Part 1: ‘The Road To An $18.2 Million Year’
Article Note: This year has already struck a nerve for many traders after surviving the previous 12 months. At this point, many traders are reflecting on the first quarter of 2021 and maybe taking some time off for annual spring break adventures.
At Simpler Trading we strive for a strong, continual work-life balance. So, for this week we are going to offer a reflection on lessons learned in 2020 and what that offers for the rest of this year.
Our reflection centers on the 2020 year-end trading journal summary written by John Carter, Founder of Simpler Trading. We separated his summary into five daily sections which we will post here as our daily article.
Let’s take a look at “The Road To An $18.2 Million Year:”
What a crazy and insane and tragic and awesome year all rolled into one.
Since early March, I haven’t been on an airplane when my oldest son and I went to LA to see the Lakers vs. Clippers game. It turned out to be their last game before the NBA shut down. Since that trip, I’ve stayed home and embraced Zoom. I’m no longer traveling to a constant stream of conferences, masterminds, and events. Although April and May turned stressful with food and toilet paper shortages and wondering what the lockdown held in store for the future of humanity, it was about that time I started to adapt my trading mindset to this new life.
And what does that mean, exactly?
That anything can happen. That no amount of anxiety or stress is going to change the outcome. I stopped trying to impose my will on the environment and looked at this new global situation as a trader. Instead of focusing on what the world was doing to me, I started to view it from its perspective. What was it offering? A chance to rethink living?
So... I moved our family to the country, turned off the news, bought some zebras, and settled in for the ride. Never mind that the internet sucked. Just do it and assume the universe is rigged in your favor and see what happens.
My goal with this article is to summarize my 2020 trading journey against the backdrop of an unpredictable and historic year. I’m not going to focus on specific setups, but instead my overall P&L fluctuations and what I learned. I spend more time on the losses since that is where the most learning takes place.
What was going on in my account, and what was going on in my brain during this time?
I had some great trades. And I had some horrible trades. I made a few brutal mistakes. I made money 10 months out of 12, but it wasn’t smooth and those two down months were doozies. You would think March would have been one of those nasty down months, but it wasn’t. My first losing month visited me in May. A nice little wake-up call. If I could summarize my year as a one-liner for each quarter...
- Q1: Started off normal and quickly turned into 2008. Volatility!
- Q2: Lockdown? Close the office. There are no eggs? Are we safe? WTF?
- Q3: Wow. Big Wow. Turn that money into tangible assets and get it out of the markets.
- Q4: Fell off the bike, got back on, reached the top of the hill.
Sometimes I was in the zone. Other times everything I touched turned to shit. With the year over, I can count on one hand the number of trades I did that was perfect. But when the dust settled, my three shorter-term trading accounts ended at their highs and I had a record trading year. This is a lesson I’ve had to relearn many times: You can make a lot of money in the markets not being perfect.
There is only one goal on which a trader should apply their focus: An upward sloping equity curve. Start the year at the lower left of the screen, and end the year at the upper right.
Notice I didn’t say focus on being right or focus on trying to understand why something is happening. Or using this journey to really dig in and prove to your parents once and for all that you do have value. None of that will help you in your quest to generate an income from trading. There is nothing to prove. Just opportunities to flow into and out of.
Are you tuned into those outward-lying opportunities?
Or are you so tuned into your own inner bullshit you don’t even see them?
In my shorter-term trading accounts, I’m not looking to trade a particular stock. I take advantage of moments with the right options strategy for that particular instance.
More knowledge is not more power when it comes to trading. It’s all about probabilities and risk control. Keep it simple and lay down those bricks, in the right spot, as if you were building a house or a wall… always remembering that stocks rise slowly and fall fast.
A large part of successful trading is learning when to do nothing. Learning to let go of the need to hop on the day’s hot stock. Hopping on that hot ticker is not a plan. That’s a well-laid path to eventual destruction as we become addicted to the dopamine rush. Then we start to chase the rush, not the stock. And like every dog that chases cars, eventually, we will get run over.
Screw the rush.
Making money is easy. Keeping it is the game.
And, as my yoga instructor has told me more than a few times, “Relax your face, John. And your expectations.”
Thanks For The Memories
Reviewing 2020 has been a trip down memory lane, and the review process taught me a few things that I’ll incorporate into my trading plan this year. Things like:
- If a stock is extended, and you feel like you must continue holding, be prepared for a flush meant to shake you out. Better yet, actively take some chips off the table when the market offers you the opportunity to do so. More specifically, once a stock moves about two times its average daily price range away from the 21 period exponential moving average, the odds increase that it is going to run out of gas and go back and test that moving average. You can plot these levels on your chart with Keltner Channels.
