A couple of missed trades

NOTE: This post has been updated below following today's price action.

Although I have not been in the markets recently, it hasn't been totally as a result of sitting on my hands. The process of looking out for good setups has continued, and as previously discussed, most of these haven't triggered an entry signal. However, there are a couple of trades that have managed to get away from us, for different reasons:

Marty Schwartz and the sunspot theory

Every so often you come across a post from a trader talking about a specific stock along the lines of "Is there a reason NOT to own XYZ plc?"

Whenever I see a question like that, it immediately sets off alarm bells, which more often than not are confirmed when you go and look at a price chart of the stock in question.

Reviewing your trading beliefs and rules

I had an interesting conversation the other day with another trader about their own beliefs in the markets, and how following these can help or even hinder you as a trader.

My own opinion (or belief!) is that whatever rules you have created are an attempt to formulate your own beliefs into a viable trading strategy. Those basic beliefs give you a framework, or an outline of the overall concept about your approach to the markets, and the specific rules you use add the meat to the bone of your basic idea.

Beliefs and simplicity

A trader friend recently told me about a commercial property transaction he was asked to get involved with some years ago. The deal was worth several million pounds, and given the complexity of the deal you would have expected that the people involved concerned would have wanted a detailed reports from the banks or property agents, surveyors, and the local councils, running into many pages, covering all aspects of the potential deal being suggested.

Accepting the bumps along the way

If you think you can adopt a trend following approach, and then guarantee that you can pull X% out of the market each month/quarter/year, then you are very much mistaken. Your performance when utilising a trend following strategy will go through peaks and troughs. There may be periods when you are fully invested (up to your own portfolio risk limits), and there may be times when you are fully in cash.

Look at any performance record of a trend follower and you can quickly identify these peaks and troughs. Why do these happen? Very simply, trend followers need trends in whatever markets they are trading to appear. If they don't, then a trend follower will struggle. That you have to accept.

Dale Carnegie and thinking about losses

These days I am a voracious reader, not so much of books directly related to trading, but to those dealing with the mind, attitudes or psychology. 

Interviews with, or autobiographies of top sportsmen or women are a good resource as well. When reading these, my mind automatically thinks about whatever is being discussed, and whether it can be applied to trading, and my own approach in particular. In that regard, I am always open to new or different ways of thinking.