Trading learning year 2

In 2018, I created a Robinhood account and I added 1000$. I had a goal, it was to trade with that money, and learn about how to trade in a systematic way and understand how the environment was going on.

I started slowly, with few amount of moves, practicing on stocks I knew and using the learning I acquired trading with crypto-currencies (year 1).

As the money was limited, I divided the trades in 4 units, so every long event should be around 250$. My initial goal was to obtain a 6% growth through 2019.

I did not want to limit myself to a goal number, as the market would have a direction that I cannot control in 12 months, but I wanted to set a reference and initially it was 6%, then I moved to 10%, then I moved to 25%.

The math result? I did a 40%

This final result was an unexpected result, I started doing individual moves and learning from my previous experience, understanding the SPX behavior and trying to learn from the results. Initially I was psychologically stressed with the situation, but I learned how to handle it and the results started to be positive once I keep the actions aligned to my convictions.

The learning result?

I have learned a lot of things, as in the middle of the process I had no money to trade, or I had problems to be with time in front of the computer, or there were times where the market was not in the conditions I defined to trade. Some of the things I learned:

  • To be as much systematic as possible:
    • defining a set of environmental factors that I checked before to trade.
    • I have defined a set of companies that I use for trading, depending on different conditions.
    • I have been able (not 100% of times) to close the computer and read a book when the conditions where not the right ones.
    • I started to be more systematic after reading Systematic trading 🙂
  • Analysis:
    • Analysis of companies, about how they generate cash-flow, in which part of the cycle they are, etc.
    • I learned how to follow trends (differentiate when market is pushing or is moved by inertia).
    • I learned to focus on quote ranges, not on trends. There is a space where the market is moving, I have tried to focus on that range of realistic moves, focusing on small trades.
  • Act aligned to my convictions, and recognize that I have to be flexible about convictions:
    • I have learned a lot about how bad I am about this. I need to improve a lot if I really want to be successful. To trade with 1000$ is nuts, and when the number will increase I have to be more mature on this area. Let’s say that I am more aware of my problem with early shorts that could gave me bigger returns.
    • I learned that I am mainly a negative skew trader. The good thing is that now I’m aware of that and I’m adding some actions on my habit at the time of adding stop-loss actions.
    • I have to improve better to short on loses before the lose is too high. I have earned an average of 2,32$ per trade, if I remove the 10% of biggest loses I would have obtained an average of 3,78% which is a lot.
    • The thesis I have done have changed with respect the environmental conditions that have been happening. I have used the China-US trade news, brexit, Brent price and euro/dollar exchange as variables to modify my thesis and market behavior.
  • You are managing a portfolio of money, and you have to be consequent with the limits of resources:
    • Sometimes I had no money to trade, when the market was in the best moment to short.
    • I learned to anticipate to the best moments and short some moves with the purpose of doing small margins but have cash for next days.
    • During the last 2 months I was able to do 5 units, as I was over 1200$, so I could trade a little bit more.

Analysis of data

I have done 157 trades during these 12 months.

  • 20 trades were below zero (loses), 137 were over zero (gains).
  • The worst 10% of the trades supposed me to lose 173$. If I would have stopped these loses before I would have earned more. I have to take into account too that the use of stop-loss in the wrong way would have made me to lose some margin on trades that I have finally be over zero.
    • Using pareto principle (six sigma), where solving 20% of the issues you can solve 80% of the consequences, I have added to my habits:
      • Stop losses in a controlled way: do not let the loses to be over the defined range.
      • Use stop loss actions to sell, and in this way not stop the positive trend of a stock.
      • Divide the money in 2 for the longs, so in case of a small negative trend, I use the second part of the money and I reduce the average cost.
  • The average of the earnings have been 2,32$.
  • Without the 10% of the worst trades the average would have been 3,78%.
  • Without the 10% of the best trades the average would have been 1,1%. This is interesting, because reviewing some of the trades, I have realized that I’m not trading with negative skew the 100% of the times. I have progressed to a more positive skew habits.

Distribution of the trades depending on the days that took to open and close a trade:

Best values I traded:

Company Gross marging
GE $78,08
CRM $38,50
CTVA $32,17
BA $28,74
TXN $28,10
MSFT $25,54
INTC $23,33
GIS $19,05
GMRE $18,68
WDAY $18,66

Worst values I traded:

Company Gross margin
PTC $2,02
DUK $1,51
WELL $1,50
CELG $0,93
XOM $0,88
T -$1,52
KO -$6,54
JNJ -$7,82
MMM -$8,67
DWDP -$46,08

 

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