Part 3: ‘The Road To An $18.2 Million Year’

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

February, 2020

• Starting balance: $2,000,369.09
• Ending balance: $2,029,378.20
• Money wired out: $302,660.00
• Balance if no money wired out: $2,332,038.00
• Monthly return: 16.60%
• 19 trading days: 9 winning days, 10 losing days
• Avg winning day: $90,017.38 
• Avg losing day: -$47,848.73
• Biggest Daily Loss: -$237,870,66 (ROKU Impulse Trade)
• Biggest Daily Win: $289,980.91

My fist trading week in February was great. I ended up with a 13% return. Mostly due to TSLA and PTON. I did a GOOGL earnings trade and that was a bust. On February 7, I put on some bearish positions and got on a plane with Maria and headed to India for two weeks.

We went to a place called Vedanta World with a group called YPO for a one-week crash course in the Bhagavad Gita. It was a profound experience for me. This is an article where I share the top 10 things I learned. A one-line summary of what I learned? Attachment is the true virus of humanity.

The week of February 10 was my worst week of trading thus far for 2020. Each day I lost money on my bearish positions. Down about 1.5% each day. Mind you, I wasn’t trading, I was just checking in on my positions from the other side of the world, and they were sucking wind everyday. Why didn’t I just stay in cash for this trip? When will I learn to take a break?

While Maria and I were going through the airport in Mumbai to return home, I felt a need to put on a trade to offset my losses for the week. I noticed that ROKU had earnings that day and was up big. On impulse I bought 300 calls on the mobile platform. You can see where this is going.

From my iPhone, I watched ROKU start to slide, and then really puke it up. I lost $220,000 on that trade in a few hours, and ended the week down 15.67%. The shame was real. My one saving grace? This is not a trade I posted in the room, since I did it from my phone while going through security. Only I had to suffer. It was my own damn fault.

This was just an incredibly stupid trade. What to do? Get out. Relax and take the next setup. I felt 100% better immediately after exiting the trade. I was free again from my mental programs.

I told myself: “Remember, your goal is to wire out 2.5%, there is no need to do what you did on ROKU, trading from your iPhone while going through security in Mumbai. This week is a big loss, so I’m not wiring any money out. Do I need to make new account highs each week in order to wire money out? My intuition says NO. That will be a distraction and cause you to take stupid risks in order to get that new high. Just proceed as normal, and wire out as you go and focus on minimizing the downside. Every week, win or lose, wire out that 2.5%. That is your job — to make that weekly payment. If you don’t make the payment, Vinny is going to break your legs. (Metaphorically speaking).”

For the week of February 17, I’m back home and I am severely jet lagged. However the break away from the markets was good for me and I was in the zone, cranking out a 20% week on GOOGL, AMZN, TSLA, BYND, and SPCE as well as some long bond futures. And I sold NDX call credit spreads as a hedge. The markets caved on Friday and my bonds went up and the NDX call credit spreads hit max profit of $100K.

The following week, Feb 24-28, the markets really puked it up on Monday. I had some light bearish positions on and that’s it, so my account was up 1.88% in the room. I’ve been telling people about the 10-day moving average of the put call ratio and to be really careful on the long side here. Some listen. Some don’t. I’m like, “Guys, I’ve seen this movie before and it always ends the same way. Know when to be cautious. Know when to be aggressive.” I ended the week up 1.71% and overall up 16.60% for February. Oh, and had I not lost $200K on that one ROKU trade? I’d be up 27% for the month. That’s fine, I’ll take the lessons learned and continue moving forward. Remember, fire those employees (your losing positions) that aren’t doing their job, or they will take every last penny you have.

March, 2020

• Starting balance: $2,029,378.00
• Ending balance: $2,070,884.00
• Money wired out: $173,775.00
• Balance if no money wired out: $2,244,659.00
• Monthly return: 10.6%
• 22 trading days. 14 winning days, 8 losing days
• Avg winning day: $120,131.06 
• Avg losing day: -$183,319.29
• Biggest Daily Loss: -$581,317.04 (NQ Error) 
• Biggest Daily Win: $323,418.60

Ah, March. I was bearish at the end of February and going into March. When the SKEW is over 135 and the 10-day moving average of the put call ratio falls to the lower end of its range, bad things don’t always happen but… bad things have always started with that setup. It just shows a market that is extremely long with the more sophisticated participants starting to hedge. I like to think about it as follows: If everyone on the planet who wants AAPL, owns AAPL, how is it going to keep going higher? The answer is, “It’s not.” You need more buyers to propel a stock price higher. Once the buyers run out, stocks start to fall on their own weight as they trigger stop loss orders from nervous traders. Throw in some margin calls from overleveraged traders, and this can quickly turn into an avalanche of selling.

