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Tales of a Technician: The November that was

December 4, 2017

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Tales of a Technician: The November that Was

These monthly musings take quite a bit more prep work than my usual weekly commentary. I have to review all my closed trades, identify the winners and losers, and make sure I understand precisely why I made or lost money. It’s a revealing process that helps me put context behind the dollars gained or lost that defined my month. Knowing my performance is nice and all but it’s discovering what drove my performance that matters.

Because I’m emotional a profitable month creates pleasure and a losing month delivers pain. But it shouldn’t be that way. The ideal drivers of pain and pleasure should be whether I followed my plan and executed my systems properly. Discipline, in other words. If I did, then pleasure should be the result, regardless of if I lost money. If I didn’t, then pain should be inflicted even if I made money.

It’s difficult to achieve such an ideal, but the effort is worth it.

Monthly Theme

Another dip in the broad indexes was bought, and stocks ripped to new all-time highs. Need I say more? Meanwhile, bond prices remained stubbornly firm denying me of any profits in my TLT bear call spreads. Boo!

What I Did Right

Every month my trade journal is filled with a handful of winning trades and losing trades. It’s very easy to cherry pick a winning trade and say, “See! I’m a genius.” This trade made money, so I was right! And then for the “what I did wrong” section I could grab one of the losing trades and say, “THAT’S what I did wrong!” But should that be my approach? If so, I might as well re-label both sections to “Winning Trades” and “Losing Trades.” As outlined above, I should be highlighting instances where I followed my plan and those where I didn’t. That is the correct definition of right and wrong for a trader.

Did I just think out loud for an entire paragraph thereby robbing you of a trade highlight for my “What I Did Right” section?

Yes, yes I did.

What I Did Wrong

I’m gonna shoot straight for this section. The truth is I’m in a funk right now. My trading has been spinning its wheels for a few months, and it’s supremely annoying. What’s the culprit? Is the market just out of sync with my trading systems? Am I breaking my rules? Have I lost my touch? The answers are kinda, no, and kinda.

It’s worth noting the only reason I can answer such questions is that I use a trade journal. Without it I’d be flying blind, unaware of which strategies were stealing my dough.

A brief survey reveals my losses have been driven by a few trades and nothing more. Because the Condors for Cash Flow system is a staple for me, the outcome of my monthly RUT trade has a significant impact on the overall P/L. It is very challenging for me to overcome a RUT loss with other trades simply because of the size disparity. To do so, I either have to start trading larger positions elsewhere or pare back the number of contracts in the RUT. Or, I have to accept that based on my current approach I will probably suffer a drawdown during months where the RUT goes bonkers.

The other bugaboo vexing my performance has been my inconsistency with discretionary trades. I had a pretty good streak going for the first eight months of the year, but for whatever reason, my equity curve for these random trade picks has been stuck in neutral for months now. I suspect this is a short-term phenomenon that will work itself out over time. At least, that’s the hope!

Trade of the Month

Return on Time Invested (ROTI) is a topic I’ve discussed before and today’s trade of the month highlights it perfectly. Roku Inc (ROKU) is a new fan favorite among the momentum crowd. Its first earnings announcement since going public lit a fire under the stock that warmed my portfolio with profits. Here’s how I traded it:

On the day after the earnings release, ROKU blasted higher on heavy volume. The rally was sufficient to carry the stock to the upper-end of its post-IPO trading range and then some. Because it was a cheap stock ($28ish) and implied volatility was through the roof (even after earnings), I sold a Dec $21 put option for $1.00. At the time it had around 37 days to expiration. One day later, due to the gap and followthrough, I was able to buy back the put at 50 cents nabbing 50% of max profit in a single day.

Check out the entire 2017 retrospective series:

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3 Replies to “Tales of a Technician: The November that was”

  1. JacobAgbor JacobAgbor says:

    Thanks for sharing Tyler…I’ve been procrastinating on journaling my trades, as its over 11months of data, but after reading this I’m decided to start with monthly journaling then work my way up!

  2. Bill Trimborn Bill Trimborn says:

    Tyler, thanks for shooting straight with us. I was reviewing my journal recently and came to the same conclusion as you about RUT condors & inconsistent discretionary trades. I think the recent whipsaw experienced in some discretionary trades has hurt my consistency. I’d like to hear your thoughts on adjusting for the RUT condor system playing a big part in your portfolio. Maybe at the mastermind?

    1. Tyler Craig Tyler Craig says:

      Great idea, Bill. I’ll add that to the discussion!

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