Monthly Report for July -10.4% / -$50,259.00
I’m vacationing on the beach and finally got caught up on my past trades. Wow! Did I get crushed in the market in July. Ouchy!
So what happened?? A couple of things all of which were my fault.
1) I was going through the final death throws of my company and about to lay off everyone. It was very tough and very emotional so I shouldn’t have been trading.
2) In the face of this, on expiration Wednesday, my month was up $14K and I had a pretty good shot of turning that $14K into $70K. I was overally concerned with making that $70K instead of trading properly and protecting my capital. Of course, Bank of America rallied and energy (MEE) continued to fall like a stone. In less than 24 hours I gave up $64K.
3) I had a standing rule that I would never put more cash into a losing trade. Well, on Massey (MEE) I didn’t put more cash in but I did increase my risk. So now my rule is to never increase my risk or my cash into a losing trade.
I think its really ironic that last month I broke my goal of making 10% in a month and followed it with losing 10.4% in a month. Geez!
Again I’m reminder that first and foremost I’m trading against myself and then against other traders.
Trade Record
13 trades, 7 wins, 6 losses = 1-to-1 win / loss ratio
avg $ per win: +2,243 avg $ per loss: -10,994
avg % per win: +34.4.8% avg % per loss: -32.4%
Can you see where my problem was?? Two big areas actually. One, I didn’t have a lot of trades but the trades I did have on I only maintained a 1 to 1 win / loss ratio. I’m usually 3 to 1 or better. Two, the 2 major trades I lost on were oversized compared to the others trades and cost me dearly. I lost over $70,000 in just two trades on BAC and MEE. That’s why I’m modifying one of my rules to say “not add more cash or more risk to a losing trade”.
Losing more than 10% in a month means I am reducing my stake and will only trade with $175K. Once I’m up more than 10% over the entire portfolio I may add in addition capital. Until then its more important to not dig a deeper hole and to protect what is not at risk.
This concludes a year for me blogging. Over this time I posted over 700 posts, 250 trades, answered several thousand emails, had a record of 10 winning months vs. 2 losing months, and help a few people along the way.
Update on Goals for 2008
Health - I came close to hitting a previous high weight of 232 lbs. I’m sure this is a function of my stress, lack of exercise and lack of discipline throughout the month. I don’t think its an accident at all that my trading and health are suffering together.
Give $25,000 to charity - We have given away $9,000 given so far this year.
Produce $250,000 in personal income (outside of my business and retirement) - I went full time as a trader just last week. I think the $250,000 goal is a bit aggressive for my trading account ($175K). My plan is to use my futures trading (not from my 5K account) to replace my salary and use options trading to increase my account size and wealth.
Pay off $125,000 of personal debt - So far we have paid down $42,000 in personal debt.
Study for and receive my Series 65 (Investment Advisor) license - Fail. I know, I know I have to stop trading long enough to get my license. Sheez!!
Insanemoney.com - Things are going well. I plan on updating the blog side to include a welcome video, a highlight tab showing some of the favorite posts, and will add some of the trade entries I’m doing without updates.
Raise $1,000,000 of investor funds - Haven’t started yet. I need to complete my license first.
Make 3% a month in options - Fail. I’m thinking about moving this up to 5% a month.
Lessons learned:
1) Over the past couple of months I’ve missed the responsibility of having all of my trades be public. Being public I think makes me a better trader. What I would like to do is to go back to posting my entries and updates for all of my trades inside the Trading Team forum.
2) I need to be careful to not allow my profits from futures trading to blind me to my options trades that are going against. Several times I felt like I was doing well because I was making money for the day when in reality it was my futures making more money than my options were lossing.3) I need to keep my spreadsheet up to date on a daily basis so that I can more easily spot trades that are moving against me and adjust them sooner.
Plans for August
I have only one week of vacation for August and will be “back in the saddle” full time. With all of the pressure of producing my monthly income from my trading I want to be sensitive to not allow that to screw up my trading and to make sure that I keep focused on protecting my capital first and producing income second.
All the best,
Mojo
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I sort of know how you feel! July wasn't good for me either, and August isn't going to be much better - I don't enjoy losses!!...
If I had a of followed my rules I would have been fine but let my gut instinct took over.
I have my supspicion the RUT will fall over the next few days but not willing to risk a max loss so am out. Doh!
OTM
I was in the same boat. Got absolutely torched! Talk about Black Swan moves that was one of them. Watch out if we get worse than expected retail figures on Wed. What goes straight up, comes down much faster.....
cheers,
Michael
Mistake no.1 - Watching and HOPING for the market to turn my way! If I had of adjusted when delta hit 20 like my trading plan dictates or if it broke through 740 I would have come out better.
Mistake no.2 - I was sitting on reasonable profit last Thursday and then bang the RUT flies in 2 days stripping all of my profits and making me book it out for a loss. GREED go me I think, I should have taking some prodits off the table when they were there.
I need to revise my trading plan, and more importantly strip out the emotions.
I believe in you...
TOday loss, will be a huge profit for the next..
We get a lot of lesson for this month, he who can endure will prevail.
Our support on you Mojo, thanks for sharing the thought
I did the same thing as you. I was like a deer in the headlights just admiring the move up. I also waited and waited for the pull back. I don't have hard and fast rules so I was left watching but I didn't hedge my deltas either by buying ER2 futures. I think you've got to put it down to one of those months where income traders (IC) just get killed. It was a case of double wammy with a large move up and it was so close to expiration (gamma increasing).
cheers,
Michael
I was like a deer in the headlights just admiring the move up. I also waited and waited for the pull back. I don't have hard and fast rules so I was left watching but I didn't hedge my deltas either by buying ER2 futures.
I was looking to hedge my deltas on my short 750/760 call spread by buying an August 750 call (high gamma) for 1 or 2 days max. This would have minimised any losses whilst waiting for a pullback. Or I was going to buy the 7560/760/770 butterfly to roll out the 750 to 760. Because of my deer in the headlights syndrome I didnt do eitehr so had to close it down.
Looking at Thinkback on TOS to evauluate it the best option would have been to probably buy the Aug 750 call once the RUT started to move up.
I havent used futures to hedge my delta but worth a look into.
OTM
Yeah the futures are more efficient in that you can hedge a lot of deltas rather cheaply ($5250 for one contract) which would get you 100 deltas. Also you don't have to worry about the other greeks. In your example buying back the short 750's could then expose you to a potentially short theta position. Meaning if we get the pull back, you would lose on both the adjustment and the remaining position. Hedging with the futures before the index moves to your short strike prior to expiration will stop the bleeding and offset money lost to deltas, while theta still works for you. The only downside to using futures as a a hedge is that you have unlimited risk product protecting a define risk trade. Therefore you want to ensure that you have a stop loss order in and be mindful of gaps. Also it will never be a perfect hedge because of the changing gamma in your options position.
cheers,
Michael
Mojo