Two things happened on Wednesday to knock my confidence: I got stopped out of my short oil position far too soon, because the stop was too tight, and I was stopped out immediately on a short soybeans position, after I jumped in too quickly. The latter felt wrong at once and I should have cut it.

Several things have been doing what I expected them to do this week. The long gilt is rising; GBP/AUD is falling; the S&P 500 is rising; oil is on  a slippery slope; the sugar price looks ever sweeter; gold is gaining in lustre; soybeans are getting crushed; live cattle are running (sorry, enough of those). The point is that there is no reason to feel downcast about my medium-term views. The thing I am still getting wrong is the execution.

My new trading rule, designed to make me take profits on any pullback, did break me of the habit of taking no profits at all. However, it got me out too early, on every position. One problem here is that I have becoem overconfident in technical analysis using the intraday chart. If there is a strong breakout on the daily chart, say, then one can use the intraday levels to pick an entry point; but without backing from the daily chart (i.e., without any impulse behind the market), intraday levels can easily be broken in a few hours. I have therefore modified the rule to read:

Once you have made 2x risk on a position, move the stop either to the entry point, or to a close technical barrier beyond it.

The point of this is to avoid taking a loss, but to let winning positions run.

Some other observations:

  1. I have become too risk-averse. You have to keep taking risk to make a return.
  2. There isn’t always cause to blame yourself when the market goes against you — sometimes it just does that.
  3. If you have a view, don’t be afraid to try to get in a few times before it takes off. You have to be prepared to be stopped out and then get back in again.
  4. Getting a bad entry is more upsetting than missing a trade. Take your time and don’t be afraid to miss a trade if you never get an entry point.
  5. It can take minutes to hit a stop on a good entry, and weeks to take a profit. You have to be prepared for this asymmetry — lots of slaps in the face before you get a reward.
As usual, there are some things I am pleased about. I noticed that my psychology had taken a knock and took some time out — this is the right thing to do. I didn’t take it too hard — in fact, I was quite relaxed about taking some time out. And I met a Hare Krishna monk on Oxford Street, had an interesting chat and got (another) copy of the Bhagavad Gita — albeit an edition containing more annotations than actual text. I haven’t ever read the whole thing, so I am doing that at the moment.
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