2012 Performance Evaluation (Part 5)

As my own boss, I am conducting an annual review in this series of blog posts.  In http://www.optionfanatic.com/2013/02/14/2012-performance-evaluation-part-4/, I continued with evaluation of 2010 and 2011.  I now want to spend some additional time focusing on 2011.

As mentioned, 2011 was the fourth time I had been forced to exit positions turned against me because of excessively large position sizing.  In previous years, I escaped with relatively modest losses.  In 2011, however, my maximum drawdown (MDD) exceeded 50%.  That is entirely unacceptable when trading other people’s money, which is one reason why I don’t, but also unacceptable when trading my own.  I’m running a business here and losing that much money is the fast track to going “belly up.”

2011 was the third consecutive year of underperformance relative to the major indices.  Despite the ugly MDD, I managed a 42.5% rebound from the year’s low, which landed me down “only” 10.5% for the year.  I’m probably still standing for this reason alone.

In an attempt to turn things around, I have attempted to implement two major changes.  First, I have resolved to avoid trading until after 3:30 PM.  On too many days, I got scared by seeing strong market moves in one direction early only to see those moves reverse by day’s end.  Usually when I made a trade earlier in the day I was smacking myself at the close wondering why I wasn’t more patient.  This is overtrading and it may be labeled as such only in retrospect.

To facilitate this end-of-day approach, on many trading days since summer 2011 I have not even looked at the market until 3:30 PM.  Over the next 15 minutes I typically catch up with the market’s intraday movement and then place trades (if necessary) at 3:50 PM or later.  This has helped me be less reactive to random noise responsible for so much market activity.

I will continue this analysis in my next post.