Part 5: ‘The Road To An $18.2 Million Year’

2021-03-19

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 5, the final segment, of “The Road To An $18.2 Million Year:”

October, 2020

 TOS

  • Starting balance: $12,155,542.03
  • Ending balance: $4,002,990.42
  • Money wired out: $4,162,500
  • Balance if no money wired out: $8,165,490.42
  • Monthly return: -32.83%
  • Trading Days: 22
  • Winning days vs. losing days: 10 winning days, 12 losing days
  • Avg winning day: $219,802.29
  • Avg losing day: -$515,672.88
  • Biggest Daily Loss: -$1,656,777.26 (I made big bets bulls would prevail. They didn’t) 
  • Biggest Daily Win: $447,492.75 (AMZN, CMG, CRM)

TW

  • Starting balance: $1,181,744.10
  • Ending balance: $915,852.40
  • Money wired out: $0.00
  • Balance if no money wired out: N/A
  • Monthly return: -22.50%
  • Trading Days: 22
  • Winning days vs. losing days: 7 winning days, 9 losing days, 6 flat days
  • Avg winning day: $50,449.56
  • Avg losing day: -$68,782.07
  • Biggest Daily Loss: -$133,375.47 (RH destroyed) 
  • Biggest Daily Win: $73,010.02 (Closed ZM on gap up)

Oh, October. October was a mental game fail. First week? Up 3.13%. Second week? Up 2.97%. Third week? Down 2.07%. This was my first down week in 2 ½ months, since the week of August 3.

Not bad, right? Very manageable swings. So, what happened?

In October, you’ll notice I wired out $4 million. As I’ve stated, my grand plan for October was to keep my balance above $10 million and wire out any excess profits and put them into tangible assets. This would be my nice, easy plan for the rest of the year.

This came to a head on October 15. On this day I was due to wire out seven figures to buy a beach house we had found in South Padre. I started the day at $10.2 million and had sizable positions on TSLA and RH. Both positions sucked wind and I ended up losing $700K that day with my account dropping to $9.5 million. I then had to wire out $2 million, mostly for the beach house, and now my balance was at $7.5 million. This messed me up mentally as I hung onto the narrative of having a $10 million account.

The next week I lost $500K. I loaded up on SNOW and RH and a few other names for the weekend. That Monday turned into my worst trading day ever, and I was down $1.65 million on the day. I made $400K the next day and then the rest of the week was a continued shit show. Up to the last week in October, I was flat on the month. The last week of October, the markets reared back and punched me in the face. But... it didn’t really do that of course. I simply was wrapped up in my own inner perception of the world, and I had forgotten to view the market from its perspective. I was trying to impose my will on the markets. I forgot the most important lesson of trading: When dancing with the markets, it’s best to let it lead.

Why all the real estate? I like to find properties we would like to visit and turn them into short term Airbnb rentals. This is a good family activity and there are tax benefits to having an “active” real estate status, where if you have real estate losses due to depreciation, this can be deducted against your trading gains.

By chance, we had a lot of “tangible asset closings” all lining up in October, so suddenly the pressure was on to generate real cash in order to cover these deals.

So, October was a shit trading month. In retrospect, had I not put this pressure on myself, would it have turned out better? You never know but that was the outstanding mental factor I was having to manage into the end of the month. The pressure to make money trading generally causes the most trading errors. My narrative of “keeping it at $10M” was a hidden agenda that conflicted with my ability to relax and view the markets from its perspective.

Lesson learned. Next.

November, 2020

TOS

  • Starting balance: $4,002,990.42
  • Ending balance: $5,744,439.79
  • Money wired out: $1,050,000
  • Balance if no money wired out: $6,794,439.79
  • Monthly return: 69.73%
  • Trading Days: 20
  • Winning days vs. losing days: 12 winning days, 7 losing days, 1 flat day
  • Avg winning day: $311,924.42
  • Avg losing day: -$135,936.23
  • Biggest Daily Loss: -$390,750.00 (week before Thanksgiving was meh)
  • Biggest Daily Win: $1,299,940.53 (TSLA)

TW

  • Starting balance: $915,852.40
  • Ending balance: $1,556,197.63
  • Money wired out: $0.00
  • Balance if no money wired out: N/A
  • Monthly return: 69.92%
  • Trading Days: 20
  • Winning days vs. losing days: 7 winning days, 1 losing days, 12 flat days
  • Avg winning day: $119,186.89
  • Avg losing day: -$193,963.00
  • Biggest Daily Loss: -$193,963.00 (Open loss in TSLA that I held and then it rallied) 
  • Biggest Daily Win: $447,492.75 (TSLA)

To start November, I was trading slow and steady. I went into the month 100% cash and I didn’t do anything on the first trading day. My main goal at this point was to clear my head, forget about October, and go back to trading and taking opportunities from the market’s perspective of what it was willing to offer vs. my perspective of trying to maintain a certain balance or make a specific amount of money for a piece of real estate.

For week 1, I was up an auspicious 8.88% in thinkorswim. Week 2, down 3.53%. The week of November 16 was crap. Down 19.72%. My notes just say, “Meh. Crap.” On each day. That said, some of this loss was due to hanging onto a large TSLA position that I did not close out and it popped on Monday the 23rd. This turned into a big trade, up over $2.5 million. In tastyworks I didn’t have the same fluctuations as I mostly stayed flat, adding the TSLA trades towards the end of the month.

