Portfolio Performance: Month 6, 7, 8

First, some houskeeping. I apologize to my readers who expected continuing regular posts and suggestions. My life got pretty hectic lately and I was behind on updating my trades. That quickly snowballed from a week or 2 behind to almost 3 months. Usually I write a post, especially a monthly performance update post when all my charts and trades are updated.

Updating the trades for the last 3 months and inserting them manually into the charts took a long time, especially with the recent increased period of volatility because I increased my average daily trades from 4-5 to 15-20. I was on a vacation from my job recently so I found some extra time. In the end to update all of that took me about 3 weeks working 3 hours a day. That will teach me not to overtrade the next time! I hope to return to writing more regularly from now on.

Second, I ended my 5 month profitable trading streak and I had 2 losing months so now you see that I am human too. Having 2 losing months after 5 profitable ones is normal, however I had a little bigger drawdown then I expected. I will talk about this in the later part of the post.

Below you can see my returns for the last 3 moths:


Portfolio Performance: Month 6

 May 21, 2015June 22, 2015 
Time Weighted Rate of Return-11.76%
Net Asset Value Change: May 21, 2015 - June 22, 2015


Portfolio Performance: Month 7

 June 22, 2015July 22, 2015 
Time Weighted Rate of Return-15.46%
Net Asset Value Change: June 22, 2015 - July 22, 2015


Portfolio Performance: Month 8

 July 22, 2015August 21, 2015 
Time Weighted Rate of Return22.11%
Net Asset Value Change: July 22, 2015 - August 21, 2015


Why am I doing this blog

This is a good time to reiterate my reasons for starting this blog. The primary and most important reason is to improve my trading. To identify mistakes I make and to correct them. It is a sort of a trading diary, but a public one because I want to make all my successes and mistakes public so others can learn from them and also they are always free to join in the discussion and point out if there are some mistakes that I didn’t catch so all the community can benefit.

It is also the reason I am documenting all my trades by hand. By doing this you have an opportunity to analyze your trades and see if you could have done something differently. If you made a bad trade and lost a lot of money it really pops out clearly so the next time you are in a similar situation it is less likely you will repeat the error.

The psychology of a winning and losing streak

The monthly performance record is just a statistic but I will try to explain how was it actually going through both the winning streak and the big drawdown period. After gaining +100% in the first 6 months my first thought was, ok if I keep this up after a year I will have about a +300% gain. The second thought I had was more interesting. I didn’t arrive at +100% without making some mistakes so my second thought was If I hadn’t made those mistake now I would have +150% or +200% and after a year if I keep up the same performance I could potentially be up +600% or even more. So instead of being happy for gaining 100% in 6 months I was unhappy because I made some mistakes and didn’t gain more.

That is typical thinking after a big winning streak, you become overconfident and you just extrapolate the trend in the future. The next 6 months could very well have a gain of only +10% instead of a +100% or even have a negative return, but when you’re on a winning streak you push these thoughts aside.

Another thing I noticed is that after 5 months or so I became obsessed with keeping my winning streak going and I even thought of trying to make it through the end of the year without a single losing month. It is ironic that just after these thoughts appeared instead of continuing my winning streak I had a 2 month losing streak. Obviously the mistake was thinking about and giving too much emphasis on things out of my control. It is much better not to have any expectations and just concentrate on trading and money management.

So is having 2 months of losses after that just a coincidence, a simple outcome of a random distribution of results or was my performance affected by my way of thinking during the winning streak? After re-analyzing my trades in my case I concluded that even if I didn’t make any mistakes I would have still been down the following month but it would have been single instead of double digits.

When you’re on a winning streak you assume that it is going to continue so you become much less selective on your trades and you take on trades which you usually wouldn’t and that’s where the mistakes and losses come from. You finally come to your senses after a big drawdown. There you have the risk that the pendulum swings too much the other way. At my max equity peak to through drawdown of 36% the thoughts I had were entirely different then during the winning streak. I was thinking how could I have  let this happen, how could I have made such stupid mistakes after such a successful first half of the year. At the lowest point I even asked myself why was I doing this blog and if someone asked me is it more probable that my account goes to 100,000$ or 200,000$ in the next couple of months I would have said 100,000$. Ironically also this was the exact point of my comeback after which I had +22.11% for the month of August and now as I am writing in September my equity stands at 204,000$.

My opinion is that you cannot flatten out those cycles of greed and fear inside you just as you cannot flatten out the business cycle because both are governed by human emotions and you cannot eliminate those. The best thing you can hope for is to alter their amplitude a little bit (increasing the period of winning and decreasing the drawdowns) by repetition and learning from your mistakes but you can never eliminate them completely.

I will expand on this and talk about the specific reasons for the drawdown in my case and the lessons I have learned in the process in the next post.