Hey Guys,
Well we are right smack in the middle of some wild market conditions. Yesterday things seemed somewhat calm, and then in the last two hours of trading the market dropped more than 50 points. Both my MES futures positions hit their stoplosses, which by themselves cut 6% of the value off my account balance. I had two more futures positions set up at 3pm Pacific Time yesterday, and the market is down again this morning and already triggered my stoplosses on those. I had two stocks hit stoplosses this morning, and almost all my options positions are way down. All in all between both accounts, when the market opened this morning my account was at about an 18.5% unrealized drawdown.
This type of drawdown can bring up tough emotions! I want to talk about that.
First, I want to say that I've been on this ride before. And during this part of the ride, it can feel quite scary. There is just no way to know for sure where the ride is going next, and there is real risk here. What I can say, though, is that by sticking to the plan, even during these fear-filled parts of the ride, I've sometimes profited handsomely. Some of my best profit streaks were actually born in periods just like we're in right now. That definitely does not mean there is guaranteed profit around the corner, but it does mean I've lived through this type of environment a number of times this year and came out ok each time so far.
I also want to point out that this is what we signed up for. My trading approach is one that has the risk/reward dial turned up high. Back tests suggest that it might pay off over time, but there is always risk. And there will absolutely be periods with drawdowns and those times can be quite hard to live through.
This is a great time for you to check in on yourself and see how you're feeling. If you've followed any of these trades in real life, is this drawdown something you can handle? Do you need to adjust your position sizing in order to feel more comfortable? It helps to really nail down the amount of risk that's right for you so that the emotions don't get too intense. Otherwise it will likely be very tough to stick with this trading approach for the long term.
Just remember: if you plan to follow this trading approach for the next 20-30 years like I do, then you are bound to see some very tough market conditions along the way. It's not a question of "if" there will be tough market conditions over the next few decades; it's essentially a certainty that you would have to live through those (and their corresponding drawdowns) if you followed these trades. Are you able to accept that tradeoff? It might be interesting for you to explore whether living through drawdowns is easier if you set the expectation up front that there will absolutely be drawdowns along your journey. If you expect the drawdowns up front, does that make them easier to endure?
Ok on to today's trade activity. Today I picked up FTNT and DFS stock. I also picked up options for Citi (C) and in my extra options account I picked up a bunch of options.
My TRU and BX stock positions both hit their stoplosses today. I sold my stock position for DPZ since it hit the time limit. It was a rare profitable trade in an otherwise rough week. The whole market tanked and somehow Domino's went up!
Some other housekeeping: I also changed the "close by" date for CDNS to be August 26 (it was Aug 25 before). And for DFS, I changed the Stop Distance to be 7.02 (for those of you who use that information, it was 3.20 before). Thank you to those who pointed these out to me.
If you have any questions or feedback, I'd love to hear from you.