2014 Trading Results

For me, 2014 was all about one of the crossroads we come to in life. A fork in the road where we decide to go one way, or the other. And in deciding which path to take it’s one of those decisions that will most likely affect us for the rest of our lives. In February I began trading the financial markets in earnest after leaving my full time job.

I decided to trade to create a home based business that would hopefully generate some income and grow capital. I’ve wanted to trade for a very long time, so that I could be free and live a lifestyle of my choosing. After years of work my dreams are finally starting to come true:

  • To live and work anywhere in the world
  • Spend time on the things I love to do
  • Answer to no one, but myself

Results for the year were great, as shown in the table below. Moving forwards into 2015 these results have really boosted my confidence. Trading is mentally and psychologically one of the toughest things you can do, and you never want to become overconfident. However beginning to establish a track record of success is a real boost.

Net profit was 26.8% for the 11 months of trading from February to December, with some significant lessons learned so far.

Monthly results for trading in 2014
Monthly results for trading in 2014

Returns were volatile during the year with a draw-down occurring in April due to some currency hedging I decided to do. The hedge went against me so it was really a secondary effect that caused this loss. I’m now operating the account with no hedge, in a manner that removes currency risk from my P&L in base currency.

The 3 months from August to October were all losing months which was very tough psychologically. September was a shocking month with a -11.3% loss.

As a result of the large loss in September I refined the trading strategy so that it’s now less likely such a large loss will occur in the future. However there are no guarantees in trading, the best we can do is balance risk vs reward in a manner that suits our trading style. Nothing is certain, and in times of decision we can only work with probabilities, and what we know at that moment in time

2014 - Trading results vs the S&P 500 index
2014 – Trading results vs the S&P 500 index

I think that trading is about learning and continuous improvement. I’m hoping for a better result in 2015 after some refinements to the original plan. So far it looks like we’re on track.

What a privilege it is to be able to do this and have it as part of my life. I’m grateful every morning when I wake up, I love it.

Trading for a living

As a child I remember rare visits into the city with all the high rise buildings, and thinking wouldn’t it be great to be a part of that, the movers and shakers of the world. It was one of my dreams to live in the city, learn about the stock-market, and make a lot of money. This was a very distant dream from my present circumstances as a child.

How good would it be to become an independent trader, and get rich. Trading seems like an easy way to make money, but I can tell you from experience that it’s really not. In fact I would say that in reality it’s the exact opposite, a very easy way to lose money and one of the hardest things you will ever do.

Trading is one of the most difficult ways there is to make money. The vast majority of people who try to trade the markets end up losing, some studies say that more than 95% lose money and fail. From my personal experience I’d reckon it could even be 98% or 99% of private traders who lose in the long term.

If you want to succeed in this game, you’d better be prepared to do what it takes to get into the 1% or 2% who are successful at it.

Trading can be one of the most stressful things you ever do. Nobody knows what is going to happen in the market. The more I learn and the more experience I gain, the more I see that this is really true. As far as the market as a whole is concerned, I’m convinced that nobody actually knows what the market is going to do.

When you are in the markets you never know for certain whether you are going to make money, or lose money. There are definitely a lot of easier ways to make a living, I used to have one of those as an employee. But if you can succeed, nothing else offers the freedom and lifestyle of trading for a living.

The trading style I have developed and now specialise in is centred around options, although I do trade other strategies from time to time.  The options trading I do is primarily trading option spreads on some of the major stock indexes. I sometimes also trade put and call options on stocks. Outside of options I use trend following strategies on currencies and market indexes.

If you’re new to trading you can start with some of the basic courses that are available, such as free courses provided by the Australian Stock Exchange. I’d also recommend one of the best places to start is with books. There are a lot of great trading books out there as well as a few duds. You want books written by real traders. Some that I’d recommend to start with are:

  • Smart Trading Plans by Justine Pollard
  • The Disciplined Trader by Mark Douglas
  • The New Trading for a Living by Dr Alexander Elder
  • The Complete Guide to Option Selling by Cordier and Gross

In regard to options, I would also recommend the video courses at Low Risk Income Strategies which I completed and found to be very good.

One of the best if not the best thing you can have as a trader is a mentor. For me I was very lucky to have an options trading mentor for nearly a year. This gave me an awesome head start and I am forever grateful to Gordon for his help. There’s nothing like an experienced mentor to help you with your trading and to increase your knowledge exponentially.

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