Where Is Your Next Opportunity?
Your downtime is valuable so put it to good use.
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After two months of frustrating market action, we finally got some relief this week and there was money to be made.
The question now is, where are the next opportunities?
There’s not an easy answer.
Opportunities arise in different places.
In sectors. In asset classes. Even in time frames.
Lately, that’s been the extremes; the long-term for dip buyers and the short-term for day traders.
However, there is another opportunity you can jump on this 3-day weekend, especially if the past six months have been challenging.
The opportunity to work on your process.
Perhaps after you and your significant other get back from Home Depot, and maybe Bed, Bath, and Beyond - if you have the time - set aside a few hours this weekend for a project to improve your profitability.
It can be as complex as you want, but it need not be.
As long as you have a basic understanding of Excel, just follow the outline below and you will be fine.
First, download your trade history from your broker and put it into a spreadsheet.
Note: There are programs out there that can automate this process, but I highly suggest you use a spreadsheet. The process of moving data manually will give you a more intimate feel for what’s happening in your trading.
How far back you go is up to you, but the more data you look at the better.
The goal is to match up your opening and closing transactions to determine profitability.
The best way to do this if you are a day trader is to sort by “date and time,” and if you are a swing or position trader, by “symbol.”
Once trades are matched, categorize them as “winning,” “losing,” and “break-even,” which should include trades that were small wins or losses.
I suggest you color code the categories - green, yellow, and red being the most obvious choices.
Now go through each category and do some analysis based on the following.
Instruments and Asset Classes
Here you are looking at the instruments and asset classes you trade to see what patterns emerge.
Are there some that you do better with? Do worse with?
A friend of mine who trades numerous instruments and asset classes went through an audit and found – much to his surprise - that he did worse with options than with stocks.
So he dropped options and began focusing exclusively on stocks - to the benefit of his P&L.
Get as granular as you want.
Are you a consistent winner or loser with ETFs? How about leveraged ETFs?
Do you do better with small caps or large caps?
Do your options profits mostly come from in-the-money or out-of-the-money options?
What forex pairs do you shine at trading?
How do you do when trading futures?
Is crypto a plus or minus for your bottom line?
The more you drill down the more you’ll begin to recognize patterns – both good and bad.
What sectors are you trading most often?
Maybe you will find that you do better with financial stocks than with industrials.
Or you might be the ax in the NASDAQ E-minis (tech) and a donkey when trading oil futures (energy).
Time of Day
Most historical trade data includes the time that you entered and exited a position.
See if there is a pattern.
For example, often the opening and closing hours are good for trading, while the middle of the day is not.
Are your losing trades clustered around less than optimal times of the day?
What about the days themselves?
Do you have more winning trades on Mondays and Fridays than you during the rest of the week?
Length of Trade
This is a critical area because even if you don’t lose on a swing or position trade, you still have to factor in opportunity costs, aka, how long your funds were tied up in those trades with no return.
And you might discover something you didn’t realize.
For example, you might not consider yourself a day trader, but find that with the intraday trades you take, you have a better winning ratio than with your swing trades.
Or visa versa.
Where is the sweet spot?
Are you coining money in $10-$20 stocks?
Are you weak in the under $5 stocks but a monster in Amazon and Google?
You won’t get this data from your trade history, but it’s easy to pull up the average volume numbers on your winning and losing trades to see if there is a pattern related to liquidity.
You can take this one step further and browse the intraday charts.
Many stocks that have what is considered “decent” volume can still move in a choppy fashion, with wide spreads on an intraday basis, and a 5-min chart will show you that.
State of Mind
Identify your biggest winners and your biggest losers and see if you remember what state of mind you were in during those trades.
How were you feeling outside of the market? Was it a particularly stressful time?
Or were you feeling centered and in control?
What was going on in your personal life at the time?
Were there any personal issues – good or bad – that could have been seeping into your subconscious and perhaps manifesting themselves in your trading?
This will be the hardest to quantify, but if you can, it will give you more insight into your trading strengths and weaknesses than anything else you can do.
It’s also why keeping a daily journal – either trading or personal – can be such a powerful tool.
Overall Market Character
Have you been trying to push longs in a down market?
Are you trying to trade breakouts in a market where counter-trend moves are the better play?
What about bad habits? Were you guilty of participating in any of the 10 Golden Rules for Blowing Out Your Account?
These are just some suggested filters, and you can use whichever ones you think are most relevant - or come up with your own.
What you are trying to do is to throw out any preconceived notions about your trading and let the facts speak for themselves.
If you are open to what they say, you can start to eliminate factors related to your losing trades and emphasize the factors associated with your winning trades.
We all know that weekend time is unbelievably valuable, and this project may seem a bit tedious at first, but once you get into the process, I think you will quickly see the value.
And besides, nobody says you can’t have an adult beverage while you do it.
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It should go without saying - but I’ll say it anyway - all opinions expressed in The Lund Loop are my own personal opinions and don’t reflect the views of my employer, any associated entities, or other organizations I’m associated with.
Nothing written, expressed, or implied here should be looked at as investment advice or an admonition to buy, sell, or trade any security or financial instrument. As always, do your own diligence.