Much of this year passed in a blur! It’s been a minute since I posted last, so I thought I would just write a short post to let you know what we and I have been doing. In today’s post, I’ll cover a few trading-specific thoughts, and will follow up soon with a more personal blog sharing some of the things I’m doing creatively.
Developments in my own trading
After decades of doing this, one of the things that continues to amaze me is how well simple patterns work. Yes, I’m aware of the deluge of research (or, actually, marketing masquerading as research) saying you cannot time the market, but we do… again and again. In recent months, simple patterns have set up profitable trades in stocks, rates, cryptocurrencies, and commodities—these simple things keep on working.
One of the challenges for established traders is figuring out how to grow and adapt. On one hand, we could make the argument that if it ain’t broke, don’t fix it—changes should be made to a working trading strategy only with utmost care and consideration. On the other hand, markets change and adapt, and we must too; also, humans generally perform best when there’s some mountain to climb or some horizon to cross. Being stuck in the same place, even if it’s a good place, isn’t healthy.
One of the biggest changes I’ve made to my trading concerns profit targets. Over the past few years, I’ve gravitated more and more to taking 1R wins. In the past, I’ve always taken a small initial profit and then trailed a stop on the rest. My trading and business partner, Tom, suggested that we might be better off with 1:1 risk:reward. My initial reaction was probably the same as yours reading this, but after a lot of careful research, we decided he was right.
This is extremely counterintuitive, and I’m aware that I’ve generated some critical discussion in a few internet forums. This change has two positive impacts: generally, it makes a little more money, overall (at least with the strategies we trade). Second, it smooths out the equity curve. This last is something retail traders vastly underestimate—if you can smooth out the curve, you can apply more leverage. You can trade bigger. You can make a lot more money.
There are a few other changes we’re contemplating, including revisiting an approach I used with great success many years ago that essentially looks at various timeframe momentums rolling in the same direction. This approach sees markets through a significantly different lens—rather than working within consolidations or pauses in trends, we often find ourselves entering at extended points or “weightless” zomes where short-term momentum is unclear. Tom and I are spending a lot of time figuring out exactly how to reconcile this approach with our proven focus on pullbacks. When we figure it out (and we’re close)… watch out!
We’ve also been doing some work on further quantifying what we do, and we’re beginning a project that will redo much of the work I did for my first book in 2010-2011. We will take a purely quantitative perspective on standard indicators (and maybe patterns) to help traders better understand the inputs they are using in trading decisions. Our plan is to present this material in a course format, and we’re hoping to have it done by the end of the year.
As I said, I’ll follow up in a few days with a more personal blog, sharing some thoughts on peak performance, health, and creativity. We’re excited about the last part of this year—there may be some once-in-a-decade trading opportunities setting up over the next few months, and we’ll do everything we can to catch them.