To the Slow Trader investors, I thought it an appropriate time to let you know where we are.
As you can see from the chart below, we are up slightly. Rather disappointing as we were in short at the start of probably the most significant market sell-off since 2008.
My problem with this trade, which I think was evident from a previous post, was that I got in way too early. We were out of the money in the German 30 (DAX) for about three months. A concern and one that reduces our trading margin in the meantime.
The drawdown was 19% of the fund. My standard is 0.5%. Therefore, I significantly went outside of my comfort zone.
The drop happened too quickly. What I mean by this is that I was looking for steady price action. Last week’s bar closing below the prior week’s bar. Or, as it turned out the monthly bar (in this instance February) closing with a large tail on top and again below the prior month’s bar.
With any of these things happening in good order then, in all likelihood, I would have held the trade until price action told me to buy back our shorts.
What threw me was the crash that happened, and one that was in our favour. Why an issue? I recall George Soros (the billionaire investor) telling how he lost much of his wealth shorting the start of the 2008 financial crash. The problem, as he said, was the volatility.
I observed as the DAX dropped through our entry point and down. However, as I say it was going too quickly and the likelihood of a significant exhaustion bounce was inevitable.
The issue with a bounce, as any professional trader will agree, is that they often become self-fulfilling—institutions (mainly) taking profits and losses all at the same point.
That point, I judged, would be when the price hit the weekly 100 moving average. There was, a 60% chance of a bounce at this level and if the bounce was sufficient, it could revert the market (maybe a 30% chance) to always in long again.
I exited our three-month trade at this exact point, and thereby in our small way, adding to the bounce effect. The market did indeed immediately reverse climbing for a time back up some 500 points.
That was us out with a small profit for our trouble and no way of getting back in. Nor did I want to, thank you very much. After all, Soros got to be a billionaire, and I think his lesson was worth taking.