- On the other hand, there is nothing wrong with taking the easy money at 2X ATR away from the mean and moving on to the next setup. Remember, it’s your equity curve that’s important, and no one is handing out medals for exiting at the top of a move. Just capture the move and let everyone else fight over the last bits.
- For 2021, track your weekly up days and down days, and average daily gain vs. average daily loss. This is something I did after the fact for 2020 while writing out these notes, and I found it very helpful and educational. It’s amazing how much better your P&L looks when you eliminate the worst down day each month. So, focus on not having any worst down days. Are you maxed out long when the market is extended? You are asking for a worst down day.
- Embrace JOMO (Joy Of Missing Out) on moves that are already at 2X ATR away from the mean. Don’t chase the dopamine rush.
- With commissions so low on TastyWorks, why would you ever buy 100 calls instead of selling 300 credit spreads? Most of the time you aren’t going to get more than a 2X ATR move anyway, remember?
- There is no reason to stay wrong, for very long. Be nimble. Be humble.
- Beware of outside influences - follow your plan, not somebody else's plan.
- Avoid committing to buying things with future profits. Make the money first, then look around to see what to do with it.
- In 2020 I paid and still owe a mind-numbing amount of taxes on my short-term capital gains. Don’t get me wrong, I appreciate the problem. For 2021, remember that futures, futures options as well as SPX, NDX, RUT, DJX, and VIX options are all treated under the 60/40 tax rule, meaning that 60% of gains are taxed as long-term capital gains. Or, uh, maybe we should just move to Puerto Rico?
- SPX options expiring Monday, Wednesday, Friday offers up many cheap and amazing opportunities.
- There is no reason to have huge overnight exposure. Compound those weekly gains. 5% a week compounded for a year takes your account to 12 times its starting size.
I spent New Year’s Day, 2021, looking over some of my journal entries from January of 2020. A few things stand out:
It’s great having Brittany Burns on as CEO of Simpler Trading. She has a unique set of skills and is able to lead effectively, with compassion. It’s taken me a little while to get into this new groove. Simpler is my baby, after all, started in a ground floor apartment in the middle of a Boston winter. Part of me still feels angst about being away from the office, but I’m truly not needed there and it has grown beyond my skill set. I’m good at discovering and trying things with a small team. I’m not good at effectively managing a larger and growing organization. I’m excited by the prospect of having more time to focus on trading.
I’m incredibly passionate about alleviating the pain and suffering of traders. I know this journey. And believe me, I’ve suffered. But running a company, even though it is amazing, takes a lot of work. And, it can be a distraction from... actually trading. The irony of running a trading company and not having enough time to actively trade every day is not lost on me. Simpler grew to a point where it needed adult help. As the saying goes, the skills that get you out of Egypt aren’t the same skills that will get you to the promised land. The current team in place is amazing. A mix of new talent with part of the original crew that kicked off this adventure. An extended family in every sense of the word, in great hands with a new leader driving the bus. I am so incredibly grateful. And in 2020, in the midst of a huge amount of global layoffs, we hired 27 people.
For trading goals, I wrote: “In 2020, I’m going to start off with about a $1.4 million short-term trading account. This is for swing trades and the creation of income. My goal with this account at the end of the year is to have wired out 2.5% of my total balance per week, or about $1.7 million. And to end up with, after the wires, a $2 million dollar account (or more) to trade for 2021.” As a side note, for my long-term and retirement accounts, I buy and hold things and I am not looking to wire money out each week.
So, once the dust settled in 2020, how did my accounts look?
2020 Account Summary
|Account||Starting Balance||Ending Balance||$ Profit||% Profit|
|TW + TOS||$1,433,711||$19,642,383||$18,208,672||1,270%|
Note: My TastyWorks account started with 60K that was lying idle most of the year. I transferred 200K in profits from my TOS account in August. I started trading it actively then.
In terms of wire-outs, I ended up wiring out $12.5 million, which I put into tangible assets as well as applied toward taxes on the gains.
For 2021 I’m starting my short-term trading accounts at $6 million with the same goals as 2020 in terms of being able to generate and wire out 2.5% per week “or more.” I could sum up my trading goals for profits as follows:
- ⅓ for taxes
- ⅓ for tangible assets, experiences, tithing/charity
- ⅓ held back for trading a larger account next year
As a note, I always like to add “or more” after any goal that involves a number. This opens the possibility to exceeding expectations. There is no reason to impose limits on ourselves. As the saying goes, “When you fight for your limits, you get to keep them.”
In terms of my trading style for my shorter term, aggressive accounts, I trade mostly options, both long and short (i.e., I might buy a call or sell a put credit spread). I also trade some futures, both long and short. My average holding time is two to five days, and I generally have three to seven positions on at any given time. More than that and I lose my effectiveness and focus. I’m an aggressive trader. I’m not looking to make 5% a year. I’m looking to make 5% a week. That means taking some risk and training my intestinal fortitude to handle the swings.
