Need Help on roller coaster equity curve

[heavenskrow]

So on my Optionshouse account which I mainly trade options/ETF's,stocks.....
I finally broke back even betting on the short side with today's action.
On my IB account with futures that is a DIFFERENT story lol...but we will save that story for another day.

However every time I make huge gains in a short period, I usually give it all back so I took full profits/half profits on some positions today.
I still believe I should hold a huge position on this one short but....I've been scarred many times before.

Anyways after trading for 6+ years I am debating if I should continue this roller-coaster ride.

For example with AAPL, in my analysis I believe a top is forming. On 6/24 there was a huge spike to the upside. I was short from previous days ago and was like WTF!..... it broke past major resistances but then slowly flopped over. In my knowledge gained from years of trading I "felt" like this was a trap and even a better place to add more. However on my wall there is a picture of Paul Tudor Jones with a sign saying,"Losers Average Losers." Hence I did not add to my short position at a better price....and low and behold AAPL tanks like I thought. I wonder if it was better to listen to my gut or a rule of a TOP trader.

And in regards to my short position on another stock...I feel like this is start of a huge short move....However I've held onto positions believing that sitting with it is what I should do listening to Jesse Livermore.
But holding them and not taking a profit eventually turned into losses. So once again I am at a dilemma of whether I should believe in my analysis and make a huge bet and HOLD....or a pussy sized bet and take profits at moderate levels.....
It is driving me crazy!!!

Do you guys have similar thoughts??What should I be doing to smooth out equity curve?

 

[dbphoenix]

You use the word "belief" (and its variants) a lot, along with "feel" and "think" and "wonder". Then of course there's the "betting" thing.

If you're still trading feelings after six years, perhaps you should revisit your trading plan. If it was and has been consistently profitable, re-evaluate its underpinnings to determine whether or not they still hold true. You may have to do some retesting. If it never was consistently profitable, better late than never to put such a plan together.

 

[xandman]

Lower bet size, index part of your assets or both.

 

[heavenskrow]

Lower bet size, index part of your assets or both.

What do you mean index part of my assets? You mean with SPY?? Right now I don't want to be long the general indexes. In fact one of the big shorts is an ETF of an index

 

[heavenskrow]

You use the word "belief" (and its variants) a lot, along with "feel" and "think" and "wonder". Then of course there's the "betting" thing.

If you're still trading feelings after six years, perhaps you should revisit your trading plan. If it was and has been consistently profitable, re-evaluate its underpinnings to determine whether or not they still hold true. You may have to do some retesting. If it never was consistently profitable, better late than never to put such a plan together.

Well that doesn't really answer my question. Instinct is trading in the opposite direction of the bull/bear trap(which I've learned from the market). However once again I was short AAPL(22nd and 23rd) before a huge spike on the 24th of June which quickly erased any little profit I had.

I showed a loss but did not sell out of emotions. If you look at the velocity of that move, it would be hard to not cover your shorts. I redid my charts on AAPL and had 3 resistances where it should not break. Low and behold the move broke all of them. In my mind I was saying,"Are you kidding me!!!!Time to take another loss..." Then it stalled for a few minutes before sneakingly breaking back below resistance. At that point I thought this is a GREAT place to short, much better then where I had initiated my previous short position which was showing a loss....
But again I was reminded by Paul Tudor Jones, losers average losers.....so I was like I will remain disciplined and not add. But it turned out my instinct was the better play.

So I guess my question is....is it better to believe your hunch? Or follow rules set by other traders/Paul Tudor??

 

[xandman]

The ETF short can be construed as being indexed. So, the excessive PnL swing from that strategy/holding can be looked at as oversized or overleveraged.

It's a matter of doing attribution analysis and seeing what causes the wild swings. At the end of the day, everything we do can be normalized relative to an index. The difficulty is choosing the right index to guage our PnL based on the return characteristics of the strategies that we employ. SP500 works for most.

 

[heavenskrow]

The ETF short can be construed as being indexed. So, the excessive PnL swing from that strategy/holding can be looked at as oversized or overleveraged.

It's a matter of doing attribution analysis and seeing what causes the wild swings. At the end of the day, everything we do can be normalized relative to an index. The difficulty is choosing the right index to guage our PnL based on the return characteristics of the strategies that we employ. SP500 works for most.

Ohhhh your reply of "Lower bet size, index part of your assets or both." was in regards to smoothing out my equity curve. I agree on that, thank you although it seems more of a passive strategy.

I guess my question to you now is what do you do when you feel particularly strong about a trade? Much like Stanley Druckenmiller when he shorted the pound working with Soros???

A trade in which you believe risk is very low, and reward is as far as the market can take it.
A trade in which you think you are near the very bottom of March 2009 in terms of risk and reward is as far as the market can take it.
A trade in which the other players are showing outright exuberance/emotion/euphoria?
You're disciplined enough to normally risk 1-2% of principal to individual trades but this trade is something different?
From "Trading in the Zone" you never truly know what the market can do. It can always go in the opposite direction hence risk is already measured and there is a trading plan to get out if it does.

“It was never my thinking that made the big money for me, it always was sitting.”
I want to be leveraged, bet big, but also control risk in the parts that I can.

So let's say you were trading and believe from your own analysis you are near the bottom of March 2009. How would you position this trade to get the most out of SPY?
How much of capital to SPY calls? How much of capital to SPY etf? There is risk, but trading plan will get you out at a certain level.

 

[lawrence-lugar]

I want to be leveraged, bet big,
How much of capital to SPY calls?

Bet the farm -- if you're confident in your intuition. :eek:
...only you can answer that -- the Option...is yours to make.

 

[xandman]

You probably have an idea of how much volatility you can handle day-to-day.

Catching a major inflection point in the market can be very difficult. Additionally, volatility levels will be much higher than normal and difficult to tolerate.

I would probably make a broad "bet" or "allocation". Sizing, as always, would be according to the R:R of the expected move ( price action ) but much longer time frame than I would trade day to day. Why longer time frame? Because a bullish position means that you will have an implicit short on short term volatility. That's investor thinking.

Also, if you have volatility based position sizing. The current volatility occurring in the markets will probably leave you under exposed to the broader move which you are trying to capture.

 

[NoDoji]

Instinct is trading in the opposite direction of the bull/bear trap(which I've learned from the market). However once again I was short AAPL(22nd and 23rd) before a huge spike on the 24th of June which quickly erased any little profit I had.

Your equity curve should make upside progress once you learn technical price action (which means learning to trade price patterns that form to reflect the beliefs of the majority of traders at any given point in time).

Your AAPL short was near the low of a narrowing consolidation range (otherwise known as a triangle) near highs in a well defined uptrend. Counter-trend trading is far more successful if you sell high and buy lower than if you sell near a possible support level. If the triangle's lower trend line breaks down with some conviction and price pulls back to the breakout level and turns, that's a "safer" way to go against the trend. (This sort of price action occurred back in early-mid Jan in AAPL.)