My 2018 Trading Results
Alright. I’m not going to lie. 2018 was brutal. Savage.
I was up 40%+ at some point this year. And here’s how I ended the year:
Yup. Brutal.
Anyways. I could blame the market, the algos, Trump, China, and just throw myself a pity party…. but NONE of this will change anything to my bottom line. I’m not here to find excuses. I’m here to make a living out of trading.
The only way to change anything in your life, is to take massive action.
Fortunately, I know exactly the drill in this type of situations. It is now time for me to see what would have been my results if I had followed my strategy perfectly.
Facing the truth
For those who’ve been following me for a while, you know that this exercise of going through every single past trades and check whether I’ve made a mistake, and what would have been my results is THE single exercise that turned my trading around a couple of years back.
Of course, it means that you have complete strategy with a clearly defined set of rules you’ve written down. Because if you don’t have rules, as Van Tharp would say, “everything you do is a mistake”.
[ I was amazed by how many people actually trade without a complete trading strategy.
A complete trading strategy, is basically a set of rules that answers the 4 basic questions:
– what to buy/short?
– when to buy/short?
– how much?
– when to sell/cover?
Let me be as brutally honest with you as I am with me:
IF YOU DON’T HAVE A COMPLETE AND WRITTEN DOWN TRADING STRATEGY, YOU HAVE NO BUSINESS TRADING. PERIOD.
Back to my post. ]
So as I said earlier, my post-analysis exercise consists of going through every single trade I took this year, check whether I’ve made a mistake, and find out how much I would have made if I had followed my rules.
As you know, we’re biased. And I’m no different. If I open a chart and see that a trade would have resulted in a profit, I will be more lenient toward labeling this trade as a mistake. So what I do, is first, I copy and paste my entries into another spreadsheet where I can’t see whether I made money or not on the trade. I then go through every single entries. With my charting software, I click on “Go to” and go back to a date that’s 3 months prior to my entry. And then scroll right, bar after bar to my entry. Once I’m on the entry, I can’t see whether the trade resulted in a profit or a loss. And I can see right away whether my entry fit my criteria or not.
There are 3 possible mistakes: bad entry, bad exit, bad position sizing.
There are many trades on which I’ve made more money than if I had followed my rules. But I couldn’t have seen the future when the trade unfolded. And the whole point is only to evaluate my strategy.
That exercise – of going through every single trade, checking how much I would have profited or lost had I followed my rules perfectly – was once again mind-boggling to me:
I should be up +37.07% as of today…
Feels like a *facepalm* is in order 🤦♂️…
And also, a nice boost of confidence in my strategy!
Time to do something about it
Many years ago, I discovered that painful and difficult moments are the best opportunities to change something for the better.
I don’t know about you, but it’s always during difficult times that I was able to grow the most. When things are easy, I tend to become comfortable and complacent.
It’s only after a huge loss that I finally decided to do actually learn how to trade.
And it’s only after years of not making any money that I finally understood and applied the concept of good and bad trade unrelated to the outcome of the trade.
Well this time was no different.
I’ve been trading for quite a couple of years now, so I know my strengths and weaknesses quite well.
One of my biggest strengths is that I have absolutely no problem whatsoever exiting my losers when my initial stop loss is hit, which is one of the main reason why I’ve been profitable despite making tons of mistakes.
And my biggest weakness is to get into trades I have no business taking, often triggered by that good old fear of missing out. That’s why I mute or just don’t follow any traders sharing charts, I don’t read/watch the news and I avoid trading chat rooms and trade tips from any sources.
Well, every single year I come to the conclusion that if I had traded my strategy perfectly, I would have made more money. So, just like New Years resolutions, I’m careful for a while, until my old bad habits take over again and I’m back to square one.
Seeing that I should be up +37% instead of +8.91%, I FINALLY decided it was time to take action and do something about it. Yeah, I’m a very slow learner 🙂
Up until now, the things I did to try to curb my over-trading tendency have been meditating, creating entry checklists, and regular post analysis.
All that did help a bit, but I’m still far away from the performance I should be able to get.
So I came to conclusion that I needed to find a way to change my environment, to make it extremely difficult NOT to follow strategy.
Well, after studying my workflow routine when taking trades, I noticed that I can’t open a new position if I don’t know how many shares I should buy, which I can calculate using a small script that I wrote in an Excel spreadsheet.
I figured that I could leverage that step and include a way to make sure the trade I’m taking is within my strategy.
So I spent 2 weeks creating a brand new, personalized trading journal on Google sheets which now forces me to go through a very quick checklist before I’m able to calculate how many shares I should buy. If the trade doesn’t fit my criteria, I simply can’t know the number of shares I should be buying.
And I’ve also included, inspired by the great trading journal software Edgewonk, a small tool that shows me how flawlessly I’ve traded the last 10 trades. I should always strive for 100%.
I think this will help me reduce dramatically my mistakes. I’ll let you know later next year how effective are those tools.
Why I am excited about 2019
The momentum created by me working on new tools to help my trading also sparked new questions I wanted to answer that had the potential to improve my trading edge.
Most of us are using rules we’re not sure are the best ones, rules we take for granted, rules gathered from books, or courses, or trading gurus.
From my years of trading, I developed some intuitions on what could potentially improve my edge. It was time for me to find out whether this could or could not be the case.
So I went back to the drawing board, and decided to create a script with Google sheets that would allow me to test potentially better buying and selling rules.
It took me another 2 weeks but it was totally worth it…
I went through all my trades from 2015 to today and tested variations of different rules I had in mind.
Since I read several books on strategy optimization, I knew I shouldn’t choose the rules that were the most optimized, or yielded the highest return, but the ones that were the most consistent throughout the whole sample of trades.
The great thing about 2015 to 2018 is that, despite the fact that there were no bear markets (though some argue there was a bear market in 2015), there were many different market environments:
– up on low & high volatility
– down on low & high volatility
– sideways on low & high volatility
And what I found blew me away…
Based on a 1% risk per trade:
– In 2015, my newly optimized strategy would have returned +317.43%, with a -5.48% max account drawdown…
– 2016: +157.63% and a -2.97% max account drawdown
– 2017: +101.57% and a -6.79% max account drawdown
– 2018: +110.78% and a – 7.51% max account drawdown
Now I still have a lot of work to do, such as Monte Carlo simulations to have an idea about a median max losing streak, median max drawdown, and best position sizing based on my objectives (of max drawdown and expected return).
But needless to say that I’m EXCITED about 2019.
Main Takeaways
I’m sure many of you will want to find out what my trading strategy is. But I didn’t write this post to tell you about my strategy.
I wrote this post, once again, to show you my process, the process that allowed me to know myself better, to become profitable, and to improve my trading.
Once you truly understand that trading is about having a mathematical edge and the law of large numbers, you can shift your focus from the outcome of one trade, to the outcome of the next 100 trades.
Being right on one trade (or even 10 for that matters) means absolutely NOTHING about the trader or the strategy.
Quit looking for trades on social media, quit thinking this or that guru makes good calls, quit needing confirmation from others before putting on a trade. The answer lies in following a strategy and see whether it makes money over the next 100 trades.
And you should therefore approach trading like a scientist:
– you make observations
– you ask questions
– you form hypotheses
– you test those hypotheses
– you analyze the results
I wish every single one of you an Awesome New Year 2019!