How to take a punch
The FOMC announcement really messed with Thor yesterday. I was short ES and AUDJPY, which were whipsawed out for breakeven and a 1R loss respectively. Also SI Z4 painted a 1R loss, and EURGBP got into a trade and out of it for roughly breakeven on the same day. With other intraday reversals my main account was down 4.7% (or $39,000 AUD) yesterday, and I feel it’s important to acknowledge that, and also acknowledge that I really thought we had a very small chance of doing anything but go down yesterday, and the surprise move caught me by, SURPRISE. As you well know low probability outcomes lead to the biggest moves and many equity shorts (like me) had our fucking faces ripped off, as Gordon Gecko would say! Mea Culpa to those who took my advice yesterday, I honestly didn’t see anything bullish leading into it, although there must have been clues. Congratulations to those who took the other side of my trades, it was a ballsy move and you deserve your profits 🙂 The game is the game.
This is a daily equity fluxuation histogram (real money, the hypothetical one that Thor people should be trading is marginally better) for my personal account, after the big single day drawdown on the left of the screen I changed the exit algo to reduce the risk of this happening too often, but here we are again.
Personally I’m feeling totally fine with it, it’s tremendously easy to paint winner after winner, but you really see what you are made of in a drawdown. Which leads to the important topic of
What Do I Do?
Mike Tyson said that “Everybody has a plan until they get punched in the face” and that is particularly true in markets. The important thing is to have a business plan around your trading plan, which includes a point at which you lower risk and keep lowering it in a drawdown. The interesting thing is that you will not want to follow this plan if you get to that point, because it makes it harder to pull out of drawdown
There is an important principle of markets in this book by Jack Schwager that when you take a big hit you are no longer objective and you should just get out. I highly recommend reading this, there are several strategies to deal with this problem.
Anyway, after a night’s sleep so I am objective again, I can say the following. Big single day fluxuations are a concequence of running many simultaneous positions. My choices are to either limit the number of simultaneous positions or bank partial profits earlier (which I already do). Days like yesterday are just a fact of life for me, though I could lower my profit targets to get rid of them. I choose not to, so I accept the consequences.
Market wise, the big one day move has shaken weak hands out of their positions in both directions. As long as the sequence of lower highs lower lows stays intact, the bears still have the advantage (with a lot of energy being expended making the big up candle yesterday), though if we go up even a little a serious squeeze will start.
How I am thinking is as follows. If the market wants to continue going higher then we should paint a small range day (in either direction), whereas if the upmove is a last gasp effort by the bulls then that move should be quickly reversed. We should have resolution either way shortly