In hindsight, I put a lot of pressure on myself to generate cash for the pending real estate deals. It should have been the other way around: first, wire out the money, then find the property. That said, I’m still a huge fan of wiring out money, and it will continue to be a regular account management strategy in my trading. What if I had a 30% down month without having wired any money out? That would have been super ugly. But losing 30% on remaining money after wiring out a lot of cash already? Not as big of a deal.  Protect your cash. 

December, 2020

TOS

  • Starting balance: $5,744,439.79
  • Ending balance: $4,850,538.86
  • Money wired out: $1,712,500.00
  • Balance if no money wired out: $6,563,038.06
  • Monthly return: 14.25% 
  • Trading Days: 22
  • Winning days vs. losing days: 11 winning days, 10 losing days, 1 flat day
  • Avg winning day: $329,884.60
  • Avg losing day: -$281,013.15
  • Biggest Daily Loss: -$391,202.89 (TSLA flush) 
  • Biggest Daily Win: $541,002.27 (AMZN call credit spreads, calls on TSLA)

TW

  • Starting balance: $1,556,197.63
  • Ending balance: $1,705,082.54
  • Money wired out: $0.00
  • Balance if no money wired out: N/A
  • Monthly return: 9.57%
  • Trading Days: 22
  • Winning days vs. losing days: 13 winning days, 4 losing days, 5 flat days
  • Avg winning day: $66,145.15
  • Avg losing day: -$177,750.51
  • Biggest Daily Loss: -$338,390.00 (Open losses in TSLA on a flush day, large spreads) 
  • Biggest Daily Win: $249,180.00 (TSLA bounce the next day from above open loss)

Although October was terrible, November and December were solid and took me to new account highs on the year.  It basically took me two months to recover from that last week in October.  That’s what I mean when I say, “Re-entry is only a commission away.”  Missing a move is fine.  Recovering from a big drawdown takes a lot of time and effort.  What if I had just gone flat that last week in October and waited until things looked cleaner?    

December was fairly chill. Nothing too bad, nothing too great. There was one TSLA trade that I took a lot of heat on but held on and it worked fine. It did upset me that I let it go that far against me and I count myself lucky that I recovered.

My notes from that week:

“Although this week was manageable in the end, from a risk to reward standpoint, I think this was my worst week all year. Yes, it recovered and it was down 8% on the week but at one point with TSLA you were down nearly 30% in open losses. That is a huge intraweek drawdown and frankly it was inexcusable and you got lucky. You could have easily been annihilated on this trade.

“What gives? I got complacent. I made huge bets that I just assumed would work and I didn’t fully accept that they might not work.

“I was ready with the TIMING for a market pullback and I IGNORED IT COMPLETELY. This is what I mean by complacency. Why hedge when it “never” works? With timing in place, you don’t have to go short, but if you are locked and loaded long, and you ignore that signal, then you deserve whatever beating the market is dishing out that day. You are literally begging to have the shit kicked out of you. Is that a subconscious thing where you are seeking punishment? Or just complacency? Both are inexcusable.

“There is no excuse to get complacent. Yes, your focus is on big trades and big gains, so don’t let this turn you into a coward. But you know how to hedge so at the very least, WHY NOT DO THAT? You got lucky this week. Next time you ignore that, your luck may run out.

“As PUNISHMENT I’m going to wire out $1M and put it into bullion where it will at least be safe. Earn back your right to trade large.

“Last, APPRECIATE the reminder the markets have given you this week in terms of what they are capable of doing. You have no idea what is going to happen next. Anything can happen.

For the next week of December 14, I was up 16.80% with no big swings, and up 6.01% the following week, making money every day. And the last week of the year ended up 7.77% (a great number) starting off in the hole on Monday but working my way back to green.

My tastyworks account was fairly smooth all month. I’ve been trading less in this account. There is something to be said for trading less. You end up just taking the trades that are too good to pass up!

Annual Stats Recap

2020 Account Summary

Account Starting Balance Ending Balance $ Profit % Profit
Small Account* $10,000 $54,011 $44,011 340%
TastyWorks $260,000 $1,705,082 $1,445,082 556%
ThinkorSwim $1,373,456 $17,696,805 $16,519,833 1188%
TW + TOS $1,433,711 $19,642,383 $18,208,672 1270%

All in all? A great trading year.

From reading through this, you would think it was a horrible year as it seems like I spent most of my time on the losses and on managing my ego. But, I’ve found this is where the constant learning comes into play, and I really enjoy the self improvement aspect of trading.  I mean, it is hard to explain to people how much I love trading.  I love the challenge, the element of unknown, the risk of ruin, and the joy in catching a nice wave. No two days are alike.  I wake up excited to see what is going to happen next. 

You have to be ruthless with yourself. It’s a form of self love. By being brutally honest, you are also being incredibly kind. You are saving yourself from yourself, as quickly as you can.  It can definitely be a love/hate struggle. But remember, the opposite of love isn’t hate. It’s indifference.

Show yourself that you care about you - the real you - by being brutally honest, yet at the same time forgiving yourself each and every day. 

Here’s to a great 2021.

Good Trading,

John

(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.)