Tuesday, April 20, 2010

6 month check point

In November of last year you may recall that I opened up an account with interactive brokers with $17,000 and my primary goals were as follows:

1) Develop a trading business plan. I do have a working document in place and plan to continue working on it over the next six months.

2) Learn as much as possible as well as try new strategies. I would have to say that the learning curve that I have tackled in the last 6 months, just amazes me. I have made more progress in the last 6 months than the whole 3 years I have been involved with the markets.
3) Remain profitable during the process. I actually set out a goal to make $500-$1000 a month not really knowing what to expect. As you will see below my total realized gain over the 6 month period that I set for myself came to $1,839 or 10.8% gain. I did not hit my target average monthly profit, but I nonetheless was able to remain profitable while learning a ton and trying out many different things.

Link to Full trading results for April

Lets take a more in depth look at my results for the period 11-2009 to 4-2010. First lets dial in on the profit by idea source. I paid for the premium subscription from IWO for education and idea generation. I also have some ideas that come from free sources T3 live and ONN.tv. The problem I have found is that I don't do very well just following other peoples ideas without making them my own. And although I have reigned in my impulse trades from my own ideas, I tend to be prone to make impulse trades off of their recommendations. And because they were not original ideas, A lot of times I have trouble managing them as they suggest. As you can see from the table at the right, my results clearly tell me that I am better off following my own trading ideas. And I think this makes sense because I put a lot more thought and analysis into my trades before I make them. So as of today 4-20-2010 I will only be making trades based on my own trading ideas. My current subscription to IWO will be for educational purposes only and for that it has been great.

Briefly here I would like to set a goal to have largest gain equal to my largest loss. Eventually I would expect that my largest gain would be bigger than my largest loss, at least that would be the goal overtime. Also realize in the summary of monthly results at the top of this page that February was my worst month and was also the month that I created and clearing defined the risk parameters to my overall trading plan.

Now lets focus in on my Win/Loss Rate and holding period. Here the % winners to % losers is about what I had expected. I had mentally thought that I had about a 60% win rate, and now I have the numbers to confirm it. But what I really want to dial in on is my average holding period and more specifically on the average holding period for my winners of 10.91 days. I have reviewed many trades after closing them out. What I had noticed in my winners is that I leave a lot of profit on the table. And I know why this happens, it is because I always remember the last loser I booked and am quick to book profits before they evaporate to cover my last loss. But from reviewing many of my winning trades after closing them I have noticed that with just an extra 5-10 days the profit targets that I set for the positions are realized and are usually 2-3 times larger than the profit I actually booked. In my calculation the results in thousands of dollars in low hanging fruit that with a few mental adjustments could be realized. So my goal over the next 6 months is going to try and hold those positions a bit longer when I am in a position of profit, in other words I will let my winners run. I think that I have done a good job cutting my losses and the average loss that you see in my opinion is skewed a little bit because of large losses that I took that under my new risk management system outlined in my trading business plan would not occur save any un-controllable event. What I mean is my risk management rules that I have in place would had stopped me out way before my losses got out of control. For example the largest loss from above of $1,040 would violate my maximum 3% of total portfolio risk, which at $17,000 would be $510. But I did not have this in place during the first few months of trading in this account.

That is really all I wanted to dial in on. But with that said I would also like to outline some new goals for the next 6 months:

1) Only make trades based on original ideas and analysis. Meaning I will only use IWO as educational source.
2)  Let winners run to capture low hanging fruit. This will most likely be seen with an increase in both my average gain as well as an increase in the Average holding period.
3) Largest gain to be greater than or equal to that of my largest loss. Overtime this will ideally be greater.
4) Make enough profits to hit my 15% annual return goal.  This means that I need to take my total gain from $1,839 to $2,550.
5) Continue to work on trading business plan.

Good Luck Trading!


  1. Congratulations on what I perceive to be success. We each define success differently but if you've made money, learned, and enjoyed yourself, then it sounds silly to say, but just keep doing what you're doing. I think it's a great idea to review goals every so often. I am guilty of not doing that. I have been struggling with my time management and not putting in enough time on my list of option related interests.

  2. Yes I agree that it is good to review your goals and see how you did. It makes it much easier when you keep a scorecard so to speak. I do see the last 6 months as a success. Although I did not hit my overal monetary goal I hit all of my other goals and came out profitably.

  3. I had another few comments. From a statistical standpoint, a little over 100 trades isn't really enough evidence yet to draw hard conclusions. We'll never know, but suppose another source other than yourself had been the top winner, would you have said you're going to stop looking for plays on your own and just pick from service advice? Or would you conclude that you're still going to find plays but closely follow the pros since obviously they know what they are doing? Again, we'll never know.

    I noticed that you haven't concluded that Iron Condors are off limits even though that shows to be your biggest losing strategy so far. My point is that while 6 months might be a good chunk of time, the actual pool of data is still somewhat small. Save today's results and compare them again after another 6 months to see the differences.

    Another reason I say this is look at the shorts puts section, that is your most profitable but it's also your most active strategy, and we've been in a bull market the last six months. So it's kind of difficult to draw hard conclusions from my standpoint. I know you are seeking to refine the process and find a strategy that works, as am I, but give it a little more time and in different types of markets as well. It would be a shame for a trader to abandon a strategy, source, or anything for that matter with such a short trial.

  4. I do acknowledge that I still have much data to collect. And from the perspective you speak of you are correct. I think the biggest reason that I am not making trades from other sources is because I don't like the fact that I don't own the trade. It gives me an excuse if the trade does not work out. But right now I want full accountability. Maybe I can still make the trade but with the caveat that I need to treat it as if it were my own idea and do my own analysis to make sure that it fits in my portfolio. And I will keep that in mind. But mentally right now I have a problem just following the trade of someone else.

    So with your perspective in mind I will be open to trading and idea from and outside source if and only if I do a regular post like I do for my own ideas.

  5. Hello Dominic,

    This is Josh at http://www.OptionSIZZLE.com

    Came across your post trough a twitter post. The record keeping you are doing is right on with keeping track of what strategy you are doing and the profit and losses. Zoom in on that and understand why and how they worked. Do more of what is working and less or what is not working.

    As for "owning the the trade". When you put a trade on you own that risk and reward. I understand what you are saying, but the thing you would want to understand is what that trade involves and understand the risk/reward.

    If you look at why prop firms usually have successful traders, the reason is because they have more than one pair of eyes looking at the market and generating ideas at all times. This is the power of leverage.

    Now following to many ideas or not understanding could and can cause you to lose money. Finding that right mix and understanding what is working and controlling risk, will lead you to becoming overall successful.

    I would recommend already having your business plan in place. If you do not have one just make one and have one in place. you can always change it down the road, but having a the simple rules in place will help you.

    Stockguy22 is giving away his business plan class for free, so I would suggest getting it and starting with that.

    Great work so far and keep it up.


  6. Josh,

    Thanks for the comments. I do have a business plan and a copy is in my individual tab on the blog. But nonetheless I am still interested in Stockguy22 and his business plan class. How do I find it?


  7. Hello,

    I believe you can get the info of his site at www.stockguy22.com