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January most successful traders
January was a tough month for traders. The S&P500 and the both lost a touch over 5% for the month. For the Nasdaq it was even worse as it ended the month down almost 8%. If we had not had such a strong rally friday the damage would have been even greater.
Individual investors, hedge funds and mutual friends also faired poorly. In fact nearly 95% of all traders and investors lost money for the month. Not only that – but nearly 2/3 of those lost more than the major averages.
One of the best ways to learn anything is to see what the best people in a field are doing and then do something very close to that yourself. In other words, what do the winners have in common, and how can I implement that myself.
So now the natural question might be: What do Januaries winning traders have in common with each other? As it turns out there were a few things.
First of all the people who made a profit in January are heavily in cash. In fact the average January winner’s portfolio has between
2 1/2 and 4 times more cash on hand than the losers.
Another thing the winners have in common is that they were substantially less active compared to their peers who lost money. The average losing trader in January was three to five times more active than the average winner. In other words for every one trade the winners placed, the losers did between three and five.
My own results in January tend to reflect this as well. There were several times over the course of the month that I was 100% in cash. When things are hitting on all cylinders I’ll often be between 120% and 150% invested in the market. My top exposure in January was just 58%. Last week both Cray Incorporated (CRAY) and McDonald’s (MCD) triggered. They are currently the only stocks I own in my trading account – which is 62% in cash at this time. I ended the month with a profit of 4.1%, not a huge number, but one I’m pretty happy with given the state of the overall market. I also have an account that I only day trade the eMini S&P500 and eMini Nasdaq futures in – typically I’m doing between 3 and 7 trades a week there with the goal of making 30 Nasdaq points per week. I trade one contract for every $12,000 in my account. I keep right around $250,000 in that account and remove profits every month.
The cornerstone of my trading approach has always been the preservation of capital and avoiding large losses. This is important for several reasons. The first, and probably the most obvious, being that if you go bust you no longer have the opportunity to make any money at all. I’d much rather forgo a few trades here and there than risk huge losses on my account. Recovering from a drawdown is no easy task. If you have just a 20% drawdown you’ve now got to make 25% just to get back to break-even. A 50% loss will require doubling your account simply to get back to break-even. Its a little bit of market cruelty that the numbers work out that way because sustaining a 50% loss is pretty easy to do, while doubling your money is both difficult and time consuming. Where I to sustain a 50% it would generally take me a year and a half to two years to get back to break-even following my own trading strategies.
The losses are not the only painful thing about losing a lot of money though. The hit to your confidence can be much worse than the one to your pocketbook. Large losses have an overwhelming tendency to screw with your head. All of the sudden you’re either afraid to take your trades because you feel like a loser or you go into revenge mode and try to make the money back as quickly as possible. Either of them is a recipe for failure.
I know that this philosophy does not make me the most exciting guy on the web teaching how to trade – but to be honest, I’m not here to be exciting. I’m not here to be your babysitter.
What I am here for is to help people who are serious about making a living from the market or substantially adding to their nest do exactly that. I first started teaching traders how to make money in late 1999. As time went by I noticed something interesting. When I was not active I would lose a ton of subscribers. I’ve talked to several other people in this trading education and newsletter business and every single one of them notices the same thing. The sad truth is that not being active actually costs you more subscribers than losing a shit load of money being active does.
In the past what I would do to sort of make up for this is that when I was not active I’d just mention a bunch of stocks that could be setting up. I’d tell people that personally I was in cash, but if you want to trade here are some things to look at. When I survey’d my list I discovered that nearly 90% of the people would still take those trades and the vast majority of the time they would end up losing money.
All that was incredibly frustrating to me. In 2004 I hired a psychiatrist to work with me on peak performance. He was from London and had worked with a few professional soccer teams and a lot of fund managers in the financial district in London. One thing he told me that was really discouraging is that over 3/4 of active traders actually meet the clinical criteria to be diagnosed as gambling addicts.
That realization is one of the reasons I got out of the trader education business and am only just now returning after 10 years away. I got into this business to help people, not hurt them – and when I concluded that in spite of my best efforts the majority of people would get hurt I really just lost my passion for the business.
I finally decided to come back, but I’ve promised myself that I’m just going to be showing you exactly what I do to be profitable. I sincerely want to help you. Very few things in the world give me more personal satisfaction than to see that someone I’ve “coached” has been able to fulfill their dream of being a full time trader. Other people just want to add nicely to a retirement account, and I’m more than able to help with that as well.
In the last ten years I’ve gained a lot more life experience and perspective. I’ve lost everything and been broke. I’ve battled cancer and during that time became severely addicted to pain medicine. Thankfully I’ve not touched them now in seven years. I’ve also started or helped start several seven and eight figure per year businesses and been raising three kids on my own. I’ve been trading again since 2010 and am more comfortable and profitable with it than I’ve ever been before.
I’m basically in a position now that allows me to say “This is how I do it. If this makes sense to you, if it feels right and you want to continue with me, I’d love to help you. If it’s not though I’m very happy to see you go.”
I’m not claiming here to be the best, but I am amongst the best. I can say with a pretty high degree of certainty that there are only 3 or 4 people out there actively teaching this who can match me in terms of experience and success. At the end of the day I really want this to succeed – and I’m pretty confident that it will, but I only want it to succeed on my own terms. If it doesn’t I can happily go back to just trading for myself and working inside my other businesses and projects. My hope though is that won’t happen because this business is by far the one I’m most passionate about.