So we have walked you through our recent string of publicly posted trades, which had phenomenal results.
The purpose of the exercise is to walk you through our thought process prior to entering a trade, while allowing you to follow along via the Alchymist Tools so that you can get a feel for the data +analytics that are now at your finger-tips, and the power they hold.
This is all about playing the game the right way - playing winning Poker.
Any Professional gambler can attest that playing a winning style doesn't equate to you walking out of the casino a winner each and every day. Rather, it means capitalizing when the cards are in your favor, but most importantly guarding your chip stack when they go against you.
So we've shown you a string of winners in the last few chapters - now lets analyze a losing campaign.
Russell 2k
We have been overall Bearish on the Stock Market for almost 2 years here at 3ptCapital and here is why:
1 - We find them grossly overvalued on a Price to Earnings as well as Price to Sales Ratio.
2 - We are disgusted with the super-easy Monetary Policy of the US Federal Reserve... (I mean the cartel Banking Families that own the Fed and were given the license to print money out of thin air by Congress.)
3 - We hate that Zero bound interest rates have completely distorted the market pricing mechanism on all sorts of financial instruments, availing capital to those who never would have been able to source it in a properly functioning Market Place.
4 - We hate that Companies get to issue debt at near zero, then use those proceeds to buy out other companies or buy back their own stock. The end result of which is CEOs and banksters getting rich, while they lay-off millions of US workers who are then told to pound sand. Or worse, told they should be paid a "Universal Basic Income" while the trillionaire's outsource American Jobs to third world countries and look to develop robots to replace 10s of millions more.
5 - We hate the so called Regulators who allow the scam of "Pro-Forma" earnings to be perpetuated, as if continuing million or billion dollar losses should be excluded from Financial Reporting. Then investors rush to reward the money losing companies by bidding up their stock.
6 - We really hate that the Central Banks, print money out of thin air and literally buy 100's of billions of US stock with the proceeds. It is well documented that the Swiss National Bank & Japanese Central Bank are doing this, so we are supposed to believe that the FED & ECB are not? Then people cry about income inequality & blame the banks? They should wake up and follow the breadcrumb's to the true facilitators of economic inequality in this land.
7 - We marvel at the duration of this Market rally and the magnitude of it - and the statistically improbable trading over the past year of which you wont even get a 1% decline before the bankster robo-buying program kicks in.
There is absolutely no doubt, that this "Frankenmonster" Market is going down in flames. This pump scheme is nothing more than the Distribution phase in the cycle, whereby the Banksters pass off the overvalued stock to the unsuspecting public via imbecilic "Passive" investing strategies and other means of pump and dump.
You can be certain that at a time of their choosing, the pump will stop, and the waterfall decline will commence, wiping out all of the "Passive" morons, and their gains with them!
Here at 3PC, we are determined to catch this ride.
Not only that, we feel it is our Patriotic Duty to do so!
So that is what we set out to do - We are going to short the shit out of Small Caps and we started our operation in January of this Year.
Since the decline we know is coming was to commence any minute, our chosen method of betting was to short any move through our lower channel lines and/or Opening Range Levels.. So we would be getting short as the 4day channel rolled over, then the 9 & then the 23.. As the monthly ranges turned negative we'd be piling on and this would ensure we had our biggest position for when the fun started.
Well, something happened on the way to the ATM machine.
Every time Russell futures would start dipping below our channel lines, putting us into our short trades, it would immediately reverse within the next few minutes to next few days, kicking us right back out..
As we are carrying a large position relatively speaking, we don't argue levels or the market. We simply cover, and then wait for weakness to reemerge. Once it does, we begin legging back into our shorts.
Well, on and on this went for six months. Each time we were kicked out, we'd curse for a few minutes, and then simply get ready to get back in. I'm not going to lie, this was extremely frustrating & after banging our heads against the wall for so many months, a little self-doubt starts to creep in.
"You Sure you want to keep shorting Equities Sir..?"
At the end of May, after 5 months of chop on what is a "no-brainer" trade, I downloaded all the short equity trading activity from Jan1 to see exactly where we stand on this campaign, and to determine if this was the correct tactics given the market behavior. Here were the results:
| Numer of Trades | 58 | ||
| Total ConTracts Traded | 143 | ||
| Notional Traded | 9,761,355 | ||
| Gain/Loss | (22,700) | ||
| Loss Per Trade: | (391) | ||
| Loss Per Contract: | (159) | (3) | Avg Points Move Per Contract Traded |
I wont say we lost 58 trades in a row, because we did close out some of these at a profit, but the score here was something like 8 wins to 50 losses totaling a hit to P&L of (23)k.
OUCH!! HOLY SHIT!!
Now, you may be asking - Why is this guy showing us such a crappy trade performance on a terrible call to short equities in 2017?
Well, the answer is that beauty lies in the eyes of the beholder - So let us show you some of the beauty that can be seen in that pile of crap in that table above.
- While we were completely wrong on our directional call on equities for this year, we were able to Short almost 10m worth of Russell and lose only (23)k or less than .25% on notional traded.
- Even though we were wrong 50 times on a trade we obviously had some emotional attachment too, we never deviated from our exit plan. By keeping tight stops on our trades right at key pivot levels, our average loss per contract was only $(159) or 3 Russel points per contract traded.
- We did stop the madness at some point, and by studying our trades throughout the first half of the year we were able to adjust tactics to counteract all of this whipsawing.
- Even though we have been wrong for 6months, by limiting our losses, we have plenty of powder left to catch the inevitable equity waterfall.
- Because we spread our chips around to different bets, other successful campaigns were more than able to offset these losses.
We definitely wish we had done this portfolio analysis sooner, as these little $160 hits were being masked by the other winning trades in our book - so these clips to our bottom line were quietly piling up, and they obviously added up. So please take heed this warning about slippage to your trading account.
Regularly reviewing your P&L & trades will help you spot areas where you are losing ground, and may be due for a change of tactics.
Changing Tactics
Sometimes when trading you are going to get persistent, choppy action at the tables. So, trying to short term trade crossovers on Pivot Points will prove extremely frustrating and futile.
We still believe in our Bear equity thesis, but realize the bull is still kicking and bucking, so we need to give ourselves more time. So what we have done is extend the duration of our bets by Shorting Dec Futures, and then buying December Calls as Stops. Because everyone has been shorting vol, option prices are extremely cheap, so our Risk/Reward is excellent on this trade.
This Long Term position will allow us to ride out the chop we've been experiencing, yet still profit handsomely if the expected fall occurs. So we have 120 days for the trade to work, and if we start getting some trending weakness we'll add to our position using our Pivot Cross Over Tactics.
Conclusion
Your success as a Trader will hinge upon your ability to weather cold streaks, incorrect calls, and a litany of other things that can go against you.
In this chapter, we've shown you the flip side of the coin in trading - the one where you can lose a Dozen or more trades in a row. We were able to weather a terrible cold streak at the tables while incurring a manageable loss to our Portfolio by strictly following our exit points, buying insurance via options, and selling some insurance as well against our short position.
When the equity drop eventually happens, we will certainly be in, and will make up for all of these losses and then some.
At the end of 2017 we'll add in another Lesson here updating you on the progress of this campaign.
The thing that you can be 100% certain of is that there will only be 2 outcomes:
- We are going to get the equity drop & make a nice bundle of dough.
- Equities will continue their topping process, and we will have sustained a manageable loss. We then roll our trade another 4months.