2009-12-21

2009 - A year in review

year of missing opportunities - Looking back on 2009 and lessons learned

Now that 2009 is coming to a close and holiday season is upon us, it is a good time to look back on year just gone by. Usually I run my year from April – March but I felt it would be a good idea to put up a page for year end review by me and other fellow traders.

This year (ending March 2010) would be special for me as I would complete 3 years of active trading without blowing out my accounts completely. They say that if you can survive for 3 years on your own, you can probably last as an independent trader. Also interesting to note is the equity curve, which after a tremendous jump in 2007-08 has remained practically slow sloping upwards. I thought about this point and I put it down to missing opportunities – the more I learned, more I was confused in various strategies and more I missed opportunities. When I knew little, I could trade with my method and not get confused by additional knowledge. Therefore since July 2009 I have started going back to my own trading style which I am comfortable with and stopped getting distracted by desire to try every thing under the sun. I believe trading is about mastering a few systems and methods instead of trying to fight in all arenas. My fellow trader AO has provided an interesting 38 point journey of a successful trader. It is worth looking at that every now and then to see where you really are. Also the journey does not end at point 38, instead one can easily lose discipline and fall back a few steps or even at the start of the queue.

Another important change I adopted during this year from Mid June 2009 was to start a disciplined daily Home Work process with track record. Some of us regular traders publish our daily analysis of the markets we trade. I run a special book for these trades and this book has been the most successful book since the day it was started with not a single losing month. So far I report the results on 1 lot basis. From next year, I will start reporting the results on two lot basis to better capture the real performance (one lot for first target and second for runner position). The disciplined home work process helps me tremendously not only in the short term/day trades but also to manage my longer term positions.

I have also learnt to my peril that my trading style does not suit scalping/fast moving intra day trading and therefore I have stopped looking at any strategies which require quick entry and exit of positions. I neither have that sort of attention span nor mental setup to execute such strategies. With that aspect in mind, I put a decent stop loss on each trade giving trade time to breathe. Larger stop loss does not mean excessive risk. It simply denotes smaller position size per trade as per money management rules (not more than 2% – 5% risk per single trade). In my longer term trades, I still prefer to trade breakouts and building positions as the trade moves in my direction.

In hindsight, I had some good calls in 2009 but due to “conflicting signals from multiple systems”, I ended up exiting earlier OR even missing my trade signal completely. I had good call In December 2008 on Silver outpacing Gold and later on in January 2009 about start of Gold bull move. But I did not capitalise on the full move in either of them ignoring my system. In early summer, I had good fortune to catch the bull move in British Pound which I rode a long way for good profit and bear move in USD which I exited bit early. I suffered from “conflicting signals” in summer 2009 and exited many of my established longer term positions early without realising the true potential. I attribute this failure to “too much learning”. Keep it simple still works and I am determined to use that in the coming years.

I also made the mistake of trading counter trend and trying to turn bearish too soon on the markets. I think it was a mistake to try to pick up tops and bottoms in a strongly trending markets. Instead it is worth to be patient and wait for the trend to signal change.

For the coming year my business plan remains similar to before. I will have 50%-50% capital allocation to Homework Trades, and Longer Term trades. Risk per single trade would be 1%-2%. My analysis would be predominantly based upon my own system which is a combination of technical analysis and Elliot wave theory. I will be avoiding scalping and scalping based systems. In addition, I will be trusting my instinct much more and avoid the temptations to close trades early. I believe exciting opportunities will materialise in 2010 and we will be ready to make use of them.

Happy Trading.