take it from me,its a tough business. i almost completely blew up friday but gave it another shot and did much better yesterday and today. my problem was disciplne. i am disciplined up to a point and then i somehow find a way to deviate. so its kind of funny that i claim to be disciplined but deviate. truth is,i usually am but the minute i do stray,disaster strikes. part of being a good trader is being able to deal with those disasters but a breat trader will not let himself get into one. i agree 90% of traders do not make it. it requires a certain 6th sense to be a good trader,nothing too academic. trading can cause someone to fall into depression,i have seen it and it can be destructive.
As someone who also trades using "themes", there are a few points I always consider before placing a trade based on them: 1) Good research & analysis: You need to be right about a theme, which requires knowing the fundamentals to a reasonable degree, and having good judgement. Are your themes generally turning out correct, or are you getting many of them wrong? 2) Prevailing expectations: i.e. to what extent is the "theme" already reflected in the price? If a theme is fully priced in then you are unlikely to make any money from it. If a theme is ignored, or even bet against, then if you are right about the theme, you will almost always see an eventual large move in your favour. Michael Steinhardt used the term "variant perception" for this concept - i.e. you profit potential is at its greatest when your thematic view is totally opposed to the prevailing wisdom, and you turn out to be right. Once your view gets fully incorporated into expectations and becomes the new consensus, then it's time to get out. Have you been placing trades when your theme is truly the contrarian view? Or have you been following themes that are well-recognised and probably already fully discounted in the market? 3) Timing: you can be right on a theme, and the rest of the market can be wrong, yet you can still lose money if your timing is off. For example, in 2003 I was long the Brazilian stock market because it was at extremely depressed levels following a currency/financial collpase. It was also very cheap in 2002, yet that was a bad time to invest because the market was moving down, driven by the deluge of bad news at the time. The thematic case was identical in 2002 and 2003, yet the first year was a bad one to invest (at least until the autumn elections) and the 2nd year was a great time to be investing. Having a correct variant perception is not enough (unless you are ok with potential 50% drawdowns on your contrary positions e.g. Buffett style "ignore the price" value investing). As a trader you also need to wait until your view *starts to get recognition from the market*. Hold off until the market starts acting in a way consistent with your view, then get more and more aggressive as the market action confirms your view. To maximise your odds, ideally you want to see some kind of market catalyst that sparks off a move in your direction. This could be news, or a strong move to new highs or lows, or something else. You mention the carry trade unwinding - well this provided a great trade just recently. However it was not a good trade *until* the carry trade crosses (e.g. AUDJPY, NZDJPY) started to show unusual price action in favour of the "unwinding" thesis. You could have been long Yen and short the high yield currencies for years and lost money consistently if you ommitted this timing factor. So to improve your thematic trading, I would look at these three factors and see how have you been incorporating them.
Good points Cutten especially about variant perception. That's where the real money is made -- going against the grain. A great variant perception trade I put on several months ago was in SHLD, but it was anything but easy. The market just wouldn't let go of the "eddie lambert' is a genius theme. I figured out that this guy is way over-rated andbet against him. Think about it. Only a moron would merge sears w/ kmart as some sort of a grand plan. Even Buffett came out and said that this idea seemed screwy. I was finally vindicated to some extent but after several months of showing a big deficit in my account. But that's generally how it works to capture fat profits. If everybody knows about it -- forget it!! For instance everyone knows Gold is turning up right now, etc.... I doubt that this trade will work out for those jumping on the bandwagon. One of the most efficient methods for losing a ton is the, Richard Dennis, trend following method. Sure it was good for him in the 70s when 1) the futures markets had way less competition, 2) there were few trend followers, and 3) the markets were one way streets due to high inflation. Variant Perception -- automatically gets you swimming against the crowd. That's where the moolah is. Trend following just isn't a viable strategy anymore. Look at that guy John Henry who is getting his ass handed to him. When the whole trading world turns to a variant perception model then trend following just might work again.
The link between fundamentals and price action is often too tenuous in the short term for trading with FX or Commodities type leverage. Even with stocks, if you invest without looking at the price action for confirmation it can be just too long and too meandering. Investing solely on fundamentals seems to work best for those who are judged on a relative to benchmark basis and who get a paycheck hitting the account every month regardless.