Winning is easy, losing is hard. In school and sports we are taught to be winners. In trading we need to learn to lose. Amateurs like to take quick profits cause it feels good, they hold on to losing positions cause having it on paper doesn’t feel as bad as actually taking it. Pros do the opposite and enjoy working in uncertainty at the right edge of the chart.
The US market has been selling off for the past couple of weeks and is now -20% from the highs. Investors are in panic. When $SPX closes -7,60% in a day, you know people are not selling just because they want to, they’re selling because they have to. Many of who were over leveraged on the long side are probably out of business. The goal in trading is to stay in the game to have opportunities. Once you’re out of chips, you’ll be asked to leave the table. Most think of capital as only money but there is mental capital to live through the drawdowns as well as cost of opportunity to have your money work better elsewhere.
I have added a chart of $SPX with my simple long-only system. Green arrows mark the buy signal and red arrows sell signal. As you can see, in steady uptrends false alarms create whipsaws, getting out and back in just to miss a bit of the move and pay fees to the brokerage.
However, in times like now it helps me to preserve capital and live to fight another day. PS! I did NOT know what was going to happen, all I did was follow my trading plan and respect its signal. I don’t predict the future but having rules in place can keep me out of trouble. Where to get back in is the hard part to decide. Again, I have rules for it, I may get back in too early but I manage risk and exit if proven wrong, no questions asked.
“Having a loss is the least of my troubles, I forget about it overnight. Being wrong not taking the loss is what does damage to my pocketbook and to the soul.” (Jesse Livermore)
One interesting observation has been that people ask me if during the market turmoil now my work has changed, if I put more time and effort in it, if I now take the news into consideration etc. No, the process hasn’t changed. I still ignore news and make my decisions based on charts; rules that have been put in place before the rare market events. I have backtested my strategies previously on the last 20-40 years of market data; I have lived through such events on paper and can have a broad view on what to expect from my trading system.
I’ll keep you posted how things are working out for me. Also, a new book review coming soon! Much good insights.
Lesson Learned: The best loser is the long-term winner.
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