I was not just assigned the title "Head Honcho of Hindsight" at Good Kids Trading (GKT). I earned this title! I am a master of seeing every 'should've' "could've' and 'would've' for a trade, a strategy, or a market rotation. I notice how "easy" it is to know what to do next just as long as I already know what happened in the future. In other words, if the Head Honcho of Hindsight just knew the future: I would trade with 'perfection'! Ok, That's it! I've decided I'm going to sign up for a fortune telling masterclass, and 2023 is going to be amazing!
Before this turns into complete satire, let's get serious now. Shifting from humor, forgetting my made up (real) title at GKT and acknowledging that anyone who can see the future could make a fortune. I don't think the fortune telling masterclass will work for most of us, so lets discuss what we can do to become a better trader in 2023.
I enjoy hindsight review because there are lessons to be learned, and many times the lesson is not always what I expected to learn. Trading is a business for me, and I want to ensure I'm running this business as efficiently and intelligently as possible. Reviewing performance is a good exercise that all traders should think about regardless of account size, time commitment, or experience level.
I focus on my losers first, I'm looking for trends or trading strategy that consistently lost me money. We all have that part of the brain that thinks if, "I don't look at the problem there isn't a problem," but that is exactly what will lead to more losses and pain in 2023. I ask myself several questions. Why did I continue to lose? Was it my execution? Ego? Could I have changed the strategy sooner? Then I like to move on to the winners. What worked well? Did a strategy work well then turn into a problem, or vice versa?
I do not focus just on my profit and loss (P/L). I already review that monthly from my book keeper. It might sound strange, but profit or loss is just one data point and making money is EVERY traders goal, but your trade plan and market awareness will lead to a favorable P/L. I zoom out a bit and reflect if there were signs that a strategy was about to cool off or heat up? Maybe no, but I take time to think and reflect, and I make some notes.
For me 2022 was very good in some aspects, I made consistent and considerable profit selling options premium. I successfully hedging my long term positions on the way down. Yes, I have seen a drawdown in my long term account, but I also made some money as the drawdown occurred to help offset some of the losses. Since shares never expire, my long term account should recover eventually (hopefully).
The problem area for me came from roughly 5 bad trades. REALLY BAD TRADES… I made a a really big bet on Tesla and Google. Both of these trades were far too large of a risk; big bets with a bullish directional bias. As the head honcho of hindsight at GKT, these were AWFUL trades in hindsight… They were not awful just because they lost, they were awful because taking too much risk negates months or even years of successful trading!
Trading over earnings was so much 'fun' until a couple companies missed badly and I was trading with undefined risk trades, again with oversized positions (WMT, META looking at you…). A couple two standard deviation moves overnight with undefined risk erased the previous two quarters of successful earnings trades.
I have a recurring theme of taking outsized risks, where there really isn't a need to do so. I took trades based on assumptions that really amounted to a best guess. I fell for this whole concept of making a few really good trades a year then not having to think about trading any other times. It sounds great in theory, but then the reality of "no one knows anything" really comes through. All the probabilities, statistics, moving averages, Elliot waves, Fibonacci retracements (I could go on for pages) are just data points. Markets can remain irrational longer than you can remain solvent.
Also, there is this conundrum in my head every single year. Will next year be different, since this didn't work last year it will work this year, or conversely this worked well last year does that mean it will continue to work next year? The truth is everyone has a guess, but no one really knows what the future holds. Past performance isn't indicative of future returns. What the heck are we supposed to do?
This is my high level takeaways. My trading plan for this upcoming year is to trade my style, trade my strategies, and not let others influence me to the point where I change my style or strategies based on an 'expert's' opinion. I know my trading style, I know multiple strategies that I feel very comfortable trading and adjustments I can make in different market conditions. I will not trade out of fear or other people's predictions on an underlying or the market. I won't be taking trades that resemble a bet in a casino. I will focus more on risk and reward, my trades aren't going to resemble picking up pennies in front of a steam roller, nor will I make trades that have unbelievable opportunities for profit (and loss).
That's right, true to GKT style of trading: I will be trading often, trading small, and trading using the mechanics that I know works for me. I encourage everyone to do the same thing, find your style, evaluate risk reward, and trade your plan. Get so good at executing your plan and strategies it's almost boring! I will of course continue learning new strategies and considering new opportunities. The day you stop learning and growing is the day you die (just my opinion of course).
Your trading performance is not all about your profit and loss. Trading performance should also evaluate how you executed your plan, evaluating if you made the appropriate adjustments as the market changed, and ensuring you traded without letting emotions influence you. This all sounds simple, like common sense, but as you dive into your performance, as you review your trading log, you will likely see how complex these simple concepts can be. I hope you all look at your performance, and gain some valuable insight, I know I sure did!
At GKT we practice these concepts every day. Plus, trading in a community of likeminded people is far more fun, educational, and profitable! Join our discord today: www.goodkidstrading.com/join