There are five main kinds of posts I put up on this blog:
+ A "one-off" idea – usually a simple chart with its symbol and a declaration that I'm going either long or short the position;
+ A group of symbols, collectively presented as long or short ideas;
+ A goofy or musical video;
+ A video I've made discussing market direction;
+ An essay about something that's on my mind
This posting will be the "essay" kind, since I'd like to talk about my recent success with trading and what it's meant to me. More importantly, I'd like to go over how it informs my own trading.
Most of you know that I started managing money professionally late last year. The response to my new career was enthusiastic, and a large number of clients joined me in my new venture. I obviously want to do very well for them as well as myself.
In retrospect, it was a challenging time to start a fund for someone with a bearish tilt, since there was a huge stretch of time – November through April – that was, on the whole, wildly bullish. Through a combination of judicious risk management and an only partial deployment of my buying power, I was able to contain losses. But, let's face it, a loss is a loss, and dealing with a string of losing months stunk. It was more emotionally draining that I can describe with words.
Over the past few weeks, I have been trading extremely effectively. In the span of just a dozen days, I've undone a half a year of self-inflicted damage. Being able to perform at my best, virtually on a daily basis over the past few weeks, has been enormously encouraging. It has also been marvelously healing for the portfolio I manage.
So what's different? What changed? How is it that I've put together an almost uninterrupted string of days whose profits were so strong? This is something I've thought a lot about, because I really, really like this feeling, and obviously I'd like it to continue – – well – – forever.
Although it's no explanation, one thing I can say is that I've been very in synch with the market lately. Do you remember biorhythms? Those were the goofy graphs that were really popular back in the 1970s. They supposedly helped you understand how, based on time, you were going to get along with the rest of the universe. I've never put much stock in such things, but I was reminded of the subject when thinking about my own relationship to the market.
For a long time, particularly during February and March, I found the market agonizing. I felt utterly out of synch with it. Charts didn't make sense. The market's behavior didn't make sense. I started to wonder if technical analysis even worked at all. I scoffed at techniques, such as Elliott Wave and cycle analysis, which I felt had held such promise. I couldn't seem to make trading work for me anymore. I felt confused, inept, and – at times – helpless. And all through this time, I was really, really trying my best to be a good technician and a good trader.
In April, things started to slowly come back together for me. Keep in mind, the market kept climbing through April 26th, but even before then, things seemed to start to 'behave' better for me than they had in a while. As April turned into May, things kept getting better. I started having days whose profits were larger than I had ever had. I mentioned having a "record day" more than once, since I kept beating my old record. Even trading things like precious metals and natural gas – – and even FAZ and SRS! – – started going my way more often than not. I was on a roll again.
What's the reason for the change? Since Goldman has felt the heat of government inquiry and public scorn, have they pulled back their interference with the market? Maybe. I've got to say, starting with the (glorious) day that the government announced its civil suit against Goldman, the market has been working much more like I'm accustomed. Charts work again. Trendlines work again. Perhaps the market is being permitted to act like itself.
Another big aspect of this is trend. We're actually getting up-and-down patterns that make a certain amount of sense. Indeed, on that fateful day when I stood back from my Macintosh, stared at the screen, and made my prediction about what was going to happen, I felt uncomfortable, since so many of my predictions had a monkey wrench thrown in them. The fact that, move for move, everything went as I believed, was both gratifying and confidence-building.
The key right now, of course, is not to blow it. Indeed, I hesitated putting a check in the "Victory" box when choosing categories for this post, since the superstitious side of me is terrified of jinxing something. I've even considered dumping Victory as a category altogether, since I figured I'd never, ever want to use it again. It seems too much like tempting fate. But I run an honest blog, and I feel victorious, so I'm going to mark this post as such.
There's a difference between victory and hubris, however. As I made clear earlier today, I took my heavy foot off the pedal. I have no "ultra" funds at all. I have no large short positions on. I've got a series of large long positions to balance things out. And my portfolio commitment is smaller than it was.
I think one lesson I have firmly embraced through this entire ordeal is that it's good to be "light" in one's portfolio when things aren't clear as a bell. I was confident during the past few weeks about my point of view, so I could actually put on large positions, including double- and triple-ETFs, and still sleep reasonably well at night. I also had to be aggressive in order to claw out of the hole I was in. I'm glad that I was daring, but now that I've made so much progress, I am adopting a more conservative position until we're back to "clear as a bell" on the charts again.
As I said, I have felt very in-synch with the market, and as long as I continue to feel this way, I'm going to continue shaping my portfolio – either bullish or bearish – in the way the charts tell me. As I fall out of synch, as inevitably I will, I will back off – – way off – – and get very light. Your understanding of emotions and the market is vital to trading success. Likewise, your understanding of how aligned you are with the market's machinations is, I believe, a vital guide to how aggressive you should be (up to and including being purely in cash).
We are living in historic financial times. I see politics, business, and history through the lens of charts, and because of all that, it is a fascinating daily exercise. One's personal experience with the markets demands psychological self-awareness, and, from what I've experienced, I believe it is a lifelong journey. These have been my own thoughts about what this journey has been like for me lately, both on a long and hard road, as well as the recent weeks that I've had the profound pleasure of creating and living.
