How do you handle a negative streak?
Many experienced traders would reply ‘’take the rest of your day off’’. But what do you do to come back with a fresh mind the next day? How do you find something that takes your mind off the markets and wins your focus from unnecessary overthinking, overanalyzing, panic and make your losses even worse?
Reading books and watching movies or TV series simply doesn’t do it for me. Right now I’m obviously focused on trading literature, but that’s the last thing I want to read about if I’m having a bad day. An exception to this is historical books: I have always been very passionate about history; you can gain great anecdotes from the biographies of historical figures. I also love battlefield strategies, they blow my mind: whether it’s Hannibal managing to encircle a twice as big Roman army at Cannae or Sun Tzu’s Art of War, the sheer genius of such individuals intrigues me.
Sometimes however, I’m just not in the mood for reading. Last Monday gold was continuing its withdrawal after the publication of the minutes from the Federal Reserve, dropping another 20$. Silver also took a dive and the only thing that manage to limit my losses was that oil broke the 50$ per barrel. At least I had a right call on that one, but it didn’t prevent my portfolios from taking heavy losses.
For a while I was tempted with the worst idea ever: chasing markets. That never ends well. So, I just closed all my positions , turned on my Xbox and play Halo online. Teabagging people online after blowing up their asses is a great way to improve my mood and competitive videogames have the benefit of gaining my focus and relaxing my mind.
In certain moments however, I just feel bad about myself. What better way to fix that than helping other people? I suffered from depression in the past and I have become rather experienced when it comes to fighting it. There’s plenty of anonymous chat online where people go to discuss their problems without being judged and seek help. I go there, listen to their issues, give my opinion, share my experience, on rare occasions I even manage to turn their life around. I occasionally get emails from people I spoke only once, years ago, thanking me for the advice I gave them and telling me how their life got better. At the end of the day, life is not that bad after all. I’m ready to face markets once again. I had losses before, I always managed to come back.
Strategy
You can see the previous weeks here.
As I mentioned precious metals took a nosedive. Props to Gary Savage, whose opinion I had mentioned in one of my previous blog entries and had the right call. I have read a number of opinions, there’s a lot of different views at the moment. Some say it’s a consolidation phase after the withdrawal, other believe gold is coming back. I’m personally going to wait until the Federal Reserve meeting of the 15th of June. Until then I expect the fear of the hike to keep the pressure on gold to lower levels.
Oil broke 50$ pb as I expected. It quickly withdrew at about 49.5$, but those prices defy fundamentals anyway, thus there’s no reason for me to be short right now. I still think it’s being artificially pushed higher by storing it, thus decreasing the supply on the market and that will sooner or later end up having an effect on prices dragging them down.
I dropped out of silver to reduce my exposure to precious metals.
LSE weekly PnL= -9.5% ETFs weekly PnL= -4.5%
Tl;dr
-history books, videogames, volunteering
-short on gold for the next 2 weeks, long on oil for the moment
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You are a new trader so you are probably feeling a mixture of anxiety, depression, nervousness and panic. You probably have butterflies in your stomach, have lost some of your appetite, are nervous about going on a losing streak and failing, worried that your ideas and strategies are flawed and don't work and if you really are inexperienced may think about re-entering in a panic to re-coup losses etc.
Eventually as you gain more experience you will understand that trading is a game of probabilities and you will learn to live with your losses. The sensations described earlier will subside and not be as severe.
I will leave you with a few things to consider:
1) You stated that "For a while I was tempted with the worst idea ever: chasing markets. That never ends well. So, I just closed all my positions" - yet you reversed your GLD position and are now short. This is a rookie mistake - you are gambling not trading. If you believe the reason you got long is no longer valid - stay out until you have a valid reason to open a new position. Close the trade!
2) You were long both GLD and SLV, but were also long FRES, RRS and TLW. I also noticed that in your prior post you had similar positions, Long both metals and miners/oil stocks. Where is your diversification? Where is your hedge? If you are long WTI, how about taking a short position in TLW or another oil stock which you believe will under-perform despite WTI's rally?
3) I assume you are doing this alone, so your journey will be a lot harder as you have no real support structure/someone to report to/someone to force your hand off the mouse. If you are doing this to try and get a foot in the door, then really you need to forget about punting a book for a 15% gain per month - that is just far too risky and is exactly why you are seeing these massive swings in P&L and will likely blow up. Instead, aim for around 1% per month. 12% annualised would make you one of the best portfolio managers around (see HSBC top 20 funds of 2016). Learn discipline, learn risk management and learn to diversify. Even if your portfolio ends up flat but you have used solid risk management and diversification then a firm is much more likely to consider you, as you have shown the right core competencies.
Hi, thanks for the constructive criticism and the possibility to confront my ideas. Much appreciated.
0) Psychology wise, I'm rather relaxed. I'm rather confident in my view of the markets and I already accepted I'm going to take some losses. I had a significantly worse streak in March going from +60% profits to +20%, result not only of an unexpected upturn of oil, but also various stupid reversals. Again, the temptation to do that is always there when the day goes wrong, I'm far from immune to it, but I have definitely improved. My experience with depression definitely helps when it comes to managing negative emotions too, to the point that losses are what keeps me going rather than gains: gains are boring, losses the challenge.
1) Ok here needs a clarification of my actions. Last Monday, I took the losses. Tuesday too. On Tuesday I decided to close and take a break. I came back on Wed, with a fresher mind, and I reassessed my situation. I decided to stay out of silver for now but that until the Fed meeting of half June but there was still room for shorting gold. Hence, the reversal. You are right on the rest. My experience with reversals has been prevalently negative and that's because it's generally a noob mistake. Nonetheless I plan to stick to my strategy of shorting until half of June, unless it hits the stop loss, long after that.
2) Diversification wise, it is something I'm considering really often. I haven't implemented it yet because I studied only a small number of markets/industries. It will certainly happen as my experience grows. There's also the fact that I'm not particularly big on stocks right now, after all the QE by the various central banks. Fundamental analysis would just tell me to short everything because they are all inflated to the moon.
As for your other criticism, hedging a long USO with an underperforming oil company, I should call it arrogance of the noob; if I think something is going up (or down) then I'd rather take my losses for being wrong than from the hedge position of it. Risk wise, it is much riskier, I know that, but I prefer other forms of risk management (eg diversification that you mention above). This one for now simply goes against my nature. Do I need a spanking from the markets? Maybe. I sort of got that already but I guess it wasn't enough.
3) I agree with most of your are saying. Again, in Market Wizards, Larry Hite explains that he goes with a max 1% of capital allocation per position as a form of risk management. I understand that though I find it extreme. Nonetheless, I'm considering diversifying almost every day and it will happen eventually. Ideally I want to reach a point somewhere between my extreme risk with high swings and the Hite's risk averse strategy. I get also that lack of diversification could bring to the legit criticism ''you could be just lucky when you make profits in picking 1-2 volatile stocks''.
I'm aware right now I'm driven more by greed than by fear. I'm also aware of the performances of most hedge funds and if we stick to those in 2016, I'm not exactly starting to trade in the easiest markets.
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