Wednesday, December 16, 2009

Wednesday Notes - Breaking Some Eggs

Following up on yesterday's video discussing my ramping up sizes in 2010, one significant mental aspect I need to work on as I move forward is stepping up my risk-taking. For if I were to hand out final self-grades for this year, I'd grade myself an A for capital preservation, B for capital growth, and a C for risk taking. And it's the C in risk taking that reduced the capital growth grade from an A++ in 2008 to a B in 2009.

And while a B -- and the solid gain it represents -- would be acceptable to most in this pay-for-performance business, it simply isn't at this end. For too many times this year I found myself trading on eggshells as I balanced incremental capital growth with preservation of a decade worth of work.

I was reminded of this as I watched the recently-surfaced 1987 video documentary of legendary trader Paul Tudor Jones (a must see for newbies) yesterday. Paul as you may know has made hundreds of millions trading, although the documentary includes a chronicle of one particular difficult day where he lost $6 Million.

I was also reminded of this as I reviewed my trading records over the past six months where I rarely had a large losing day, yet the wins were equally modest. Contrast this with my aggression in the prior 12-18 months where I incurred some of my largest losses, yet continually overcame them with larger gains. Lest we forget that infamous October week ... and no, it wasn't just the change in volatility!

As I mentioned recently, my 2009 daily win/draw ratio (in dollars, not simply # of days) will clock in at around 2.7-to-1, which although below 2008's 4.0-1, will still rank ahead of my career average of 2.4-1. Conclusion: You're still on your game, so simply ramp up the size Don.

Yet I know such is far easier said than done, and we can throw out all of the psycho-babble books that say it's no different trading 300 vs 30 lots. It's a lot different, which is why many who attempt to break out of their comfort zone fail to excel at the next level.

As one reader emailed me last night, and in the words of T.S.Eliot, “Only those who will risk going too far can possibly find out how far one can go.”

I'm about to find out how far is far.

It's time to lose in order to win, and I'm about to break some eggs.