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Trading Update

2009 marked a serious turning point for my trading: I finally began treating it as a business. It had been a long time coming. I read Van Tharp a long time ago and agreed with most of his teaching and philosophy. "Somehow" I never got around to implementing them! There is a word for this in the field of coaching. It's called self-sabotage.

Self-Sabotage

When somebody says they "somehow" never get around to doing important stuff, there is something fishy going on. It is basically a lower level of consciousness. You could even call it unconsciousness. In fact most spiritual traditions describe this state of mind as sleep-walking. And obviously I have been guilty of that.

According to Tharp, the starting point for improving your trading is to take 100% responsibility for your results. I totally agree intellectually. I am making strides towards owning that truth.

Oh the Mistakes I Have Made!

I have made most mistakes there are to be made:

I bought stocks on a hot tip.
I took profits too soon and took losses too late, the classic mistake made by most investors.
I did not document the reasons why I bought a particular stock.
I bought too much.
I bought too little.
I sold too soon.
I had too many positions in too many accounts to keep track of.
I changed systems mid-stream without giving them enough time to work.
I did not have a disciplined selling strategy in place.

In general I did not have a solid plan in place. I was trading unconsciously at it were.

Turning a New Leaf

I do not know what triggered it, but the year-long group coaching course I did (Life Design 2009) had something to do with it. I became aware of my lack of awareness (if that makes sense!) and I knew I had to change. I consider investing and dividends to be a key pillar of my passive income plan and it clearly needed to be overhauled.

Here's what my trading looks like now:

I have a system in place. I buy only dividend-paying stocks and I buy them only when they break out above 50- and 200-day moving average. My objective is to lose less than 15% measured as peak-to-valley draw-down.
I had a key realization last year. When you invest in anything, the risk (whichever way you measure it) is guaranteed, and the returns are not! It follows that all you can really control is the risk. This has really made me focus on my selling strategy, because that is how you control risk. Here is my strict risk-management policy now comprising 2 major elements:
1. Trailing stops: As soon as my order is filled, I put in an automated trailing stop of 15%. This acts as a ratcheting stop-loss, moving up with the stock price but staying put if the stock price moves lower (until it gets hit).
2. Position sizing: If I get sold out of my position, I will not lose more than 1% of my total portfolio. This basically tells me how much to buy of anything.
I have set up a spreadsheet to track the performance of my accounts on a weekly basis and compare them to S&P 500 Equal Weight ETF, which is a really tough benchmark (at least for US markets). Now I know how my accounts are performing on a weekly basis.

It's the Process Stupid!

The most important trading advice is to follow the process. Spend most of your time building up the process and automating it as much as possible. Then all your mental energy should go into implementing it. As I have found over the years, it is easier said than done!

Van Tharp puts it rather bluntly in Super Trader in a section called "Mistakes and Self-Sabotage":

Let's define a mistake as not following your written rules. If you develop a working business plan to guide your trading, you'll have numerous rules that you'll need to follow. If you don't develop such rules, everything you do will be a mistake.

Am I there yet? No. But I am a lot closer to it than I was a couple years ago. Onward and upward!

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