Well, it’s already been quite a few days since Week#7 has come to an end. A delay like that is normally a bad sign, as it usually is. It was one of the worst trading weeks I have had in a long time. And it ended in what I like to phrase a “trader meltdown”.
Here are the trades that I took:
As you can see, every single trade was a losing one – there were no scratch trades, let alone winning trades.
The end of the working week was somewhat of a haze – I focused on getting some errands done and also did a presentation on risk-management to around a dozen people working in a small City-based hedge fund. Certainly, that 3-hour workshop was a lot of fun and apparently a great hit with the attendees!
This trading fiasco, together with continued turmoil in my personal life, helped me to decide to quickly fly down to southern Germany and spend a week with my sister, her husband, and their two teenage kids – to get into an atmosphere of good feeling, fun and reality.
Putting week#7 into context
The 2016 trading had been progressing well so far in terms of results. I scratched the first week and then made a little bit each week, whilst simultaneously increasing my financial value of R, peaking at R=£250 in Week#7.
The losses from Week#7 wiped out all my gains made in the first six weeks of the year. Thus I am now basically where I started at the beginning of the year. Here’s a cumulative equity curve from Dec2015 [at which I resumed trading following the 2 months focused on trading futures on the CBOE] till the end of last week (this includes a few non-K5 trades).
Out of interest, here are the cumulative results for the near 700 trades I have taken with this strategy between the end of March 2015 and last week. Note that the data excludes a two-week stretch of live trading completed in Boston/USA in May2015. The blue line indicates actual results (measured in R), the orange line indicates the cumulative transaction costs (commissions and bid-ask spreads).
My attempt at explaining what happened last week ….
Hypothesis #1: I didn’t trade well
Results aside, my behavior and actions during the trading days (Tue’s, Wed’s & Thu’s) as well as my research analysis on Mon’s and Fri’s, had been going great. I have been doing many things that I believe makes me a better trades, and have reduced things that I believe work against me. This is something I have been working and focusing on, prioritising the importance of “trading well” as opposed to obtaining good results. In the long run, I should be obtaining good results if I trade well.
Did I trade well in Week#7? For the most part, my trading inputs in Week#7 did not seem materially different from those of preceding weeks. I prepared at the start of each session and I opened, managed and closed trades in accordance with my strategy parameters. Sure there was the odd thing here and there that I could have done better, but on the whole I traded well.
Hypothesis #2: Issues from my personal life screwed up the trading
Yes, currently there are some unsettling things happening in my life. Nothing life and death at this stage – but issues within the family, and a relationship issue. So nothing life-threatening, but also not exactly minor.
Did this have an adverse impact on my trading? My trading mentor Paul Wallace, without having detailed knowledge of the situation, believes it is most likely that this is the explanation for the bad week. That my personal issues are ending up on my trading charts. The arguments against that are that I have been trading well in the recent weeks during which the unsettling events started to unfold. So if they did not have a negative impact to start with, why should they suddenly have an impact in Week#7? I don’t feel qualified to answer this question, nor to conclude whether or not the personal issues influenced the results. What I am comfortable to say is that the personal life issues would definitely not have a positive impact on my trading!
Hypothesis #3: Market conditions did not suit the K5 strategy
K5 setups will work if price continues to go with the trend, and if there is actual momentum in the market. The setups are less likely to work if there are false breakouts, reversals and a lack of trend and/or momentum.
On the whole, the effectiveness of the setups last week was not good. The setups I took were valid to a very large degree, but they simply didn’t work. Thus, unsuitable market conditions could certainly offer an explanation to the dire results. The points to take from this are that (1) I need to be quicker to realise when the market conditions are not right for K5. A hedge fund trader I spoke with recently had a good piece of advice. Continuing to apply a ‘proven’ setup in the market when it continues to generate losing trades, is generally a bad idea in the financial markets. Most likely this situation indicates that the strategy no longer works. And (2) I need to be more stringent in looking for strongly trending markets – my gut feel is that this would reduce the number of non-working setups. Finally (3) I should consider being more patient and waiting for the ‘obvious’ and/or ‘really good’ setups. Does this imply that I have been taking sub-optimal setups?
Naturally, not already having tactics in place for (1), (2) and (3) could be construed as not trading well.
I am going to say that each of the above had a part in last week’s result. My guesstimate would be that it’s 20% to personal issues, 20% to not trading well and 60% due to market conditions.