As I've said before, I trade a commodities futures account using a breakout system modeled on the Turtle Traders of 80's and 90's fame. Trading a break out system is very much an up and down existence. If you've not read Curtis Faith's or Michael Covel's books on the Turtle Traders, you should. They are fascinating reads (see the Amazon Carousel to the left). Anyway, my breakout system is fairly simple. I buy or sell on if one of the futures I follow hits a new high or low (over the last x number of days) and I exit the trade when the price of that issue hits a new low (over the last x-y days). The point is that I buy when prices show they are trending up, and I try to exit when prices indicate that the trend may be over. As a result, I do very well when prices trend either up or down and I really suck when prices move within a range. There are years when I've had 75% draw downs and year when my account has increased 5 fold. The thing about trading a breakout system is that you've got to be willing to endure the possibility of big draw downs if you want to make the big money when the markets are trending.
This year was no exception. The year started out with a bang and in the first quarter my account was up almost 400%. Then, for the next two quarters it was up and down (mostly down) and at the end of the third quarter I was down about 20%. Then the fourth quarter took off and I ended the year up 416%. This roller coaster, while a bit more extreme than in most years, is not atypical of a breakout system. Not everyone can stomach it. It took me years before I could live with it easily (ok, not easily, but live with it anyway) and in the end I had to create a, more or less, artificial mechanism in order to be able to psychologically survive the ups and downs. As I've said here before, I treat my commodities trading account as a stand alone trading account unconnected to any of my other investment. I view it more as an experiment and that helps me take the emotion out of my trading decisions. If I'm up a lot it is interesting to me from a statistical perspective. If I'm down, it is the same. I'm interested to see where I stand after 30 years or so of trading this way (I've got about 20 years left on that timeline). I trade a $100,000 account and bring it back to that level each year. If I'm up, like this year, I put my profit into a money market account. If I'm down, I take from that account what I need to bring the balance up to $100,000. Over the last 10 years, after taxes, I've put about a million dollars into the money market account. I don't use that money for anything other than this experiment. When I retire, I'll consider using whatever is left in that account, if anything, for something, fun but until then, the money does not exist other than for trading this system.
That is my method for keeping some psychological distance between me and the market. Everyone has their own way of surviving. This is mine. I hope it helps you to see how someone else does it.
Happy Trading!
This year was no exception. The year started out with a bang and in the first quarter my account was up almost 400%. Then, for the next two quarters it was up and down (mostly down) and at the end of the third quarter I was down about 20%. Then the fourth quarter took off and I ended the year up 416%. This roller coaster, while a bit more extreme than in most years, is not atypical of a breakout system. Not everyone can stomach it. It took me years before I could live with it easily (ok, not easily, but live with it anyway) and in the end I had to create a, more or less, artificial mechanism in order to be able to psychologically survive the ups and downs. As I've said here before, I treat my commodities trading account as a stand alone trading account unconnected to any of my other investment. I view it more as an experiment and that helps me take the emotion out of my trading decisions. If I'm up a lot it is interesting to me from a statistical perspective. If I'm down, it is the same. I'm interested to see where I stand after 30 years or so of trading this way (I've got about 20 years left on that timeline). I trade a $100,000 account and bring it back to that level each year. If I'm up, like this year, I put my profit into a money market account. If I'm down, I take from that account what I need to bring the balance up to $100,000. Over the last 10 years, after taxes, I've put about a million dollars into the money market account. I don't use that money for anything other than this experiment. When I retire, I'll consider using whatever is left in that account, if anything, for something, fun but until then, the money does not exist other than for trading this system.
That is my method for keeping some psychological distance between me and the market. Everyone has their own way of surviving. This is mine. I hope it helps you to see how someone else does it.
Happy Trading!
