Quote from Cutten:
I know it's easy to say in hindsight, but it sounds like you are pushing too hard with average or difficult trades. Big size is best reserved for those rare occasions where everything lines up in your favour e.g. you have a truly contrarian position, price action is strongly in your favour, and the market tone keeps confirming your position (e.g. if you are short bonds, they should rally sluggishly on bull news, but break hard on bear news...and drift lower on no news). As soon as the trade becomes hard or risky, you gotta cut back.
One good point that Cramer made is "avoid battlegrounds". Tough trades where 2 points of view are equally strongly held, and the market ebbs and flows between them. For example stocks this summer are a big fight between the recession camp and the cheap valuation/low rates/falling dollar camp. Is it better to bet massively on who is gonna win that one? Or to stand aside and try to pick up some profits by fading whenever one camp gets to an extreme.
The really good trades usually don't have to be forced (at least not once they get momentum behind them; if you are early then it is different). I'd suggest trying conservative trading on modest size, trying to "put beans in bags", just bide your time and grind out some income. Wait for the 2-5 trades per year where everything is set up just right, then get in and build up size by pyramiding as the market action confirms your view whilst sentiment stays sceptical. Let the market action, rather than your own opinions, determine when you trade size.
Looking at this year, there were only really a few great themes to play. Long oil from $50, short housing, long wheat, buying stocks (esp emerging markets) after the Feb mini-panic, long China, and long stock volatility since summer. If you look at them, one thing most had in common was that they were not difficult trades to hold onto once they got going. Only China stocks had any big scary corrections to fake you out. And the market was fairly complacent/sceptical of each one turning out the way it did.
By contrast, lots of people are bearish on bonds. That doesn't mean they won't go down, but it does mean there is an inherent bid simply due to the crowded nature of the short position. That suggests it is better to play on limited size or with limited risk (options/spreads) and be demanding about entry price, and not too greedy on exit. It won't be a forgiving trade like the ones listed above. So I'd recommend playing more conservative until you find another trade where all the ducks are lined up, then work on milking that for all you can. You got on the grains early - did you trade them as aggressively and with the size that you used in your bond short?
