I posted another year with solid returns, but as always, I like to look back at mistakes made and rules I need to adjust moving forward. As you know I am a strong proponent of writing things down. Without having things written down in a logical format or blueprint then it is extremely easy to get off track, especially in such volatile waters. Below are some of my main rules and adjustments that I will be using in 2013: Hopes this helps give you a few ideas for your own program.
Have Blueprint for Success: As I mentioned above I like to write down the specifics attached to every trade before I enter. Meaning I like to write down where and how I will enter, when I will exit wether with a loss or a profit, when I will add to my position both on strength or weakness. What are the top three pitfalls or traps that could adversely affect the outcome of this trade? Is there any one card that could be dealt from the deck forcing me to immediately exit and change my perspective? Could a "black swan" event help or hurt me? I want to leave nothing to chance or emotion. Looking back on a few of my bigger losers in 2012 ALL were from not having a solid written plan. Instead I stubbornly overstayed my welcome or added more risk than I should have based simply on emotions. This is not just a rule for speculators, as producers should also have a solid written plan for marketing their 2013 or even 2014 crops. Leave nothing for chance or to your emotions. Try your best to uncover and play out every possible scenario and the move you will make in response.
Better Understanding Of Money-Flow: All I know is that traders and producers who better understand the behavior of money-flow (i.e. the funds, money-manegers, swaps, indexes, etc.) the greater your edge. What I have found is that it is not so much about trying to be "right" your own personal projections but rather trying to figure out where the crowd is going to go swarm to next. It's kind of like betting on the Super Bowl, it doesn't matter who you think is the best team, to get paid you have to pick the winner of the game on that given day. It has nothing to do with which team is the best overall. Same thing in the markets, banking profits isn't about being right the balance sheets or the chart formation, but rather forecasting the direction money-flow will be heading next. Understanding the psychology of the largest traders might now be more important than understanding the fundamental's or technical's of the trade. At times I forget this concept and often find myself trying to pick the best team rather than who will win the game. I have to constantly remind myself that there is much more than just the fundamental or technical outlook influencing price direction these days.
Listen To The Markets...Don't Try And Predict The Markets: I have learned through the years that I am very bad at making predictions, unfortunately, or maybe fortunately, so are most others in the investment industry. The problem I find is that when you make a prediction or assumption about the market, you immediately start to aligning yourself in that direction and begin cheering for your prediction to come true. In turn you often discount or lose sight of how the market is breathing and how the dynamics are changing the markets overall appearance. A better concept is to have your own game plan and your own blueprint that you are comfortable with. then spend your time carefully listening to what the market is trying to tell you, rather than simply cheering for our own predictions to come true. By aligning yourself on one sideline we tend to discount or ignore facts that challenge our views and or our predictions. We can not walk around with blinders on. We must remember that their are cycles in every market. No matter how bullish or how bearish we become we have to recognize there will one day be a top and one day be a bottom. Simply put every bull market is followed by a bear market, and every bear market is followed by a bull market. Don't fall into the trap of thinking things will never change...because they always do!!! I had a coach one time who made me promise to never say never.
Be Open To Change: The longer we do this the longer we get set in our ways. We are truly creatures of habit, and its never more apparent than in our marketing or investing styles. Unfortunately we are in a game that is constantly changing. Not only are the rules changing, but so are the players, the officials, the strategies being used, etc... Just like the game of football is constantly changing, as a coach you have to change your plays, the type of players you recruit, your style of play, etc... For those producers who think its ok to keep doing things the same way they have for the past 30 years need to think again. Hell, even Vince Lombardi couldn't win a football game in today's NFL with the same players and same offensive and defensive scheme he was using years ago. Players have become bigger and faster, offensive and defensive strategies more complex. Guess what, so have our markets. I have to constantly remind myself to be more open to change. I like to believe I am on a quest to learn and understand all I can about the latest technological advancements, new strategies and thought processes of those entering the game.
Know When To Hold'm & When To Fold'm: This has always been my Achilles Heel. I have for years watched the best traders in the world continually cut their losses short and let their profits run. Many in fact are also brilliant at adding to their winning positions. I constantly battle this concept and must work harder and harder at perfecting the strategy. Too often I handcuff myself by taking my winners off way too early. One great example was my short of the Japanese Yen this past year. If you attended my 2012 seminar you will recall that my big spec trade for the year was to be short the Japanese Yen. In fact I was short the Yen on a couple of occasions in 2012, once near the January 2102 highs at just above 1.3000, later in September at around 1.2900. The problem is I banked profits too quickly each time, where as if I would have stuck with my original intentions and game plane or added to my winners I would have accumulated a small fortune in the position. From my perspective I simply tend to get away from my exit strategy too quickly because I am nervous about giving the profits back. In other words I start to see dollar signs rather than sticking with my game plan. Along those same lines I often have a hard time cutting my losses, because it immediately means I am wrong. I was not a winner...but rather a loser. Losing is something I hate more than anything and often times it gets in my way of trading. I constantly have to remind myself it is not about being wrong or right or even about my intelligence, but rather simply about making money. I have to do a better job of sticking to my plan. I have to become better at letting my winners run and limiting my loses when I am aligned the wrong way.