We finished the year with only a 8% gain, but that does not tell the whole story. You will recall that 12 months ago I was using a daily trading system that relied heavily on several indicators. I won’t go into detail as to which indicators because it is now irrelevant.
I also employed a mix of fundamentals, that is finding great stocks that are undervalued and trading them long in accordance with my indicators. This worked very well over several previous years, primarily because the market was raising steadily.
Around about this time last year I got it wrong. The market had a relatively sharp 15% fall closely followed soon after by a similar rise. The fund at the time was heavily committed and my indicators lagged the fall and rise by just the right amount for me to be invested in the wrong direction on both occasions. The fund was nearly halved.
It may be odd to learn that I now consider this to be a blessing! This loss forced me to make the jump from indicator and fundamental mix reliance to a system I had been noticing for some time. Price action trading. Indicators are all well and good in a trending market but they provide conflicting messages when the market transitions.
On the other hand, Price action, or bar by bar trading, is immediate. Of course the down side is that price action takes a lot of work to master. We moved over to price action trading and tentatively built the fund back up by the end of the year to a small profit. In other words, if we accept the loss, and the new fund value at the time of the loss, we actually doubled the fund. I know as a fund contributor that does not sit well but it was a goal and a task that I had to face over the last 9 months.
Coming into the new year I have taken stock and not traded the fund to any extent. The fund amount remains unchanged at 8% up. This has given me the time for several weeks of back testing, which I hope I have kept you informed about, and the introduction of a new charting system. New software and charts always take some time to master but the change we have made, as the charts are now linked directly to our broker, is a major improvement.
I was planning to be trading the fund by now but have been delayed a week or two. A trip away and a tummy bug on return didn’t help.
Finally, this is not a fund that you will find easily elsewhere. It is an aggressive fund but, importantly, where all trades are reasonable trades. That is, all trades have a reasonable measure of risk, reward and probability. I could trade the fund tomorrow against a 60% probability trade to double the entire fund. That, however, would be a long way short of reasonable.
The goal of the fund is to make money, and make money at a rate that I’m able to do, progressively, and with emotional detachment. (I’ll explain this more fully in a future blog) That emotional detachment (my personal risk aversion) will build with experience.
We have some new money being introduced to the fund from a current contributor. This money will dovetail into the fund at the present fund level and will have no effect on your profits. The fund remains flexible in the sense that moneys can be withdrawn partially or fully anytime within reasonable trading timeframes. However, as this would be a distraction I would be grateful for any notice that’s possible. I make no charge on the fund, however, once I have doubled your original investment amount I may reconsider this.
Thank you for your trust and patience. Here’s to a good trading year.