Also, I made progress in my trading. My trading report card said I was up 37% this year. If I was giving myself a letter grade, it was around a B+. You'll see below.
Here were my lessons from winners for the year:
Only focus on the best setups that you understand.
My biggest winner was my IWM trade outlined in this blog earlier this year. I had seen that setup before in 1998. Pattern recognition! Your biggest trades make or break your year. This was the one for me, similar to my AMZN trade in 09. A very clear zig-zag (5-3-5) that had exhausted itself.
I focused really really well this year.
Panic and poor sentiment matters when you have charts you understand. Don't be afraid to use these moments to start a position or pyramid.
Don't be afraid to pyramid when you feel like you have a great 12 month trade and use sentiment and pattern recognition to help. 80% of my capital I traded this year went into trades when that IWM zig zag was completing in January and February. That was a great pattern and sentiment was awful. But I put in 10% after Brexit completed. And another 10% the Friday before the Presidential election. I only traded 3 times this year. The last 2 entries or pyramids were perfectly completed short term corrections in structure into the 200 day. With major derisking events in the news!
Less is more!
Because I had a new job this year, I barely had an hour a week to devote to my trading - basically 2 cups of coffee on the weekend and 5-10 min of train reading if I had the 5-10 min during the week. I only focused on my best trades this year (IWM, VIAV, LITE and a CS entry in Nov). This was my second best personal trading year in the last decade! I spent the least amount of time! I only checked my 3-5 quotes once in the middle of the market hours. I did any market work before or after my normal work day and the market day. That's really important. If it's good enough for Billy O, it's certainly good enough for me! Checking quotes frequently makes me and other longer term swing traders too emotional. You need to check in once to see if you've been stopped out or a trade has triggered for the day and be done with it. If you are a skilled day trader, this doesn't apply. But for the rest of us, less quote checking is more.
Here was my biggest lesson from mistakes this year:
When in doubt, trust the 200 day in an up trending security.
This was my biggest selling mistake of the year. Similar to PCLN 2009. Had a great cost. Great fundamental case. Never broke an up trending 200 day. Should have had a position and SAT until I was stopped out.
My market thoughts from here:
We are in a trickier spot.
Sentiment is higher. Bulls are higher around 50-60%. People suspect Trump will be good for business and the markets after being totally caught flat footed in November.
There are 2 real scenarios. The bulls scenario is markets went sideways for 2 years. In the big picture, the markets also went sideways for 16 years since the 2000 high. We might consolidate more for a few weeks but market is going much higher. 60% chance.
The bear scenario is the post Trump election stock market reaction was a blowoff and a real bear market is coming. 40% chance.
I don't the answer. The post Trump market run looks a little short compared to the 10 months of stock market action that preceded it. 99/00 had a nice 4 month blowoff, not 4 weeks.
More on the bulls case - The S&P (less frothy) and IWM (the leader to date) looks like they have finished 2 1-2s (that is how I drew the IWM chart above, S&P looks even cleaner) and what we have now is maybe our first 3rd wave in the major indices. The meat of the move you don't want to miss! Again, we had many derisking events in 2016 including the pre election in early November. I am using 1997/1998 and 1999/2000 as my market guides. If we break down from these examples, I will be out of everything. But we have not broken down yet. Here is what the IWM looked like in late 90s for your reference.
My short term answer for my own trading is I have cut my exposures some for first time in a year. I was 50-75% levered much of last year. I think in mid Dec (anticipatory, IWM was out of bollinger bands) or now (reactive, we've had a few IWM closes below the 20 day) are reasonable times to cut exposures, generally get off leverage, take some profits. I am still keeping a core unlevered market bet with trailing stops - set at 50 and 200 days. If market rips I'm there. If it breaks down, trailing stops will take me out. If we get a better short term set up, I have capital to deploy.
Examples of what I've done lately is selling half of my VIAV after completing a possible 5 after a possible O'Neil climax run (up 6 out of 7 days). But I am keeping half and listening to my own advice above. 200 day and 50 day are up trending. I should be using 200 day as a stop for a long term core position. My original thesis was Jan 2016 ended a 6 year downtrend in the stock.
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