Are You Really Winning?

Why Reassessing Your Trades Could Save You from Costly Mistakes

I spoke yesterday about the error in relying on oversimplified heuristics to base all our decisions on. At the risk of being a hypocrite, I am going to use a chess heuristic.

If you play one 10-minute game, you should spend 20 minutes going over the game and assessing your moves, regardless of whether you win or lose. Too often, we only go back to reassess or change things when they/we are wrong.

At the end of a game of chess, you either win, lose, or draw. What if you won the game in 50 moves but blundered along the way and could have won in 20? What if you only won because the other person was simply worse than you or because they had the black pieces and were always one move behind?

How often do you go back and evaluate your trades?

Do you keep a trade diary?

Do you know exactly why you made the trades you did? Or, after the fact, do you overlay a story that makes you look good? This trade was great, so it was obviously my great intellect and timing. This trade was terrible, “F**k the Fed.”

If you’ve been following along, I’ve said we would head into a period where everyone is confused—cats living with dogs, bulls would be bearish, and bears would be bullish.

I feel confused when I shouldn’t, and I think it’s a timeframe issue.

You can see that the index is clearly bearish, but not fully bearish.

For subscribers, you can see that our cash position has increased over the last two weeks.

If we look at the daily timeframe, we can see we are at a level where we spend more than 70% of our time.

But our Strength of Signal measures have turned lower.

And a sell trigger hit on yesterday’s close.

Right now, I am afforded the ability to wait and see. I have done very well over the last 4-6 weeks and made good gains while others had to deal with losses. I was far from perfect, but I did better than most.

If the market goes up, I am long and will capture some, if not all, of any positive move. I also have a considerable cash position, so if the market falls, I will be somewhat shielded, and I know the stops on all my positions.

Sometimes the best thing to do is sit and reassess the last game instead of immediately jumping into the next. Remember, you may have won the last game only because your opponent was worse than you, not because you were better than them. Does that make sense? I think it does—you may have both been bad.

We are doing great, but that doesn’t mean we should stop evaluating ourselves. If anything, we should be doing the hard work now, because if we hit a tough spot, any of your evaluations are likely to be tainted by the stress of a drawdown.