Hey Guys,
The market had a terrible day yesterday. It had been in a range over the last week, but it broke through the floor of that range in a major way. It dragged down a lot of my positions with it.
I had a number of positions hit their stoplosses in the last 24 hours: 5 stock positions, 1 futures position, and 2 options positions.
The loss on SYY was particularly painful because I did a double down trade on it, and even my double down hit its stoploss. This is a stock that had been in a driving uptrend all last week through the initial news of the Russia situation (the exact type of stock I'd want to be buying in the current circumstances), and then yesterday it dropped like a rock. It went down about 8.5% in a single day! That was rough, especially for my options positions. According to back tests, those short put trades might win very roughly about 75% of the time depending on exactly which price you get. So to have multiple losses in a short period is painful, even if it might be rare.
As rough as that was, there are a couple of perspectives that might be helpful to consider:
1) Right now I'm in the deep part of a drawdown. Looking at decades of back tests, historically the drawdowns may not have gotten much deeper than this. It might actually serve as a good time to invest. It definitely doesn't mean that it can't go deeper or that there isn't substantial risk, like always. But taking trades at the bottom of a drawdown could be lucrative according to back tests. When you look at the equity curve of the trades from this system, some of the biggest profit streaks started at the trough of a drawdown. There is clearly a very large degree of uncertainty in the air, which translates to risk for traders and investors, but I'm very motivated to stick to the plan and stay in lock step with the approach since the drawdown may not get much lower than this.
2) Very similar market conditions have happened before -- periods with months of market volatility. According to back tests, those were at times accompanied by noticeable drawdowns, but then the account recovered and eventually performed well. The timing of the recovery varied noticeably though. In the summer of 2011, for example, there was an immediate recovery after a few months of extreme turbulence. In the autumn of 2015, on the other hand, it took longer to recover. The key here is that as disconcerting as it is to live through an account drawdown, it can be helpful to keep the big picture in mind. It doesn't mean there isn't risk, but this degree of market turbulence is actually nothing new, and it won't last forever. It doesn't mean that roses and butterflies are within view by any stretch, but what we're going through right now is not a deviation from circumstances we've seen in the past. Keeping the big picture in mind helps me stay patient and stick to the plan.
I did pick up a couple new stock positions today in the low-priced account. I grabbed shares of WWE and TGI.
If you have any questions or feedback, I'd love to hear from you.