My account grew by >44% in less than 1.5 months
Here's what I did different.
"Anticipate but confirm. Wish, but only react" ~ Sakatas Homaa
This has been my Mantra for some time now.
Especially after the shakeout on 20th December 2024.
Since that day, my account has grown by >44% (mostly unrealized gains).
Today I wanna share with you, the key learnings from this period and what helped me achieve this (apart from luck and the fact that it’s a bull market).
PS: This might not be a great performance for you but it floats my boat, especially as someone who did not trade well during volatile market periods.
Also, this isn’t to show you how great a trader I am, but merely to share my learnings in the hope that it might help you too.
A bit of context
I am a swing trader.
I pride myself on a lot of things. Timing the market is surely up there on that list.
But timing the market can be a double-edged sword. I remember the late October 2023 fall when I successfully got out but also suffered due to a lack of clinical re-entry back into the markets. (the reverse Abhimanyu phenomenon).
And then there is always a chance that the breakdown turns out to be a shakeout.
And more frustration follows.
But with some luck, I managed to not get out on the 20th December shakeout (slept during market hours after a fight with my wife. Lol, true story)
And then markets recovered the next day. Pure luck.
I was like, wow. This “not reacting to every little downtick” seems like a nice thing to do.
Maybe I was over-paranoid with my positions.
Maybe I was over-scared to lose my big gains (yeah, you heard it right, Big gains brother).
What if I trail my positions using a loose stop? It’s a Bull Market anyway. And the bias is on the positive side for most of the pullbacks. Then why am I optimizing for an event that has such a low probability?
Moreover, my entries are mostly good (actually they are great. I am just being humble here) and on stronger stocks most of the time. So why not just try holding them for a longer move?
Yo! Sounds like a plan.
And simple too. right?
Yeah. Simple but not easy.
But Why?
Why is holding for a longer gain NOT easy?
there are 2 reasons IMO:
Fear of losing the gains.
Fear of losing the gains.
The second reason is also why we tend to cut our positions when we anticipate a fall. Or rather, we anticipate a fall and cut short our positions because we think we are being clever, but the real reason is that we are scared of losing the gains.
“Fear of losing has been the single biggest reason for a beginner trader to remain a beginner”
So what did I do right for my performance?
A screenshot of my current holdings is below. 194.68% doesn’t seem correct to me. Almost unbelievable. How did my monkey brain let this happen?
Fecking hell.
Well turns out that,
You just have to hold.
Hold,
As long as the trend continues.
As long as the momentum is intact.
Turns out that, if you cut all your winners below 5%. you would never have a winner that is more than 5%.
Turns out that you only had to react post-confirmation by the price, and not act in anticipation as per your analysis.
Turns out that you had to cut out the losers and let your winners run.
Turns out.
But is "holding till trend continues”, the only reason for my performance?
No.
Right Stock selection will always be equally important (or more) for a peak performance.
Looking at a great performance and attributing it to only “see! That’s what happens when you just hold your stocks longer for big gains” is plain survivorship bias. (Many Long-term fundamental investors have this)
It’s like saying, “All billionaires are college dropouts” and so you’ve got to skip college to be rich.
Imagine if all the stocks I had selected were poor, on an uptrend but lacking in momentum. Would I still do well even if I held through the whole time?
Feck No.
Right stock selection will always be on top in the hierarchy. It sits atop everything else.
If you cut every position at 20%, but all the stocks that you selected did move 20% in a short period, you will still do better than most.
Summary:
I could attribute my purple patch to these basic tenets of trend following:
Hold your winner until the trend is intact and the momentum is strong.
Cut your losers swiftly (I didn’t talk much about this. But don’t hold losers. Cut them ASAP. Basics right).
Correct stock selection is non-negotiable.
Fear of losing is the single biggest reason for mediocre performance.
Dont be clever. Dont act on your analysis. It’s good to anticipate, but wait for the price to confirm. ALWAYS
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That's all for today.
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Yours
Sakatas “anticipate but only react” Homma.