Lessons Learned, Success Earned in my Swing-Trading

These reviews always bring mixed feelings for me. Done right, it requires that I look at each trade that I make in an open and honest way. I get to see what I did well, and what I also struggled at.

A lot of people subscribe to the Splash Zone to have access to my trades and to trade side-by-side with me each day. But that doesn’t mean I am a perfect trader.

Far from it.

Each month, I review my trades in order that I can become closer to perfect, though I will never actually attain perfection itself.

I provide an open and honest approach to trading – not putting myself out there as an expert, or one who has this mysterious connection to the flow of the market – instead, I show myself to you as a trader, who manages risk in such a way that allows me to be a consistent and profitable trader month-in and month-out.

The only way I will improve as a trader, is continuously building on the lessons and experiences of the past and putting them to good use on the next trade, and the trades thereafter.

So, let’s start the latest installment of my swing-trade review, shall we?

It was the best of times, it was the worst of times. Or, better put, it was the worst of times, then it was the best of times.

October started out rough, with 12 out of my first 18 trades coming at me with losses. Not big losses, but minor losses.

The month quickly reversed with me, as I managed to let my winners run with profits on the next 12 of my 16 trades. Sticking to my trading plan, keeping losses small, will allow me to right the ship when it gets slightly off course. 

Here’s the details of all my trades:

Let’s look at the numbers a little closer:

• I was profitable on 19 out of 35 (54%) of my trades
• 19 out of 30 (63%) of my trades were profitable that were focused on bullish/long-setups
• 0 out of 5 (0% – YIKES!) of my trades were profitable that were focused on bearish/short setups
• 0 out of 5 (Darn you, shorts!) of my trades were profitable that were focused on using exchanged traded funds (ETFs)
• 19 out of 30 (63%) of my trades were profitable that were done with trading equities

Okay, in essence, all my of my ETFs were bearish ETFs. All my positions in companies were long positions.

The market managed to shut me out on my shorts! 

It was another month where the market only cooperated in one direction

Don’t get me wrong, there were sell-offs during the course of the month, but they were not sustainable. The biggest sell-off was where the market dropped two days during a three-day span. But two days later, the market was making new all-time highs.

Then there was October 19th where the market sold off a paltry 14 points. That was big for the time, as the market simply hadn’t seen any substantial selling at that point in the month. But by the end of the day, the market had rallied off of the lows to finish higher on the day. That same day, the Nasdaq sold off 1%, only to rally off the lows as well.

Here’s where I succeeded in my swing-trading:

• Long setups
• Software stocks
• Semiconductor stocks
• Getting out quick, but getting back in quicker

I’ve already talked about this extensively, but I’ll add to it, in that avoiding the need to get super-bearish on the market because I think it has moved too fast, too soon, and simply forcing myself to remain long, even when it doesn’t seem logical continues to be the most rewarding strategy.

Often what we deem illogical, is perfectly within reason for Mr. Market.

Software stocks – the previous month, this industry gave me pause, as it spent the second half of September selling off. But in October, software was the place to be. This industry simply soared.

This was best seen in Square (SQ) with a return of 4.4%. No doubt I left some profits on the table with this trade, I still managed to get a nice chunk of change out of it, followed by a decent trade in Adobe (ADBE) 2.5% as well. With one exception, software stocks did me very well. It goes to show too, that had I been inflexible with my opinion about software, and remained bearish because of the price action in September, then I would have missed out on some very nice profits in October.

Semiconductor stocks – When I look back on this year, I’ll be entirely grateful for the returns made in the semiconductor stocks. Sure, there were times where it made me want to pull my hair out. But in all, this has been the best industry to trade in for all of 2017. And in October, the results were just as good with Nvidia (NVDA) providing returns of 5% and 4%, and 3.8% in Lam Research (LRCX).

Getting out quick but getting back in quicker – that has been quite a life saver for me. There have been a number of times where the market is showing signs of breaking down. There’s a hard sell-off, takes out the stops (which is no doubt frustrating), I get short, and the short looks good for a few hours, until the market bottoms and starts rallying hard and fast like a bat out of Hell.

The intraday charts suggest the market was serious about the bounce. I can hold on to my ego and let the losses pile up on my short position and miss out on my the rally in the process, or I can toss my ego to the side, recognize that my short position isn’t going to work, and jump back in on the long side of the trade, even though I was just stopped out of it earlier that day. Had I not done that…had I not discarded my ego on October 19th…had I not set my ego to the side on October 25th, I would not have finished the month profitable.

Getting back in quicker made all the difference!

Here’s where I struggled in my swing-trading

• Consumer Cyclical
• Bearish ETFs
• Chinese Stocks

There wasn’t much that I did wrong on the month, but the areas of my swing-trading that I did do wrong by, was quite spectacular. I had five losing trades in the Consumer Cyclical sector. From fast cars and casinos to a cup of coffee and a movie, my consumer stock trades were miserable.

I should have been more cognizant of how flat and uncooperative the sector as a whole. I was lured in by the intraday moves that gave the appearance it wanted to breakout, only to fall back into its sideways trading pattern.

RELATED: Fighting Stock Market Crash Paranoia

I’ve already talked about the Bearish ETFs – simply put – I didn’t get anything from trading these and at times, I was probably too quick to pull the trigger, and on two occasions, I would have been much better off to just play SPXU without adding QID as well. I applied this lesson in November, but in October it was a hard lesson that I had to learn from. But by learning from it, I avoided taking on any additional losing trades.

Finally, the Chinese stocks went nowhere for me. Alibaba (BABA), which had done great for me earlier in the year, saw me swing and miss for a 2.2% loss, while my trade in JDcom (JD) took a beating as well at 2.1%.

The Market Isn’t Easy for Those Managing Risk Appropriately

Let’s be honest, the way this market has been behaving for the past year-plus, you could find a lot of forgiveness if you chose to ignore your stop losses. Ultimately, the dip was always bought. With many stocks, you could simply hope that, regardless of the sell-off, it will come back eventually.  

But that approach to the market, while it may work for you in the short-term, isn’t sustainable. Eventually risk will bite you and when it happens, there is no hoping for a comeback from your stock of choice. In hindsight, the “ignore risk” approach seems like the right way to go about things, but when you are in the present, you don’t know if the market will come right back up, because at some point, the “buy-the-dip” won’t work, and when it doesn’t work, assuming that it still will, will lead to losses of 30% to 40%, if not more.

Always managing the risk and keeping the losses small, is the preferred strategy, no matter the market, no matter the conditions. Risk is king, and if you don’t respect it willingly, you’ll be forced to do so unwillingly.

Jump in the Splash Zone with me, why don’t ‘ya!

Most people don’t want to show you the struggle that comes with trading. They only want to see their successes – their winning trades only. But success isn’t found in the winning trades. Anyone can have those. Instead it is how you manage the losses, and more importantly, how you manage yourself in the face of adversity and disappointment in a trade that doesn’t go the way you expect it to.

In the SharePlanner Splash Zone, you get to see the whole picture when it comes to trading and an authentic look at success in the stock market. Become part of the growing community of traders by subscribing to the Splash Zone today. With your membership, you receive a Free 7-Day Trial that includes access to my trading room, and all my real-time alerts via text and email. You won’t regret it!