Thread by @ledgerstatus

My “degen” IRA hit a mini milestone today. It started with a humble balance & the intention to trade actively. Active trade I did. Started in late 2018, today it hit an ~8x. But a 20x+ off its lows. I have a few potentially interesting takeaways from this experiment I’ll share.

It’s worth starting by saying this was generally full of lessons in “how not to do it”. However, aggression was my strategy at the outset. I haven’t run traditional metrics like Sharpe at it yet, but they’d be terrible. I experienced several 50% drawdowns. One 75%+ drawdown.

Every drawdown of size was created by allocating too high a % of my portfolio to highly correlated options strategies. Once I put a roughly 20% portfolio cap toward long premium, performance increased massively.

Attention was another huge deal. Whenever crypto was boring, I was a better risk manager for an aggressive stock portfolio. When crypto was exciting, I paid less attention but still took risks, and I would end up with another 50% drawdown. I changed that lately with huge benefits

Huge lesson in legacy: all short positions should be low conviction. The only high conviction plays should be longs. Every time I had a high conviction short idea (even during Covid wipeout), I would over-commit and get rekt. There's always a long, somewhere.

The saying where there are only three trades to take is VERY obvious on an equity curve.

1) small loss (most common)
2) small win (common)
3) big win (rare)

4) big loss (should be never)

If you EVER experience 4, your equity curve sucks.

Taking one high conviction #4 per year (they are always high conviction) can reset your total gains for the year easily, in a concentrated portfolio.

I am up 5x since fall 2020 when I started refusing #4s. Accomplished by position size limits in options (even long dated).

Forcing a trade when you don't see one will result in too many #1s. Pride can turn a #1 into a #4. Cash is cozy. Or in a bull, the index is cozy. Forcing trades outside my prime setups has kept me flat too often.

The adage "let runners run" is true for a reason. I gave up multiple, MULTIPLE, portfolio doubles by not keeping partials (yes, even on spot) of high conviction runners.

If I kept those partials, I'd be 2-4x current balance, easily.

Some things that are important:

1) Find YOUR favorite trade setup. Markets have so many tickers/sectors you'll find it somewhere, always. Attack that setup.
2) Never take large losses. Refuse. Cut ruthlessly if it violates trade setup.
3) Keep options to a small % of account.

4) Trust your convictions, but test them. Is it conviction due to pride or conviction due to rationale? Trust rationale-based convictions.
5) Be willing to lose, small, and often.
6) Let runners run. Trends can go well beyond expected target. You can TP AFTER the top on a runner.

7) Only trade if/when you think you have an edge versus the index. Otherwise, it's too much time. Can't focus? Stick to the index for a while. Don't force trades.
8) Review your performance regularly. Find the mistakes and why they happened.

9) Survive. If you revenge trade, you'll end up blowing up (or close to it). I almost... almost, did that here. Get back to your roots and level your head. Survive.
10) Play the long tame. There will be another trade. Always is.

I will let you know how it goes from here. Today's target is what I would define as "real money". Outshined by crypto, but that doesn't matter. Trade on!

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