The Glorious Return of Volatility

Like most traders who risked their own money in the market, I have lost my fair share of “tuition money” learning how to trade profitably. I spent enough money and had just enough success to convince myself that I could trade for a living. I saved for over a decade for a (very) modestly sized trading account with the intent to trade full time in 2017. In my anticipation to trade full-time, I have been sowing the seeds of my bearish biases to the bullmarket.

Needless to say, a bearish sentiment in 2017 was not good for my trading account. I had a few short-lived winning streaks followed by massive losses. As 2018 comes to an end, I have given a lot of thought about what happened in 2017. In short, I learned that I am not the cool calm pure technical trader I thought I was, or want to be.

2017 was clearly a bull market, technically on a monthly chart, it was as clear as day. I never bothered to look at the big picture as to what was happening, I stubbornly stayed focused on day trading from the perspective of a daily chart for an overview, and used a 5minute chart for initiating my trades. On the surface, there is nothing wrong with the way I was trading, the issue comes into play when the majority of trades I was taking in a bullmarket were short trades.

I became fixated on wanting to daytrade in a bearmarket. For a guy who took pride in using technical analysis realized that most of my successful “daytrades” occurred when I was shorting into a down market. I began trading in 2002, I cut my teeth daytrading with real money between 2003 and 2008, my first real profits came quickly on short trades, my winning percentage was well above 50% and I was taking these wins for granted.

I also took the volatility for granted, as the market was nearing the great recession before it was obvious to everyone, the housing market was doing well, banks were offering CDs as high as 5% for 12 months, all was good. The secret sauce to my quick success in trading I owe to volatility in a market that was trending downward. Having the basic knowledge of technical analysis and the confidence to risk real money, I became the biggest advocate for all things “technical analysis”, just do a search on Trin Café to see how much of nut I was.

Fast forward a decade, I am firing off real trades with real money and size and the volatility in 2017  decreased dramatically as indicated in red, in contrast to the highlighted green area where the VIX was well above 25, it was not just some random chance that my best [short trades] occurred during this same time.

The truth is, I have been a bear trader pretending to appreciate going long or short, my bias for taking bearish trades began on the first profit I ever made trading. If you have shorted a stock or a futures contract and been rewarded with instant profit, you can relate to the euphoric feeling of being right. I now know that my bias to short has never left, I’m not sure if I can ever claim to not have a bias. With all of that said, my current trading has been doing well the past few months, notice how the VIX has popped up since October.

In October, the market began selling off, the same time my bias ass trades started working and paying off. Unfourtantly my account is too small to trade with any real size, perhaps that’s a good thing? Trading options with a small size can serve as a humbling reminder of who I am and who I am not which will lead into my next post about how I plan on trading into the next decade.