The year 2020 is over and I finally have summarized my results for the whole year. When I am looking at the printout, I want to bang my head. A huge number of transactions and stomping results for more than half a year. So, the total number transactions throughout the year: 384.
I guess I need a bit elaborate on this – why so many?
Well, basically I am a Forex and futures trader. I used to close trades in several currency pairs with the same goal. Like, for example, it is now, when I believe that the US Dollar Index (DXY), after a long fall, is in a correction and marks a potential reversal of the H&S + RSI.
Then I look at the possibility of a transaction in several currency pairs, instead of a direct transaction with the US Dollar index. So, I review EUR, AUD, NZD, JPY, CAD, CHF, MXN, and other currencies to try to understand which currency is currently the weakest. Often I open a trade in several currency pairs at the same time, thus diversifying this deal. So, that it’s the same idea but more different deals. Usually there are about three deals come out of this, and if the idea and transactions unfold favorably for me, I open more transactions in currency pairs that give me such an opportunity.
In a similar way, I look at all transactions. For example, if I want to buy gold, I look at which currency is better to make a deal. Review shares of gold mining companies, etc. So, it turns out that to get my actual number of transactions it really should be divided by three or even four. After some closer look at my transactions, I came up with the number that looks rather reasonable: 128 transactions, which is not bad for a Swing Trader, right? The lowest number of transactions was at the beginning of the year until the pandemic made some adjustments in the financial markets, and, generally for everyone, and not just locally but worldwide.
Having small number of transactions can be explained by the fact that when the transactions are positive, it is not necessary to search for additional transactions. Why to fix something if it works fine? Why to needlessly expose yourself to risk if your deal is working well? I had around 15 trades a month within the first three months of the year, which is absolutely normal number. Besides, I started the year with a successful purchase of gold, in a pair of XAU / EUR. Mostly because I thought that at that moment the Euro was relatively weak, while gold was really gaining momentum. Actually, that deal very well represents my way of trading: if you have to buy gold, don’t buy it “against the US Dollar", but against some other currency. Especially, considering that the Dollar experienced price increase at that time.
Overall, the whole first quarter was based on the following ideas:
#1 The prices of precious metals should go up. I bought gold, silver and platinum. The platinum deals were tough since platinum is relatively aggressive and volatile. So, for me, gold deals were really golden throughout the year, so to speak, providing a good number of "technical" opportunities for transactions. Actually, the whole year was with a strong upward trend for gold.
#2 The EUR would continue to depreciate. So, I bought gold against the EUR (XAU / EUR) and I did some Forex transactions, looking for opportunities to earn on the fall of the euro. The EUR / USD exchange rate at the beginning of the year looked like this:
So, I made transactions in the following pairs: EUR/USD; EUR/JPY; XAU/EUR. In total, I made 11 transactions related to the idea of the weakening of the EUR.
#3 The US Dollar will continue to strengthen its position. Well, it was before the pandemic began, which, of course, made huge adjustments to my line of thought, my predictions, and even my daily routine. I believed that the stock markets should fall, there is no reason for increasing the value of the shares.
And instantly my thoughts were confirmed in March when the S&P500 index experienced a sharp drop - 35%! I did not consider, not even for a moment, that one should make purchases with such an adjustment. Quite the opposite – it should be sold in the case of an upward adjustment.
And that was my mistake. I had several attempts (17 time to be more precise) to trade the stock index applying a very aggressive strategy. As soon as the deal made small surplus, I moved "stop" to zero. And, if the deal was negative within a week – I just closed it. Overall, I experienced the biggest loss in April. losing 1.94% of the capital on a sell deal in the S&P500 index. The remaining transactions were either with minimal gains or minimal losses.
The average gain from these stock index sell transactions was negative - 0.29%. I experienced the same “story” with other indices: Eurostoxx 50, Australian ASX200, UK100 etc. The VIX was very high during this period and remained at high levels for several months. And even now, the VIX scores can be considered high because it is constantly above 20, which is considered a high score.
As a result, I reduced transaction risks during this period. However, that doesn't change the fact that the stock markets are experiencing constant losses. And that rather accurately describes my profit chart. Most of what had been made at the beginning of the year was slowly melting in front of me….
Although the total annual result is positive + 15.84%, it has rather bittersweet aftertaste. Still, considering circumstances, this is still a positive result.
Looking at the number of transactions, I see an unprecedented situation, at least for myself. 76 trades were closed at “zero”, which is 20% of all transactions. On the other hand, the profitable transactions make up 15% from the total. So, the "Pareto principle" strikes again, when 80% of the results come from 20% of the transactions. Everything else is just hard work finding the right deals.
All this once again remind me that "the less is more", that I need to focus on better deals, and, perhaps on longer terms as well, to “nurture” them in a way. It is easy to say, hard to actually do.
While writing my previous blog post, I realized that my analytics are quite accurate, though. I know how to interpret charts successfully and spot the overall trend. When I look at my chart and look at my trade statement, it is clear that I need to reduce the number of transactions and tune myself into slightly longer deadlines. To fine-tune my swing trading strategy.
As I mentioned about this already in December, I plan to change my broker this year. I would like to pay more attention to stock markets and cryptocurrencies. In stock markets I want to look for more precise opportunities to realize some of my ideas. The same applies to the Forex and futures markets. And, if I want to short someone, then I would look for the weakest participant (and vice versa). Otherwise, dealing with the S&P500 now, it looks like dealing mainly with big tech companies. Their dominance in the index is depressingly high.
And what about the cryptocurrencies in all this you may say?
I don’t cover cryptographic transactions in this statement. Simply because I have a completely different account for crypto. I believe that cryptocurrencies should be bought on dedicated exchanges and kept in "cold" wallets. This is one of the main attractions of crypto. You keep the resources to yourself, as oppose to money, which you have to hold in a bank, or financial instruments, where you entrust a brokerage firm to hold your funds.
Well, I do trade some crypto, but very little, indeed. Here I’m settling in for the long run. I have been a holder of BTC and ETH for several years, occasionally refilling my "cold" wallets. I see BTC as a small insurance against everything that happens. Bitcoins are an alternative to the existing system and rather limited capabilities. I believe that this last price increase is different than it was in 2017. Besides, I've found a rather convenient way how to pay with BTC on a daily basis. I will write about it in more detail in my next blog post.
Stay tuned!
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