• Dragostin Kozhuharov

Trading Journal: Feeling the pain - 21.03.2021

In this week's trading journal log, I will talk about the pain I felt this week and how I dealt with it. I think that reviewing and sharing losing trades is as, if not more important than talking about winners. Let's recap the trades which I had:

Short SP500

I entered the trade with small size on Monday. The index was trading close to all time highs, and I believed that it was going to move lower. The red light which made me question this trade was that the stimulus bill in the US was approved and this is bullish for stocks, but I believed that the 10year yield could help me.

On that day, the trade was initially profitable and by so much that I was thinking of closing it. But I kept it because I thought that it would keep going. It didn't. By the end of the day it was showing a loss.

On the next day, as the index was even closer to all time highs, I added more size. But the SP500 kept moving higher and in the end I decided to close the trade rather than let it go to my SL.

I think that the trade was good from risk reward perspective, even though it made a loss in the end. If there was one thing that was wrong - it was the execution. I should have waited for it to go up and short it there rather than be aggressive. If I had done that, I would have made some decent money.

Short Oil

I shorted WTI on Wednesday after inventories around 64 USD per barrel. I did this because I saw that following the initial volatile move after the data, it moved to the downside. I entered with size because I was confident. Soon after this as far as I remember Oil made new lows. The problem was that the Fed meeting and press conference was shortly after I entered the trade. And it started moving against me, but I saw that it stabilized around 64.62 and I wasn't too bothered. I kept the trade open overnight.

On the next day I saw that it was trading around 64 again and this time I hoped that I was going to see the move towards 60 which I was anticipating. Instead it went up towards the highs of the day.

At this point I thought that it will probably continue going up and I started to think about closing the trade. If I had left it and it had reached my SL at 65.60, I would have lost less than 10% of my account, but in the end I decided to cut my loser early.

I believe that I made the right decision from the perspective of discipline and risk management, but it haunted me less than an hour later. I saw that oil had dropped by 2USD to trade at 62USD. This would have made me a gain of more than 10% for the account.

I felt like chasing and entering again, but I decided against it. I log in later and it's trading even lower. I am now feeling like an idiot and asking myself why did I close it? Log in again and it's trading below 60USD per barrel. If I had kept the trade open, I would have made more than 50% return. On a single trade, and I was risking less than 10% of the account. But it's easy to say this in hindsight.

You can see my entry, SL and where I closed the trade (right at the highs of the day), before the price dropped

What lessons can I take from the above trades?

  1. Be more patient with your entries. - if I had waited to enter after the Fed announcement for both trades, I would have had a much better price and smaller drawdowns. This would have made keeping them open more appealing. Patience makes you and saves you money. Focus on the execution. If you miss an opportunity due to being more patient, it's better than entering late.

  2. Good trades aren't always winners - I think both trades were good - from risk reward perspective, in terms of the idea and having a clear plan for them. In the end I lost money on both, but that shouldn't make me sad. It means I am good at finding these opportunities and if I back this up with good execution, I will make money.

  3. Don't focus on the past - 'I should have kept that trade open, I could have made so much money!' That is the wrong type of thinking. Focus on the future - I was in on these opportunities, but my execution and patience let me down. I didn't lose a lot of money so I can trade again and find similar opportunities. Next time I do find them, I need to make sure that I have learnt from this experience and execute on them in the correct way.

  4. Clear your mind - I am happy that I kept my discipline - I closed the trades when I had to and made the correct decision at the time. I didn't chase the oil trade. These are all positives and mean that I have developed a lot as a trader. What if the prices had kept going up after I closed the trades? Then I would have been happy that I closed them.

Writing the journal and looking at past trades and replaying them in terms of what went wrong and how I could have done better are the best ways to deal with situations and weeks like this one. It has helped me to understand my weaknesses and strengths. It also means that I have put everything on paper and I can clear my mind and start fresh the following week. So if you still don't have a trading journal - What are you waiting for?

I hope that my experience will help you to avoid situations like the ones described above.

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