Calendar markers are important reference points. Some evaluate their trades monthly, weekly or even daily using a journal. But, they do not define our actions rather they are a time to step back and evaluate ourselves, our actions and inaction. The challenge is can we change our behavior to become better. As traders, we are always looking to improve and gain an edge, and I like to do a thorough evaluation of my entire trading plan/system around this time of year. Perhaps I will be able to find something that worked and continue to use it, further find something that I did not do right and be able to identify and change. Below is a laundry list of items that I review at year end to help prepare me for the next 12 months ahead.
How did my portfolio(s) perform last year? This is the first measuring stick but does not tell the entire story of the year.
1. Were there any big trades that moved the portfolio(s) in a big way, up or down? In 2013, the one standout for me was ONXX, up nearly 1500% in about a week back in late June on a buyout offer from Amgen. This was the best single gainer I have had in about five years. Timing was great, execution was even better.
2. Did I miss out on any big trades due to something I missed? I keep a journal and write down notes each trading day. It is now when I will look back and study my notes to find out where I missed out and why.
3. Events outside of trading can certainly create mind-bending situations. Further, they can be big distractions and draw my attention away from the trade.
4. How is my health? Am I of sound mind and body? You may laugh at this but taking a regular pulse of your health and recognizing the good/bad can be quite helpful.
5. How is my mind? Are there other things that distract me during the day? Can these be controlled so I can always be at my best.
6. What new things did I learn that had an impact on my trading results? I make it a point to read 3-4 books annually about trading, technicals and psychology.
To look ahead, the one question I ask is this: ‘Will this be a good year for stocks?’. To help me answer that question I have to know where the Fed is positioned.
Now, if I told you my opinion it may/may not come true, but this is not meant to be a prediction. I have to be comfortable with where Mr. Market is at the moment, always realizing things can change on a dime. Even after a great 2013 the market is still looking fine to trade. Using calendar markers as milestones (like annual, quarterly, monthly) is a great way to get started.
So, how do I answer the question above, ‘will it be a good year for stocks?’ Simply put, we have to start with the Fed. The first big test is if they are accommodating, and that is an absolute yes. Don’t believe me? Just read last week’s statement and listen to the press conference. We need to pivot off the Fed because in a liquidity and sentiment-driven market they are they suppliers of fuel. Regardless of your viewpoint of policy we must not hate ‘the player nor the game’. Could they change their minds and move to a more hawkish view?
Absolutely, and we will be on guard for that. There are certainly times when the market is not a favorable playing field, and we’ll play it accordingly. But this is not often the case nor is it now, and as long as the Fed wants us in risk assets (size is not the point here) then that is where we will be. Bob Lang