Part 2: ‘The Road To An $18.2 Million Year’

2021-03-16

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 Part 2 of “The Road To An $18.2 Million Year:”

New Mindset

To change your life, you first have to change your mind.

I made huge strides in 2018, 2019 and 2020 learning about why I behave the way I do. Hard-wired defense mechanisms from childhood and all that. It’s terrifying and enlightening and uplifting all at the same time. And worth every shovel full of dirt that gets dug up, whether in therapy or a plant based journey of altered consciousness - which is sometimes the only way to dissolve the ego and see things as they really are.  

The market is the best psychologist you will ever have and the best gauge of how you are doing mentally. When you can flow in and out of positions, and take losses without a second thought, you are clean and in the zone. If you aren’t mentally clean and in the zone, and you find yourself stressed and hesitating — get flat and clear your head, before the market rips your heart out. You’ve bumped up against an unresolved trigger and you need to identify the emotion behind it and let it go before it destroys you through your trading decisions. This is your ego’s way of showing you that you can’t live without it. Its only goal is to control you. It is easiest to do that when you are feeling pain and self-loathing.

The answer? Clear your head and get “present.” Anger over the past and anxiety about the future is the ego’s way of keeping us in check. When you are “present,” and you are “here and now” then your ego dissolves and has no control.

It can be as simple as meditating for 5 minutes to flush your mind and get back to the present moment. Drop the past, drop the future, and focus on the present from the market’s perspective on what it is offering up today. 

I personally find listening to music keeps my mind very calm and clear throughout the trading day. Specific types of music shut down the reptile portion of your brain and quiet your mind. I like the “Mind Amend” channel on YouTube for this. “Focus at Will” and “BrainFM” are also solid. 

Month-By-Month

Ok, that’s a lot of information, more than I originally intended. It’s time to talk about trading. Let’s dive in and take a closer look at what happened in 2020.

January 2020

  • Starting balance: $1,373,456.00
  • Ending balance: $2,000,369.09
  • Money wired out: $207,425.00
  • Balance if no money wired out: $2,207,794.09
  • Monthly return: 60.75%

January was a strong month right out of the gate. I didn’t have any losing weeks. Out of 21 trading days, I had 14 winning days and 7 losing days. This is something I calculated after the fact, as I was writing this blog post. I plan to track this real-time in 2021.

Of course, the longer a person trades the more they realize how unimportant the win ratio is. The only thing that matters is what was your average losing trade vs. your average winning trade? In this case, my average winning day was $73,504.50 and my average losing day was -$27,796.28. I personally find tracking by each day instead of each position is much cleaner. It also makes cutting losing trades super easy. “Screw this trade, it is hurting my day.” With a ratio like this, I could have lost money 14 days and made money only 7 days, and still been up for the month. 

In fact, the higher the win ratio, the worse the risk to reward. Selling a 2 standard deviation iron condor works 94% of the time. But that 1 time it doesn’t work wipes out the previous 19 trades. No thanks. Anyone focusing on high win ratios is ignoring the fact that they are merely avoiding stored trauma as it relates to losing.

Get comfortable being uncomfortable. Get clean about taking losses. It’s your job, after all... taking losses. It’s your only job. You might as well do it with a smile.

“Take the risk. If you win, you will be happy. If you lose, you will be wise.”

Below is the main tool I use to track my daily account progress in my short-term trading accounts. I use Google Sheets so I can log in from anywhere and enter in my daily ending balance and see my net dollar and percent gain or loss on the day, week, month, and quarter. I’ll add a few notes to recap what I was trading, what happened, and note what was going on that day. Was I able to focus on the markets? Was I teaching a class? Were there leaf blowers outside my home office window all day?

From the week of January 13...

For this particular week, I started up nicely. We had added calls on BYND and held them over the weekend, and they raced higher that Monday. A 12.32% day to start the week! After a big day, I generally trade the next day very light, as I know if I let Euphoria take over, I’m dead.

Euphoria gives us false confidence that everything we touch will turn to gold, so it causes us to take bigger, sometimes deadly, risks.

On Wednesday the 15th, I had a lot of trades on as well as a packed teaching schedule, with the options room at the open and a three-hour Small Account Mastery live-trading class starting at noon.

Although I very much appreciate the opportunity to get on the mic and share trading setups and knowledge when I can, this particular day ripped me out of my trading zone and I lost focus on my own positions. From my point of view, I couldn’t stop talking on the mic and focus on managing my own trades. I committed to serve everyone who showed up in the room and the class, and they had to come first. Unfortunately for me, it was near impossible to manage my trades while also fielding questions in the room and looking for opportunities there. So... I did nothing and just let my positions play out. Had I been focused on my trades, I would have cut them loose early. I gave back $56K that day, or -3.37%.

Lesson learned: You have to get a handle on this, as it is not an issue that will magically go away. On Small Account Mastery live-trading days, you can’t be in the Options Gold room as well. You have to manage your time so you can be effective in trading your own account as well as be effective helping traders in the trading rooms as well. How to best balance this dynamic?

Consider going flat in your personal accounts during these times? Construct your portfolio more conservatively during these times, maybe with hedges in place as well? Remember, anything can happen and it always happens when you least expect it. At the very least, you can’t be maxed out on large directional plays during a class.

The rest of this week I just slowly bled lower. I hit my trailing Net Liquidating Value (NLV) P&L stop and closed all of my positions that weren’t working.

Note, a trailing NLV P&L stop works as follows. If you have a $100K account, and you are willing to risk $5K for the week, that means your stop-loss is triggered when your balance falls to $95K. From this starting point, the NLV stop is trailed up if your portfolio gains value.

If you are up $10K on the week by Thursday, your stop-loss is trailed to $110K - $5K = $105K. If on Friday, your positions sell off and your balance falls to that $105K stop loss level, it is your job to go flat or lock that level in with a hedge.