I had no idea what was about to be unleashed, but I knew there was no reason to be long. The short side of the market is fun, but it is hard. The volatility explodes and overnight moves can kill you. As a general rule, when the VIX goes above 30, I’m very light to flat overnight and just focus on day trades. As we headed into March, I told everyone it looked exactly like 2008. I’ve seen this before. Don’t stress, we got this. Cut your position size by ⅔ and triple your stops.

Take the loss when it’s not working. Re-entry is only a commission away.  

There are two schools of thought to “re-entry is only a commission away.”  The argument against it is, in an uptrend, stocks can gap up huge and if you aren’t in it, you won’t be able to get in once it takes off.  That’s a good point and it’s true. For me, it’s all about protecting the downside.  I don’t care if I miss a move.  But I will berate myself if I get caught in an avalanche of selling that wipes out months of hard work. As a trader, my view is I should profit from an avalanche of selling – not get killed by it.  Hence I’m willing to short my darlings at the drop of a hat.  

If a market truly starts to sell off, averaging down and ignoring reality will get you killed.  How do you know if it is a mere pullback to sit through or the start of something bigger?  There’s never 100% certainty, of course.  For me, on a daily chart, if the S&P 500 closes below its daily 21 EMA, then I am very quick to cut losing trades.  Yes, it may pop back up above.  And it may be the start of a 10% correction.  I err on the side of, “When in doubt, get out.”  I’d rather get back in on the long side when the market structure is cleaner.  After all, it just costs me the commission, and there will always, always, always be another setup.

Back to trading . . . 

So far I was up 13.76% for the first week and 8.77% in the second week. So far the month was going well. I’m not holding onto longs.  I’m actively trading, long and short. Why long?  In big down moves, you also get the best retracement rallies.  Go both ways!

Then, on a Friday morning, I wake up, check the quotes and see NQ limit up! Yes! I’m going to kill it today and everyone who followed my trades is going to have a great morning. What a great way to end the week!

Wait… what? Why am I down like $400k? Obviously there is an error here somewhere?

Oh. My. God.

On Thursday I was long the NQ and I had a GTC sell order at a particular target. I ended up just closing my long NQ at market and… I FORGOT TO CANCEL MY GTC SELL ORDER.

This would have been great had the markets popped overnight, filled me, and then puked.

But, no, that’s not what happened.

What happened is that the markets rallied, hit my order to “SELL” my NQ long futures and filled. Since I didn’t have long futures contracts there was nothing to offset. So this got me short… 30 contracts. Overnight the NQ proceeded to move limit-up. That’s what I woke up to… a $400,000 loss because I didn’t remember to cancel my GTC sell order.

I was shaken up and it got worse from here. The cash session opened and, after a small pullback, I decided to buy AMZN calls that expired that day for a quick move to ease the pain of my NQ loss. Of course, what does AMZN do on a Friday? It falls. After looking great, it rolled over and died and I watched it die and my P&L die with it.

My account lost 22.72% that day. So brutal. I couldn’t recover from my mistake.

I ended the week down 17.41%.

My one saving grace? The NQ trade was an error and not a posted trade, so nobody had to share that pain but me.

(On a positive note, this is when I started to study AMZN’s behavior on a Friday and have since made a lot of money on that Friday puke pattern).

The last week in March, I played it more cautiously and ended the week up 3.08%.

While Q1 was a great quarter, there were two trades that ended up costing me a lot of money. The first was based on impulsive stupidity, ROKU. The second was due to not canceling a GTC order in the NQ. These were two VERY PREVENTABLE mistakes. You can do better than this, Carter. Without the NQ day, I would be up 35% this month instead of 10%. Never forget that anything can happen in the markets, including the markets taking away every dollar in your account in a very rapid fashion. The market doesn’t know you exist, so it’s nothing personal. You just need to make sure you are tuned into the market and what it is prepared to offer you that day.

