Trading: It’s All About Being Consistent

By: ispeculatornew
Date posted: 10.10.2011 (5:00 am) | Write a Comment  (4 Comments)

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It’s not only true about trading but certainly is very much true for anyone involved in the markets. Did anyone care about all of those great returns that Long Term Capital Management achieved once they blew up? However, being consistent does not only mean:

A) Not blowing up
B) Achieving 100% returns every year

It does mean being fairly consistent over the years, avoiding losing money as much as possible. And no, I do not mean Bernie Madoff type returns of +20% or so every year. Why am I discussing this? Because after 2 good years of trading in 2009 and 2010, I think it’s fair to say that 2011 has been exceptional. How so? Returns of nearly 100% would qualify by most measures I would think:) I am also fairly comfortable with my new decision to not open new trades in the final months of the years. It’s impossible to say how things would have gone but it has certainly helped me avoid headaches.

I will certainly continue to think about how to improve my trading in 2012 as we get closer. I am clearly not talking only about the yearly return because I would not bet much on my chances to do better in 2012. Possible? Absolutely. But highly unlikely. I would say that my chances are only slightly better than the chances of seeing my Indianapolis Colts led by Curtis Painter make the playoffs. It is highly unlikely.

To me, Warren Buffett is a model of consistency. He has not always been right but in almost every year, he has been a lot more right than wrong. For long/short trading, I cannot ask for more than that. If I can achieve one more year anywhere close to 10%, I will be happy, even if that would still be much lower than what I’ve done in the first 3 years.

What Is Consistency?

To me, trading consistently means using the same methods to find trades, to not make changes without carefully considering them. In my case, one change I had decided to make was no longer shorting high beta or high growth stocks, no matter how overvalued they seemed to be. I learned my lesson last year when shorting Baidu (BIDU) and am proud to say that I did succeed in avoiding the temptation. Believe me, there were some opportunities out there. But trading against strong momentum usually ends up being a losing trade.

The One Thing I Still Struggle With

I know, stop losses are there for a reason and they are a huge part of what makes my trading profitable. That being said, it always kills me to have to not only close the trade but also write on this blog when doing so. I might get pleasure when I close a profitable trade but believe me, a losing trade causes me much more pain than any winning trade can cause pleasure. That creates a temptation.

“What if one more day could help the trade reverse?”

I would not say that I was perfect in that regard this year, I do still have room for improvement in that and many other areas of trading (don’t get me started on non-trading flaws, I could be writing for a while)

What about you? Do you have trading rules that you have set for yourself? Are you able to respect them?

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4 Comments

  1. Comment by Jack — October 12, 2011 @ 1:11 pm

    Good point about shorting. I have some puts on some *obviously* overvalued companies with p/e at 400+, ridiculous.

    But they haven’t come down yet. I’m not too stressed, but, I much prefer investing in dividend-paying companies, hence I think I’m going to stick with that.

  2. Comment by IS — October 12, 2011 @ 1:18 pm

    @Jack – Which companies if I can ask?:) Would Pandora or LinkedIn be part of those? It’s very good that you took a position you can afford to keep until those stocks do decline!

  3. Comment by Jack — October 13, 2011 @ 11:12 am

    Shorting LNKD and CRM.

    On November 15, 2011 the insider lockup at LNKD expires, I have to believe the increase in shares will lead to price declines.

    CRM, p/e is laughably high. And they are losing executives quick.

    Both stocks will come down. The timing is the thing.

  4. Comment by Intelligent Speculator — October 13, 2011 @ 5:19 pm

    @Jack – Interesting information and it might have an impact but how quickly do you think it would affect prices? I would think those sellers would still be fairly patient?

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