn’t for everyone and the vast majority are better off with “buy and hold” strategy, but for those who are able and willing to dedicate enough time and commitment to truly understand market pricing behavior, there are methods that be be used to accurately time market behavior to generate a much higher ROI than with passive investing. There are a few traders that blog who have proven their success in this area as shown with their consistent returns.

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  2. Point taken. I have some friends who traded independently fulltime for a few years before going back to work esp during the recession; however, as for myself, I am too insecure to ever give up a regular paycheque especially as I’d like to have a family down the road. I take that you do not have dependents which gives you the freedom to pursue this endeavour full time. At the same token, it’s important to actively try one’s own dream to live a meaningful self actualized life and never have to look back in hindsight with regret of the road never even attempted. I’m a strong believer in that. Good luck – not that you need any!

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    • Thanks! Leaving the corporate track for self employment is one of the scariest things one can do as an adult because there are so many unknowns to face. You lose the security of the consistent paycheck along with company insurance and retirement benefits and have to acknowledge the specter of the chilling fact that 80% of starting businesses fail within the first five years. The risks are even higher if one has dependents, which is why it gets harder to pursue this track over time after marriage and kids. As a single person I was still wary and nervous. I don’t think I could justify it if I were married with a wife and kids that depended on me. I have a friend who is married and has a side business of property investments, but his effort and time on it is limited as his time is divided between his full time job and family.

      The pros are if things do work out, in addition to being free of ever having to deal with office politics or a bad boss, one’s income can be a direct reflection of one’s efforts rather than a pat on the back or minor raise for full effort put into one’s task.

      I’ll never turn down good luck, but I just don’t want to have to depend on it. 😉

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  3. I am delighted to read your post.
    To learn daily trading is not for everyone.
    I find the scariest thing to leave my job for full time trading – is losing my discipline and get distracted, therefore after 8 months, I go back to work.
    It just doesn’t work for me this way.

    It is convincing to me, that you are able to keep it up for so long, like the “Eye of the Tiger” video, eat, sleep, breath, aspirin at the chart, when you are trading, and even when you are not trading – for months and now – years.
    *clap* *clap*

    I would love to read more of your post, and shout out for you!

    Ayumi
    http://ayumi216.blogspot.com/

    Like

    • I’m glad you enjoyed the post. =)

      Trading as a solitary venture can be tough since it’s a far different environment from being surrounded by coworkers. Add to that fact that we are also responsible for directing our actions with no manager/boss to set boundaries. I think that’s why many traders opt for a community trading room environment- but even that has it limitations due to the uniqueness of how each person trades.

      I didn’t know you had returned to work. You’ve proven that you know how to trade- so perhaps you just prefer the company of others and want to keep it at a part time basis for now. That really gives you the best of both worlds – a guaranteed steady paycheck, company benefits, and a trading boost to your income. =)

      Like

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