Many people can’t handle this type of volatility which is why I politely refuse to manage money. One of the few guarantees in life is that everyone with a managed account can handle the gains, but they all whine like a 5-year-old who lost a toy during the inevitable down month. There’s no crying in baseball… or trading. And I don’t have the time or the desire to hand out tissues and words of reassurance. Instead, I’m happy to share what I do with anyone who catches the trading bug. It truly is a journey.
Lastly, I’ve found that the biggest gift I can give myself is to go to a 100% cash position from time to time, especially over long weekends. As a trader, that is when your mind is truly free. It’s like getting a spa treatment.
So, let’s clear the air. Am I implying that you can have a 1,200% year, too? I’ll be frank.
The odds are not in your favor. Hell, I don’t know if I’ll ever have a year like this again, but that’s not going to stop me from seeing what I can do in 2021. Trading is a journey about learning to get out of your own way while getting comfortable with larger and larger sums of money. As long as the journey continues, so does the opportunity for mental growth.
Why Not More?
I have a friend who trades enormous sums of money for his own account. When we talk, he always asks me, “When are you going to trade bigger? It’s just another zero.” Money is what messes up people in trading. The getting of it, the losing of it, and the brutal, unspoken words, playing in the background, “Am I worth it?” It’s fun watching him trade as he doesn’t have any hang-ups around money. He inspires me to expand the boundaries of my own self-image, so why not more?
The key with “more” is to be conscious of it being a growth decision, and not a destination where, once you get there, then and only then will you be happy. Be happy today. Be grateful today. The getting of more things won’t fix your anxiety. (I’ll talk more about this).
This is a path that, for many people, never really gets going, as they remain stuck in ego-based low awareness, repeating the same mistakes over and over, trapped in the hamster wheel mental constructs of their own self-image. I see it all the time. I’m conscious of it in my own life.
Expand your mental limitations and you expand your life.
Mark Douglas, the author of Trading in the Zone, laid it out like this:
“Making mistakes is a natural function of living and will continue to be until we reach a point at which:
- All of our beliefs are in absolute harmony with our desires.
- All our beliefs are structured in such a way that they are completely consistent with what works from the environment’s perspective.”
There are a lot of deep thoughts in those two statements. People push back on this and say, “Making mistakes is a normal part of being human.” I get it. I make mistakes every day. But in trading, when we repeat the same emotional cycle over and over, it generates the same results over and over. Not being aware of this cycle and breaking free from it is a mistake. In fact, it’s the only mistake.
That’s what Mark is talking about. Get off the hamster wheel in your mind, which clouds your perspective, and put yourself in the market’s shoes. Start trading from its perspective. Just as you would surf a wave from its perspective, and not from your own emotional prison’s perspective. Imposing our will works when training a dog or a horse. They will respond to us, no matter what our flaws. But the market is not a dog or a horse. It will not respond to us, no matter how hard we try. It’s not even aware of our existence.
Ed Seykota from the Market Wizards books said, “Everyone gets exactly what they want from the markets.” For people who are hemorrhaging money, this is a brutal truth to confront. What do you get from losing money? What is the payoff? What is your hidden agenda? This is where you have to kick the ego to the curb, or you’ll never learn the truth. And if you never learn the truth, you’ll keep losing money. Forever.
An example of a hidden agenda? I worked with Mark Douglas for many years. One of the things we worked on was any hidden agendas I had that crept up while trading in front of a large audience in our trading room. One of my hidden agendas was the desire to be the hero, where everyone gets to participate in a big trade and is happy afterward, giving me the virtual “high five.” Well, if a person’s hidden desire is to be the hero, then they unconsciously work on creating disasters where they can step in and save the day.
How messed up is that?
The person who is constantly putting out fires is also the arsonist.
The person who is always experiencing problems is the problem.
The person who keeps running into assholes is the asshole.
The person who thinks they are special because of their trauma . . . can’t let go of their trauma because they think they are special.
Deep stuff to be sure. Our outer life is merely a reflection of our conscious and unconscious belief systems. This is why I love trading so much. In trading, there is nowhere to hide. There is just your P&L. Your equity curve is a direct reflection of how much you are trapped in your own horse shit vs. how much you are free of said horse shit and are fully present and tapped into the market and what it is offering you right now.
For those who recognize that they are the problem, this is a journey that never ends and it leads to many positive developments as a human. To those that think the world is out to get them, they will continually devise situations over and over to prove that the world is out to get them.
The only person that can save you is yourself. (... to be continued)
(Note: This article compiled from “2020 Year-End Trading Journal Summary - The Road To A 1,270%, $18.2 Million Year” written and published by John Carter, Founder of Simpler Trading.)