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Tuesday, December 30, 2014

2014 Wrap-Up and Thoughts into 2015

As a whole, 2014 was a fantastic year for me and my trading. The goals I set for myself at the beginning of 2014 were blown out of the water. Sure, I made a good amount of money in the end, but that doesn't necessarily mean I traded well the whole time. There were plenty of avoidable mistakes throughout the year and I hope to learn from those mistakes and apply those in 2015. Also, I met some absolutely amazing traders and people throughout the year in IU and couldn't be more thankful for that.

After my swing short on APT in October, I was ready to take a break. I had just rebounded significantly from my lows and decided that after that rollercoaster ride, it would be smart to stop trading until 2015, just to play it safe. However, I found that I couldn't stop trading altogether; I was still addicted and didn't want to get out of the loop. But I had realized something after my large win on Ebola stocks: I don't need to trade every single stock, nor do I need to catch every single move in a stock, in order to make money. I see so many people get caught up in the 'need' to be a day-trader, and the obsession of being in a play at all times. After my big loss and recovery, I snapped out of that phase. I realized it was much more of a thrill to be the sniper in the hills, staying low in disguise and waiting patiently for the target to expose itself. I could watch all of the soldiers down on the battlefield fight hand-to-hand, where the odds are close to 50-50. But up on the hill, the odds are swayed in my favor, perhaps 75-25. Then, when the timing is right, I load my one bullet, aim carefully, and take the shot. If you practice enough, one shot is all you need.

Sometimes I will miss the shot, but that doesn't mean I need to go run down to the bottom of the hill and try to attack the target with my fists (chasing the stock). Instead, I stay on the hill, wait patiently for the target to get back in my crosshairs, and take another shot (wait for the lower high with good r/r). I might miss again, but there's no reason to get too upset about it. There will always be others.

So, I spent the rest of October, November, and December playing the perfect setups ONLY. Compared to how often I was trading before, I was barely trading, yet I was making more money, executing the plays much better, and feeling very satisfied. How could this be?

It seems so obvious to me now, and I'm not sure why it took me this long to finally figure it out: adjust your size based on your conviction and how ideal/perfect the setup is. This also brings me to another big lesson this year, which is the importance of finding your niche. During the last 3 months I finally had a clear vision of what my niche is: shorting the pigs. Primarily swinging short until the bacon is sizzling off the grill. Find the setups that you naturally feel comfortable with, in which you feel right at home. Identify the setups that you are NOT comfortable with, in which you feel as though you are walking on eggshells. For example, VGGL was right in my sweet spot. The company was garbage, riddled with fishy deals and dilution, and it was extremely overextended. I felt right at home, so I sized in accordingly. Although it was one of the biggest positions I had ever taken, it felt like any other trade, because I was comfortable with the setup and had conviction. I would never take that kind of position when, for example, trying a bounce play on the oil stocks. I have no comfort with those kind of daily charts at all, and I cannot get a good read on them. That doesn't mean I won't play them necessarily: it just means I will play maybe 5-10% of the size I would on a setup like VGGL. I don't believe there is any coincidence that the last 3 months, during which I was extremely patient and only traded setups in my niche, were the best 3 months of my trading career.

After closing my VGGL position, along with a few other smaller swing shorts, I asked myself a few questions. Is it worth it to wait a few weeks until one of your niche setups appears? And if it happens to be a PERFECT setup, is it worth trading with decent size? I decided that the answer to both of these questions is yes. I swung VGGL short for about three weeks, and made $50k. I will gladly wait another three weeks to make another $50k.

    For 2015, I plan on putting more focus towards improving my execution of my niche setups. I plan on being very patient on my entries and only entering if the setup is PERFECT. There is no reason to chase stocks, as there will always be others. I'm setting up a spreadsheet with my goals on different time frames (yearly, monthly, weekly) and am going to keep track of whether or not I hit the goals. If I don't, I'll evaluate why I didn't and learn from it. Almost none of my goals are money-based. They are based on the quality with which I execute my trades. Another thing I've learned is that if you trade well, the money will naturally follow. Focusing too much effort on the money and not the quality of execution leaves one with an account blown to shreds and confidence levels down the drain.

Cheers to a great 2014, and looking forward to next year!
Nikkos (IU: Nikkorico)

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