Great work, HB! My biggest focus this year has been how to best let winners run (for the very reason hf states above. Something that can help is to remember how easy it was to let a big loser run. For me, the bigger the loss became the more ridiculous it seemed that price could keep going against me. But now I realize that trend followers are in the majority and they are tenacious, not giving up easily. So why give up a winning trade so easily when you are with the majority in an environment driven by supply/demand?
You actually raise a great point...the core of my system is basically a mid/long term trend following system that uses ETFs. I have backtested it, but only broadly for about 8 years (which isn't a lot of time), but I have validated it against about 30 years of SP500 index data. Anyway, I have a good feel for its historical performance, and its a good point that by not staying with the trade I could be seriously damaging my overall performance. Need to have more confidence in the system and accept the volatility and drawdowns that occur when I'm in winning positions. Going to place a new-found emphasis on staying in these positions even when it just feels wrong (like right now...) I had always hoped to enhance my backtested performance by applying some hedging strategies at key points (extremes), and I will probably still do that, but I need to stay in the positions no matter what.
Nodoji -- yes ive been reading your stuff and see that you've gotten pretty good with letting winners run...i just need to follow your example! SpecialK - this aspect of my system is pretty mechanical i have been taking profits when i really shouldn't be. But, for my discretionary swing trading I agree with you -- i am going to do just that, scale out slowly. I think that will help ward off some of the psych issues that occur when staying with a full position on.
Well, all I can say is, easy come, easy go.... Terrible week....first truly bad week since the debacle in May. Here are this weeks stats: Weekly Gain: -4.5% YTD Gain: 58% % drawdown: -4.5% The situation is actually worse than the picture above paints, as I was up several percent on the week going into Friday. I made every terrible mistake in the book on Friday. Unfortunately I believe such a long string of success bred overconfidence and sloppiness. I will be really getting back to basics this coming week. If the market continues to move against my positions, I could lose a few more percent, but no excuse not to contain the damage to within 10% total drawdown. With the systems I am running, I am prepared to suffer as much as a 20% drawdown, although by applying hedging strategies I am hopeful I can avoid such a situation. However, if China raises rates on Sunday, I could suffer somewhat more significant damage on an open crude position I'm holding. Here's to hoping that doesn't happen.
Yes, back to old habits i'm afraid. Main mistake is I am just doing too much discretionary trading. I basically got caught long silver, gold and crude on Friday and didn't cut and run. The problem is because I work full time I don't have enough time to adequately plan out and think through really short term trades in advance, so I ended up taking spontaneous trades and manage them as they go. Honestly, this works out a tremendously good amount of the time, but days like Friday the whole house burns down. As long as I'm working full time, I need to be 75% system based swing trading, and 25% hedging and taking the occasional discretionary swing trade opportunity. I think my personality and skills might be better served toward short term trading (e.g. 3 days or under), but I can't do it while working full time. Impossible to be consistently disciplined with so much distraction. I need to funnel my eagerness to trade into further system development rather than the day trading i've been doing. I have a perfectly good system that I'm pretty confident will yield 30%+ plus per year, so I need to just trade that and reduce any discretionary trades to really opportune moments (the low in early september being an example of one, in my book).
I figured you got back to break even and decided to trade on a whim. Don't get in unless you know where to stop out at!!
Here is what happens: 1) I decide to trade 80% system and 20% discretionary in a very selective manner, when the opportunity seems really, really good. 2) My discretionary trades are like 80%+ profitable, because I am being very, very selective 3) My discretionary trading is so successful, suddenly it seems like there are more opportunities...so i trade more and more using S/R, sentiment shifts, etc. My discretionary trading continues to be very successful. 4) After a while, suddenly I find I am a lot less selective, and my trade frequency is way up. Trades are less thought through, stop points not, picked, etc. Easy enough to fix...if I could eliminate these slip ups I believe my trading would be tremendously more profitable. I am going to move back to 80% system trading and only 20% discretionary swing trading. I am only going to make discretionary trades that I expect to last more than at least 1 day, so I can plan them out better. Hopefully I can get back on track through the end of the year. Unfortunately, my systems are long-only, so if the market were to dip through year end I will take some significant additional loss.
I think I've gone through what you are doing in the past. If you really must be "long only" then you need to get out now because the risk/reward is not good. For every long trade that looks good now you will be kicking yourself if the market dips and you get a much better entry point within days. Here's what I think the psychology may be. You are trading well being very selective. The market makes the expected big move. You start seeing all the money you missed if you had taken more size or been less selective. So you increase your risk tolerance and action as the last wave of the bull run is ending. You need to ask yourself do you really need to risk a huge draw down at this point just to stay busy at this crucial phase of the market. I say no, there will be better opportunities to go long at some point in the next month. Start setting some ideas on downside targets and if the stocks you like hit them go long at that point. At the very worst you may catch a one day retracement or breakeven. If you get lucky and you pegged the bottom of the retracement/correction in this bull market, you'll rake in a nice profit at very little risk. Just my opinion. If the market busts through 1230 on the S&P 500 ( which I don't expect ) then I will sit it out until things settle down.