Who’s your daddy?

Yes folks, once again we have destroyed the major indices. The S&P 500 ended down -0.5% for the month while we are up 40% for the month.

Total domination of other traders.

So how did I do it?

If you examine my trades last month, you’ll see that I managed to keep my losing trades under 4% on average, while I kept my winning trades above 6% on average. In other words, I cut my losers short, and let my winners ride.

That’s probably one of the biggest mistakes newbies make is that they set a stop loss at 20%, while going for a 10% gain. Think about that for a minute. You are risking 20% to make 10%. That means that you have to have TWICE the number of winners as you do losers just to break even. Tilt the math in your favor. Don’t risk more than you are trying to gain. If you are going for a 10% gain, then your stop loss should be no greater than 10%.

The other pattern that you’ll notice in my trades is that I went long small caps and energy, while going short the S&P 500. Of course I didn’t take both positions at the same time. I correctly timed the up and down swings. In other words, I swing traded the gyrations in the market.

The reason that I chose to go long the market in small caps and energy stocks is because of seasonality trends. December and January are the best months for small caps and energy. In October, I confirmed that institutional traders were buying in the energy sector in anticipation of the run up in Oil that comes between February and April each year. The idea is to trade in the direction of the institutional traders, not against.

If you follow me on Twitter then you’ll know that I bought TNA today. We are already up 3%+ by the close of trading today. I’d like to get one more big 10%+ up day and then I’ll sell and move to the safety of cash. I’m willing to hold until Tuesday of next week but I don’t want to. I’d like to take profits and be out of the trade by Friday. Holding over the weekend news cycle is dangerous in this news driven trading market we are currently in.