2018 Incident Report (Part 6)

I’ve been getting more organized this year by converting incomplete drafts into finished blog posts. Today I conclude a July 2019 draft reviewing my 2018 trading performance.

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When I’m not making money it feels terrible: no doubt about that. I feel like a failure, like I should go back to work pharmacy, etc. I want a better way although I should not look to throw the baby out with the bathwater. If the worst I ever do in a year is lose 5 – 10% then on the whole I’m going to be a star and I have to remember that.

Perhaps never do I feel more on-edge than when I am out of the market with uncertainty over when to get back in. The volatility train does not arrive often and when it does it usually makes for a short stay. I hate to be on the sidelines when the train leaves the station, which is why I am so quick to jump back in after making a large exit.

I need a better way. I need to backtest something with a sufficiently large sample size in which I can believe. Otherwise, I will feel like this is mere gambling.

A couple other thoughts for exit strategy include:

• Close partial positions when I am down one month’s usual income
• Start selling the call side when down one month’s usual income to better hedge against downturns (but how will that fare in rising markets?).
• Switch to a symmetric, BWB, or verticals instead of NPs. On this point, I could go back to the idea of selling $0.30 on a $5 spread to make 6% per month or 72% per year. If I allocate only 20% of the portfolio then that is 14.4% per year with no possibility of losing more than 20% in a month. That’s still not a great deal risk/reward ratio, though.

Here’s one more batch of random thoughts:

     > Part of my problem this year had to do with anchoring and greed.
     > I started the year making good money in Jan. I then lost much
     > more (quickly) in Feb. From the time that I got back in
     > (slowly), I worked several months to catch up through Oct when
     > I was up ~10%. I knew it wouldn’t be my usual good year (or
     > maybe I was just comparing to +36% last year) so I was
     > patient… and then probably dead-set on holding longer and
     > hoping the market would stay up—until it didn’t. I had a
     > decent idea to get out if my YTD gains evaporated (first chance
     > to get out when market went into backwardation was Oct
     > when I was still up 4 – 5%). I was then too eager to start
     > getting back in at first glance of normalcy. After a couple
     > days of contango, I re-entered and then lost more. Sporadic
     > trades thereafter lost as well. By the time I truly called
     > it a year on Dec 20, I was down close to 10% (of my initial
     > 2018 equity value; this would be more than 10% of my initial
     > 2017 equity value on which the +36% is calculated).
     >
     > Going forward, I must work on developing rules and sticking
     > with them no matter what. Sticking to the plan must be
     > everything. One way or another, I’m going to be
     > frustrated when the market goes against me. I might as well
     > be frustrated knowing that I at least followed my rules
     > because the alternative to following rules is to hope.
     > If all I have is hope and I lose more because of it—which
     > has happened with every major loss I have suffered to
     > date—then I’m going to feel even worse and kicking myself
     > back to the drawing board like I am right now.