This strategy helps a trader lock in gains for the week so they don’t give it all back. As a wise man once said, “Don’t lose your ass on a Friday.”

To clarify, this is the strategy I use for shorter term accounts where my main objective is to wire out profits each week. I don’t utilize this strategy in longer term accounts where I’m looking to have exposure to various asset classes such as bitcoin and gold.

Although I met my goal this particular week of being able to wire out money and grow my account, I really gave away a lot of profits from being frazzled on Wednesday and never recovering from that. Going forward, continue to find ways where you can trade effectively and continue to moderate the trading rooms. You have to find a way to make this work.

I have found that tracking my daily account balance changes has been, by far, the most effective means for me to focus on producing results and avoid the nonsense of getting caught up in the external and internal noise. Why a stock is moving is irrelevant. What I’m feeling is irrelevant. The chart pattern is even irrelevant. Yes, it may work 75% of the time, but it ain’t working this time. Don’t waste time trying to find out why it's not doing what you thought it would do. Don’t waste time getting wrapped up in your feelings. Just let them go and stay present.

Focus instead on what the market or your position is actually doing. Period. Not on what you want it to do or what it should be doing. Simply what it “is” doing.

From the market’s perspective, not yours.

The market has nothing against you. It’s just doing what it’s doing.

If a position is not working, don’t get wrapped up in the inevitable fears and anxiety around losing. Just cut it loose and move on. So this one’s not working. What’s the big deal? Fire it and find a stock that wants the job of making you money.

Think about it. If you owned a car wash and had 10 employees, and eight were working hard while the other two were hiding in the bathroom hitting their THC vape pen and never getting anything done, while stealing cash from the register, how would you handle it? Would you give them a raise and pay them more than the other employees who are actually doing their jobs? Would you pat them on the back and give them more refills for their vape? (I mean, if they were doing a great job, yes, of course LOL). At some point, you’d free up their future (i.e., fire their ass) and find two people who wanted to do the job.

The quicker you can learn to adopt this same attitude toward your positions, the better.

Trading is no different. If you have 10 positions, and two of them aren’t doing what you thought and keep losing money — fire their ass and find someone else who wants the job. Your losing positions are stealing from you. They aren’t doing their job. Get rid of them without a second thought. It’s as simple as that.

Your ego wants to be right. But your ego is a narcissistic and fragile manifestation of your childhood trauma. It’s a master program trying to control you and run things from its perspective. You think it's protecting you - when in reality it is shoving you in the corner and telling you to shut your mouth.  To let its built in automated responses run your life in the protective manner it was designed for.  “Leave me alone,” it says.  “I got this.  I’m doing this for you.”  

Never mind you are no longer a child and no longer need those survival skills.

Never mind there’s actually nothing wrong with you.

Never mind you are no longer in need of its protection.    

Never mind that your ego has become your jailer. 

And it has no intention of setting you free.  

Ever.

You have to kill it. 

Take a deep breath, become present, and take control of the situation.

When you are living in the moment, your ego dies.  Oh, it will resurrect itself when you slip and fall into the anxiety of the future or the anger of the past.  But when you become aware that you are in “moist robot” mode, just get back to mindfulness and being present.  

Moist robots get triggered.  Mindful humans do not. 

Trading is very simple. If your position is losing money, it’s not doing the job it was hired to do. If it’s making money, it is doing the job it was hired to do. Know this… you are the manager with the power to hire and fire.

If the position is losing money, it's the same as having an employee who is stealing from you. It’s not your fault. You didn’t know what this person was like when you hired them. You gave them a shot. But now that you see the evidence before you, their true colors, smile and act without hesitation. There is no shame in being wrong or taking a loss.

The only shame is in not taking action when you know you should.

In fact, cutting trades loose that aren’t working is your only real job as a trader.

Brush aside the triggers that pop up, as they pop up.  Watch them with amusement as your ego throws them at you from all directions.  

“Not this time, buddy.  Go get stuffed.”  

This goes back to the only thing that matters in trading: creating an equity curve that goes from the lower left of my screen to the upper right.

I’ve also found that wiring out money each week also automatically dials a human brain into the proper trading mindset. It makes it real instead of a video game. It turns it into a business. I like to keep a few $100 bills on my desk to remind me that my job is to produce a tangible outcome — not to prove to the world that I’m right. It also makes me quick to cut those losing trades without mercy if they are violating their job description.

“Hey, AAPL calls, our objective is to make 2.5% this week and you aren’t doing your job. You are interfering with that goal. You’re fired!”

It makes taking losses feel good. Like you are doing the job for which you were hired. The hardest thing in trading is keeping this mindset front and center all of the time. When you lose focus, your ego grins ruefully and steps back in to take over. At that point you are screwed until you become mindful of the present once again.

For my daily trading spreadsheet, I’ll also add a few notes to describe what was going on that trading session, as well as note my equity high and low for the week. This gives me an idea of how much I left on the table as well as how far against me my account went during the week.

I also like to grab screenshots of the trades that I take so I can review them later. Taking screenshots and making notes is also important as it sears the setup into my memory and it trains my intuition to remember what works and what doesn’t work. This is how you train your mind to recognize patterns.

The next week I was up 14%. The week after that 20%. I had a big position in PTON and a few smaller positions in TSLA and AMZN.

My note from that week: Trading has been really good the last two weeks, but if you push it too hard your own psychology can turn on you. Relax. Remember, your goal is to wire out that 2.5% per week and make a little more than that in order to continue growing your account equity, even after the wire out. You don’t need to go crazy.

All in all, a great first month out of the gate. Now that we’ve laid out a lot of ground work, we can start to speed through the rest of the year. (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.)