Some trading observations

Met a friend a couple of weeks ago, and the topic of the market and our recent performance came up. He asked "What changed?", and I actually couldn't come up with an answer - maybe I was just lucky to be holding the right names into the post Liberation Day tariffs rally. Or maybe this is the year I finally reached a sort of tipping point where the total output of my good behaviour is enough to offset the total cost of my stupid mistakes in a meaningful way.

Whatever the reason, I thought it would be good for me to write down some observations of what tends to work for how I trade, as a sort of checkpoint for myself to look back on.

Some of my trading observations

• Look for confluence (i.e. multiple factors so support the trade). This could be technicals on multiple time frames, valuation (P/CF or P/E), a catalyst (i.e. news flow or major new macro event supporting the trade), extreme market sentiment (in the general market, the sector, or the underlying commodity), etc
  • More confluence - size bigger
  • Less confluence - size smaller (e.g. if I see a nice chart, but fundamentals or support from theme is not there)
• Good charts help. Good charts with good stories and/or fundamentals even more so.
• Weekly charts help cut out a lot of noise, but daily (and intraday) charts often better for more precise entries with tighter stops
• Don't write off a name/theme because of a breakdown in technicals. Keep a long list, and review frequently. I am still really bad at this, and have come to realize a lot of missed opportunities are here.
• Don't fight the trend, and don't try to pick the top. I am not good at this, and have found that it's easier to just reduce exposure.
• Overcome fear of closing out slow moving trades. I almost always feel better after I move these positions to cash, instead of watching them move sideways.
• Patience when entering - when a name pulls back a lot, it can always pull back more. Wait for technical confirmation that there is buying support before entering. Taking a position before giving support a chance to build often results in me getting stopped out, and I give up capital unnecessarily.
• Shake out bars also happen so much more than I consciously acknowledge, and I find very often the steps are: wait for base > enter > shake out bar stops me out > continues to hold base > price moves higher.
• Use stops regardless of size, conviction, or type of trade. Only trades I may not use stops for are for very small starter positions (<1%) in names I want to appear in my portfolio, just for tracking purposes, but I am also beginning to feel this is not necessary.
• My trading style does not require me to watch too closely when the session is open, but when I do, I am more able to find opportunities with tighter stops, which provides better risk/reward. Key here is balance to know when I need to sit on my hands and when I should be watching the market more closely.
• Trim on the way up. Hardest part about this is fear that it will double or more from the exit point. To overcome this, I do 2 things (1) keep a portion of the trade on to get stopped out at significant levels or moving averages, and (2) keep reminding myself that there are always new trades with better R/R to move on to.
• Options (long calls)
  • Avoid < 6 months expiry (unless there is a very strong underlying theme currently in play)
  • Rule for myself: no more than 10% of portfolio in options, with exposure actually closer to 5% most of the time.
  • Close out profits fast (given nature of options, waiting for bigger moves has often resulted in round tripping and ending up with a loss)
• Avoid event driven trades - a lot of people write convincing stories, but there is often more complexity and moving parts to business deals than an uninvolved person can imagine. I have no edge here.
• Never enter trades based on tips / rumors / supposed inside information.

There are probably more, but these are a few that come to mind straight away, of which I am certain accounted for a big part of my performance (good and bad)