True. I learn the most lessons from my beatings... Also... After watching that chart I got a new definition for tank... Could´ve made a nice short though...
ACM, It could've been much worse! I have a very similar swing system that's completely automated, and I'm not at my computer during the day. So I picked up a pile of NFLD and didn't get out until the next morning. Like yours, though, my system is still up about 45% for the year. And the same week I recuperated about 40% of my loss on NFLD. Still a very nasty end to the year... I am thinking about culling all biotech (and maybe pharm) from my stocklist, since I doubt that the collective returns justify this kind of shock. But I'll have to study that first. And I'm also emphasizing intraday systems more and more. Otherwise I intend to continue. Thanks for starting the thread...
For this specific system, NO event would have to happen for me to always use hard stops. This system is based on tested criteria and time stops only is one of them. Using a stop SIGNIFICANTLY reduces the profitability of the system. If/when the system loses its edge, I will reduce my capital allocated to it or replace it, totally. For certain strategies, hard stops do not work well. But I DEFINITELY use stops when I daytrade, although daytrading is not my number one cash generator at this point. I know not using a hard stop goes against what we are told, but we are told a lot of BS in this business.
Yes, it was nasty. But also a good reminder to remain diversified in the portfolio. Excluding all biotech is a possibilty as the risk/reward seems to be too much on the risk side. But bad things can happen to any individual stocks. Even if we can avoid the known events such FDA reviews, or earnings release, etc.., there will be always surprises. Could be a product issue (Big pharma can be badly impacted-Merck, but not only-product recall) or a law suit (MO) or profit warning. So bad things will continue to happen. Options seem to be too expensive to cover all risks. I make about 600/700 trades a year with this system. Finally, a bigger risk, in my opinion , would be to trade "scared" after a disaster. The beauty of system trading is that we should keep the "thinking" at the time of system development, not at the time of trading the system. I sold all my stocks yesterday, so I am done for the year. The net result for this system is 48%, (54% gross). NFLD or not, I would be very happy to repeat that performance in 2007 ! But I am going to review this year trades to see if I can improve the system. However, "optimization", based on a few rare events can be dangerous.
ACM trader says there is a lot of bs in this business. DUH!!!! The paradox in trading is not in trading, it is in the learning process. Many start with deciphering the macro economic picture. Then when they decide they have mastered the worlds economic macro situation they turn to mastering the worlds political ramblings because someone said political policies can move macro situation off the dime. Ok, now super trader has all that under the belt it is time to narrow the field down to specific instruments, lets consider stock trading because that is the most visible and (SIC) most understood by normal beings working for the daily bread. How difficult should it be to trade stocks? In a nutshell stocks go up or down. 50/50 chance right? Heck, anyone that graduated from PODUNK University can do that. Ok, to trade stocks and make money you must understand the stocks fundamentals right? You are not a gambler because you found that out last trip to the hardware convention to Las Vegas. After a year or so of sending in for tons of annual reports and finally understanding all the talking heads on CNBC you are "GOOD TO GO". God must have sent Charles Schwab down during your lifetime just so you could trade with a discount broker. The rest should be a snap. A couple years pass..........you are still not up to speed as reflected on the bottom line. You ask yourself, What am i missing? Charts, well those squiggly lines are for regular beings not for a grad from Podunk, you are above the fray. Then one day you see Arch Crawford on TV and also find old issue of Joe Granville book at a thrift store that some loser discarded. It dawns on you that esoteric, complicated high math, deep thinking technical analysis was the answer. You spend the next couple years plowing through elliot waves, sunspots, moonbeams, lines of all colors -shapes -sizes -angles- slopes- speed- etc, etc. The answer is in there somewhere, it must be. Ok, you get the picture. Now for some reality. In the end many finally come to the reality that macro, fundamental dribble is truly not reflected in day to day stock prices. EVENTS move prices, pure and simple. regular people do not get an 'upfront' call about upcoming event. mere mortals are forced to be at the mercy of PRICE movements. Forget all that fundamental, macro, esoteric hogwash. Your job is to make money, your job is to follow price. All else is a waste of time. Know what you are after, know the ingredients needed to bake a cake. Do not overcook the recipe, do not overbake the cake. Understand the ingredients backwards and forward. Follow the main ingredient, PRICE. Follow what produces the final goodie. = the dough baby, the dough. Good trading to all in the New Year. KISS gets the cake baked. PS, guess who is going to follow his rules more to the letter in 2007 and make a few extra servings of a delicious cake? .....