2018 Incident Report (Part 5)

Once again, today I continue with an unfinished July 2019 draft evaluating my 2018 trading performance.

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With regard to getting out, I wrote to colleague FM:

     > As I said, I want to be out when the market gets volatile because
     > all of the largest market crashes have been preceded by some sort
     > of craziness. The trick is getting out too soon or too late and
     > there is no magic bullet that will work for all occurrences. In
     > general, though, “craziness” involves wide market swings, regular
     > 1+ SD moves, longer-term moving averages being pierced to the
     > downside, VIX levels breaking through resistance, etc.
     >
     > I had a mental stop at YTD profits for my account. Once those
     > evaporated I got out—and in retrospect, I’m glad I did because had
     > I not then I certainly would have the very next day with much
     > bigger losses.
     >
     > …I know you got frustrated previously seeing $307K go down to
     > $251K so I closed [those] positions… to preserve some gains.
     >
     > With a sliver of [the] portfolio invested in NPs, one could make the
     > case for me to keep trading [the] account per usual. The benefit of
     > getting out would be to prevent even [that] sliver from incurring the
     > biggest losses because at some point, there will probably be a major
     > market crash on the order of 20%, 30%, or more. Trading this way,
     > I can probably avoid those excess losses. The right answer is
     > only knowable in retrospect.

Colleague FM responded:

     > Your response is consistent with prior concerns about managing
     > volatility. The backtest through 2008 seemed to produce very good
     > results and I am not sure why volatility this year would be especially
     > concerning.
     >
     > Regardless, much of your trading is based on how you feel about the
     > market; which is not atypical of traders. However, if you are trying
     > to sell a methodical, long term process, you will have a hard time
     > as there is not a definable structure.

I’m actually trading larger and with more variable capital than done in the backtest. This may be part of the problem.

If I were just trading OPM then I would commit to trading consistently and regularly. I might have to stop trading my own money, though. I might also have to somehow separate myself from the client. Talking about this in times of market turmoil puts me even more on-edge since I always want to be cautious, qualify what I say, and not be too arrogant so as to be subsequently bitten in the behind due to excessive hubris.

I will conclude with my next post.