June was my best month of the year so far. I shorted S&P and iron ore stocks. I actually lost money on my S&P short bets. Fortunately, my profits from my iron ore stock short bets were more than enough to cover them.
Iron Ore Trades
The price of iron ore took a dive from 140+ to 110+ in the earlier part of June. I caught probably about 2/3 of this move via shorting Rio Tinto and Fortescue in the Australia market (ASX). Sentiment turned very bad in the iron ore sector, primarily due to stimulus/demand expectations not being met.
I got caught by the rebound in the S&P in the later half of June. I was betting that the continual negative news flow would bring the S&P lower, but the reverse happened.
Because of this cognitive bias, there is often more pain than pleasure in the field of trading/investing. It is therefore important to take care of our mental health, as we can only perform optimally with our minds in tip-top shape.
Since my last post one week ago, markets have dropped somewhat. S&P is now at 3825, down from 3911.
The corrective bounce ran out of steam, and the major equity markets dropped a few percent. There was a rebound in US yesterday, and S&P went up about 1%. However, I doubt the uptick can be sustained, as there has been a constant stream of bad economic news flow applying downward pressure on sentiment.
Earnings season in the US is starting in the 2nd week of July. This is another potential source of downward pressure on equities. There is a significant risk that earnings expectations have not come down enough. If earnings disappointment + negative economic news flow hit the markets together, it would be difficult to avoid another down leg.
Commodities are still falling. Below is the chart for copper.
There has been no relief at all for commodities, even with China’s re-opening impulse. The pessimism from the global downturn seems to be overwhelming everything else.
Is there still room for further falls? Let’s take a look at a longer timeframe for copper.
Copper is still above pre-COVID levels. To me, it feels like there is still room for further falls. Of course, things rarely move in a straight line.
I am back to favoring shorting commodities, as negative economic news flow has been relentless. Except for China PMIs which have been ok, but their economic stimulus has been underwhelming so far. However, prices have dropped a lot, so a lot of agility is needed to avoid getting caught in any violent rebound.
As for the long side, I still like bonds. Bond yields have dropped somewhat, with 10-year Treasury yields dropping to multi-month lows. Recession fears are the culprit. Just be careful and do not bet huge on junk bonds for their high yields, as recession will still hit low-quality bonds badly.
This has been a good week for the markets. Economic news has actually been bad overall, but there is some hope that inflation is peaking. It is likely that markets rallied due to lowered expectations of rate hikes.
Markets are shifting their focus rather rapidly. Just recently, it was global slowdown fears. This week, it is peaking inflation hope. Next week, would there be a new focus? Perhaps. Earnings slowdown is a possible candidate. Or maybe slowdown fears will triumph again. Market dynamics are changing more quickly these days, making trading more challenging.
Commodities have continued to fall despite verbal support for stronger Chinese stimulus. A lot has to with weakening economic data. Copper price is at 16-month lows.
Prices have literally fallen off a cliff after being in a trading range for some time It is possible for prices to continue falling, but the probability of at least a short-term bounce has increased. There are still folks believing in the power of future China stimulus.
In my previous update, my preferred short was commodities and long was bonds. Commodities have fallen a lot since, so I would not short it due to increased probability of a bounce. Bond prices have increased slightly, but I am retaining it as my preferred long. It seems likely that the economic slowdown will cap the increase in bond yields going forward.
Since my last trading update post, I have decided to stop posting detailed trades. Instead, I will post more generic trading updates. The reason is that getting, prepping and posting the detailed trading info is too tedious, and I am not able to concentrate on my trading. Hopefully the generic trading updates will be more useful to you.
At the start of this year, I was not expecting to trade a lot. My position sizes were small, and markets were uncertain. However, after a slow start, I realized that I was still somewhat able to read the markets I trade in. Thus I increased my position sizing.
I was on a pretty good run until the last few weeks. The recent losses cut my profits for the year by about half. Market conditions have changed, and it means that I need to tweak the trading strategy that had worked well for me this year until recently.
I was a data analytics specialist in Singapore who got to know about the markets in 2010. In Dec 2021, I retired early from the corporate world by trading the markets, having accumulated enough trading profits. Below chronicles the steps I took in my trading journey.
I started off as a buy-and-hold investor, and bought only Singapore stocks via traditional brokerages. Profits were modest during these initial years.
I ingested mainstream investing guides and analyst reports, hoping to become an investment guru. However, I sadly remained a noob at the end of this phase.
Exploring Trading Possibilities (2012 – 2013)
I opened various CFD accounts to explore the trading universe. CFD platforms offered a wide range of markets and asset classes, and facilitated different trading styles. It was like Star Trek – CFD platforms opened up strange and wondrous new worlds to explore. I tried trading different markets, industries, asset classes and trading styles. It was a time of intensive experimentation and inconsistent performance.
I finally found a combination of trading strategy, trading instrument, asset class and market sector that worked for me. Collectively, I shall term it my trading framework. As I started to refine it, consistency improved and for the 1st time, I managed to earn a 6-figure sum from trading over a year .
It felt amazing, and I thought to myself, “Wow, it really is possible for trading to change my life!” I felt hope and excitement, but also recognized that I still needed to continue to improve.
Scaling Up (2015)
I worked on scaling up my trading position sizing to reap full benefits from my trading framework, and forced myself to endure the increased discomfort that every rise in position sizing brought. The process was akin to punching myself a little harder everyday to get used to higher levels of pain, and wondering why I was doing this to myself.
It was a painful process, but it was necessary in order to be able to generate enough profits to retire early via trading.
Implementing Trading Framework (2016 – 2019)
With the scaling up process finished, I completed the development of my trading framework. Position sizing is an important part of the trading strategy aspect of the framework.
I used the framework from 2016 to 2019 without major changes to it. Up till 2018, it proved to be reliable most of the time. I was coasting along, thinking I could continue to depend on it to retire early by trading. But it stopped working in 2019. Market behavior had unexpectedly changed and rendered it useless.
Upgrading Trading Framework (2020)
I reviewed my trading framework and made changes to it adapt to the changed market behavior. The upgrade was finalized in 2020. It was more difficult to implement than its predecessor. I had to be more aggressive and take more risks, while being nimbler and more adaptive to changes in market conditions. But it started working again, so that was all that mattered.
Retiring From the Corporate World (2021)
I decided to retire early from the corporate world in Dec 2021, having accumulated enough profits to feel comfortable living without a stable monthly income. Looking forward to spending more time with my family, continuing trading and pursuing other interests!
The most important lessons/reminders I gathered from my journey are as follows:
Be prepared to adapt your trading strategy to changing market behavior
Persevere on any idea that you have calculated to have a good chance of success
Avoid blindly following other trading strategies and principles, instead adapt them to your own personality and cognitive strengths
Do not be afraid to try out your own entirely original trading strategies
There is no such thing as absolute slam dunk certainty in markets
Stay humble even if you are successful, as it helps you keep true to your real self
Continue to spend time with family and friends, because they are more important than trading profits
Invest continually in your health to avoid disruptive and disabling health issues
It has taken 2 years of investing + 9 years of trading to earn enough profits to retire from the corporate world. I had a full-time job during these years, so it was tiring at times. I did not have a mentor, and I pretty much developed my own framework from scratch, so I probably took longer than some others to arrive at this stage. But one advantage of not rushing through the journey is that I had enough time solidify my foundation at each stage.
I hope that this sharing can help at least some of you in your own investment/trading journey. Please feel free to share your views or queries on this, I will be glad to hear from you.