Difficult Market, Bankrolling, and Wake-up Call

So this has been one of my worst years trading without doubt.  One comforting thought was that, as jinx may have its way, I’ve picked one of the worst year to embark on full time trading.

These days I follow The Fly on ibankcoin.com to gain candid perspectives of a professional money manager and entrepreneur.  So much so I am afraid I’ve already grown accustomed to his frequent foul language.

When I started following him back in August, his managed portfolio was up around 14% (btw, don’t quote me on any numbers, all from memory and all ball park numbers) for the year.  Then came September when the August low was broken.   He had to take proactive losses in order to protect his year-to-date gains of about 7%.

Then October rally came and not only did he jump right back in but with a vengence – very gutsy at the time.   Man, he could have hated himself for selling at the low (and slightly short I might add) and could have missed the biggest monthly rally ever.  That didn’t happen.  He kept his head cool despite doubling the use of his foul language.   At the height of October, his account was more than recovered, up a record 17% for the year.

However, may be the greed took over a bit.  Despite the European woes, he was banking on the Thanksgiving rally and stayed very long (granted, 40% was in gold and silver stocks) with only 10% cash on the side line.   Technically, the bullish stance was even appropriate given the symmetric triangle continuation pattern.  Market being what it should be, it broke all jaws and broke instead to the downside, making the Thanksgiving week sell-off the worst since The Great Depression!    That wiped out ALL of his year-to-date gains, going all the way back to 0%.

Once again, he did not quit and held on to his positions.  “It’s one thing to buy high. It’s entirely unacceptable to sell too low.”  On Monday’s 3% pop, he didn’t sell but vowed to get his record return back.  Today the market popped another 3.5%.  Good for him!

Why not follow his trades?!  Of course I did, but I either picked his losers (e.g. RENN, LULU) or got his bad timing and did not follow through.  Sounds familiar?  Hello jinx!

But the point is that during the last 4 short months, even a professional money manager went from +14%, to +7%, to +17%, to 0%, and to now +11% for the year.  Tumultuous!

This brings up another topic: bankrolling.  If a pro does 17% for the year, that would be a splendid year.  What if I had the same stellar performance, the best case scenario?  My $130K account would have a gain of $22K.   Is that enough to earn a living?!    Oh yes, but on the poverty line!   Unless I have a million dollar account, or I day-trade like a jack hammer, I don’t stand a chance.   That got me thinking.   Why wouldn’t it?!   Guess what, you, too!

Speaking of the subject of bankrolling, there was another blog from ibankcoin.com by chessNwine that was rare and relevant.  In short, I need to have at least 6-9 months of money standing by in case of a bad losing streak or difficult market when one should not trade and therefore no income.  If I feel I have to trade to pay my bills, I will probably blow my account.

Still over 2 hours to go before the bell, but below is a snap shot of the SPY daily.  I missed the 50 day EMA add for my short position due to the huge gap up this morning.  That’s a rare break, assuming we’re still in a bear market.  I added 600 shares of SPXU this morning averaging 14.42 — too early as it’s went all the way down to 14 since I bought.   I need to remember not to repeat the goosing back in October.   Sitting on my hands and typing away, this would be my third post today.

Portfolio Value: $129,800

Update:

Market rallied another 50% during the last hour and closed up 4.2% for the day.  Holy smoke!  SPXU down 12.66% and TZA down 17.75%.   Should I cry uncle?

Portfolio Value: $129,000

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10 Responses to Difficult Market, Bankrolling, and Wake-up Call

  1. GreedyKojiro says:

    I’ve managed to break even my previous batch of TZA yesterday. But I loaded a good amount of TZA at $33.90 on yesterday. Today I average down to $30.87. Some people said averaging down is a bad strategy, I doubt. For me it has been working well for far whenever I timed the market wrong. Of course averaging down on long is mentally less challenged than averaging down on short. Anyway, I am holding still on my short.

  2. GreedyKojiro says:

    Get a glass of wine. Boys don’t cry 😉

    • Buy yourself a bottle of wine through the link on my header. I’ll get $25 subsidy for my next bottle 😉

      • GreedyKojiro says:

        I definitely will when I collect my money on those TZAs 🙂

      • GreedyKojiro says:

        David,
        Tried to say hi to you today on Cobra’s forum but probably you didn’t notice. As promised I placed the order on lot18 😉 You got your $25 subsidy for your next bottle 🙂
        Hope you also have a good trading day today!

        ———————————————

        Your order is complete. Thank you!

        Your order number is 689527

        Keep track of your order’s status via your Order History.
        If you have any questions regarding your order, please contact us at service@lot18.com.
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      • Hey Greedy,

        Thanks much for the wine subsidy!!! I guess that’s doubly good news — that you did well with your TZA 🙂 Sorry I missed your comments again at the intraday forum. As I mentioned previously, I don’t monitor that forum except whenever Cobra tweeted — then I might read a post or two surrounding Cobra’s post.

        PS. Sorry had to reply to my own post here. WordPress seems to limit the reply to 3 levels. Can’t reply to your post.

  3. Javier says:

    Hi David, this is one of the most difficult markets to trade I have ever experienced. I survived 2008 and now Im dealing with 2011. Nothing different IMO, the action is classic of a bear market. Im going to stick to my long term plan. I don t think this is the beginning of another leg higher. I don t expect too much into the year end. ….. Don t feel bad about your returns, Im still up for the year but the way my account has dropped in the last week it feels that Im negative. I had the worst week of my entire trading career.
    http://www.screencast.com/t/fIrNLytoJU6

    PS: If you send me the SI website again I would appreciate. When you did you sent it to another email that I had to cancel and I could not get it.
    you can email me at huescolf@yahoo.com.
    Thank you very much

    • Javier,

      If I just look at the charts, I am not scared; it’s the news that gets me emotional. What? The Fed is bailing EU out through the credit swaps?! Problem solved for the next few years, and market can enter another bull market…

      Nice performance for you! I’d imagine you faded my trades to get those returns 😉 Why would you want this indicator that I have yet to learn how to trade it?! I’ll follow up with email.

  4. padysrini says:

    David – patience is key here ( and hedging ). I shorted at 1200 two days back. And this gap up has got me thinking. I am thinking we will go to 1292 atleast again. Although my EW newsletter guy says we will go down hard from here ( i dont see why ). As you said, controlling emotions is key and believing in your analysis. Keep up the good work.

    • padysrini,

      Thanks for your comments. I hope your 1292 will come after a retest of the November low! Your EW guy isn’t alone. Aside from The Fly, none of the other sources I follow have put on bullish hats yet.

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