April, 2020

• Starting balance: $2,070,884.00
• Ending balance: $2,144,190.00
• Money wired out: $118,825.00
• Balance if no money wired out: $2,263,015
• Monthly return: 9.3%
• Winning days vs. losing days: unknown
• Avg winning day: unknown
• Avg losing day: unknown
• Biggest Daily Loss: -$249,913.74 
• Biggest Daily Win: $611,531.32 (AMZN)

For April, it was mostly a quiet month as I didn’t push it too hard. I did have a nice trade in AMZN, but otherwise it was quiet in terms of trading. This is a journal entry from April 4:

“What a whirlwind. I feel exhausted. Maybe it was the hard workout yesterday? I think though I may have absorbed a lot of scared energy. There is a lot of panic out there with Covid-19. School is shut down. Businesses are closed. There are food shortages and people are fighting over toilet paper. I read a few things where this is going to turn into the next Great Depression. I don’t believe that but still, you read that shit and part of it sinks in. My oldest son asked me if we were going to be ok and I said, ‘Don’t worry, we are going to be fine.’ I caught myself. Was I taunting the universe to challenge me? I mean, I think it is just an upper limit problem. (An upper limit problem is what happens when things are going ok, but your mind starts inventing things to worry about to keep you from advancing further). So, anyway, how about just act like the universe is rigged in your favor, enjoy the ride, let go of the outcome and enjoy this time on earth while you have it?”

What’s fascinating here is that on April 24 I added my usual daily balance entry to the spreadsheet. After this date, I just stopped tracking it for six weeks. I don’t really remember why. I didn’t resume tracking it again until June 15, so I have to rely on my monthly statements and my journal to see what was going on here. I think in April it was sinking in that the world was changing and I was more focused on the outer world and what was going on. The markets were volatile. I was frequently up late and up early and in front of my computers a lot. I posted constant updates in the room as people were looking for guidance. I’ve seen this movie before, there is no reason to panic, it will all work out. But it was exhausting and I think I reached my limit. What I needed was some recharge time at the beach, but we were on lockdown and couldn’t travel anywhere. 

I ended up with a gain in April. May? Not so much. May turned into my first losing month of the year.

First, if we look at May, it is apparent that May was not a fun month to trade, at least for me.

May, 2020

• Starting balance: $2,144,190.81
• Ending balance: $1,646,436.20
• Money wired out: $0.00
• Balance if no money wired out: $1,646,436.20
• Monthly return: -23.21%
• No additional stats as I didn’t track the daily changes.

I remember May was generally a stressful month of, “What the hell is going to happen to the economy with all this lockdown stuff?” I was spending a lot of time researching whatever I could, while also trying to get effective internet going in Wimberley. Up to this time, I was still driving into the office or our “old” city house in Lakeway as much as possible, so I could use fast internet. The commute is about an hour each way from Wimberley, and it was getting tiring. In Wimberley, I had a point-to-point connection that was about 2.5MB up and down on a good day. Many times my trading platform would freeze during this incredible volatility, and some of my losses can be attributed to having tech issues. There were days where I was stuck in positions and couldn’t get out in a timely manner. Fun times, indeed.  (But – I do take full responsibility as it was me who chose to trade on a slow connection).  

From my journal entry, it looks like my first week in May I was down about 15% and from there I just got really cautious, not wanting to dig a bigger hole. I also found out that my stepbrother, who is a year younger than me, passed away suddenly due to his organs shutting down from drinking too much alcohol. It really hit me hard and I broke down crying a few times. It was like we were hanging out in 9th grade and the next thing you know, this? How did our paths from that point in our lives lead to this for him? WTF?

From here, I started writing out things on how to make my life more simple. “Get rid of anything that is annoying. Let’s cut down the daily activity and focus on generating positive cash flow from trading, with minimal expenses. That’s not a bad way to spend the rest of your life.

“This gives you the chance to relax and start structuring your trades in a more relaxed way. You can trade small and still wire out 25K a week. Do spreads. Capisce? You can relax and trade with your kids. Take this as the gift that it is, set aside your ego. Morph into a trading life of ease, which can be accomplished with the right setups and option structure if you are patient. The day trading you did in March has impacted your trading negatively, as you are still focused on quick day trades. What are you, 12 years old? There is no need for you to be as mentally tired as you are right now.”

After this journal entry on May 27, I started doing an “auto wire” of $25,000 each Thursday morning. This would happen automatically whether I made money or not. I also started a 72-hour fast. I have little recollection of my trading in May. (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.)