2015 was gone at the strike of midnight and with its farewell comes 2016.
For almost every trader out there, that is great news. It is the hope of all traders that the potential for profitability in 2016 is much more attainable. In this past year stocks were down, bonds were down, commodities crashed, hedge funds were down on average 5%. Heck, even Warren Buffett was down 11%!!! With SPX finishing in the red for the year at -1%, I managed to squeeze +4% for my trading portfolio. Overall, that is below my standards but after reviewing all my trades in 2015 (250 trades to be exact) over fifteen times, the path to profitability is clear and attainable in 2016.
This year, more than any other year that was have seen to date, the algo-traders are in full control of the market and they hold no recollection of the previous day’s trading, the trend at hand, what broke out, what support gave way or what resistance level was crushed. For these algo traders, they are all meaningless numbers simply meant to be ignored as they move price past them.
Nothing was more apparent than the flat 200-day moving average that barely even let out a wimper on over 25 occasions in the past year – and most noticeably in the past two months of trading.
You saw it when the algos lost interest in stocks like “FANG” (Facebook, Amazon, Netflix, and Google) during the fourth quarter of trading, and the absolute takedown of over $100 billion of market cap in Apple (AAPL) since mid-summer.
This was the year of the headline where you had the drama in Greece, China yuan devaluations, China bubbling, and China crashing. Oil more than crashing in a manner we’ve never seen before, commodities continued to take a hit, multiple Central Banks across the world engaged in their own versions of quantitative easing (QE), while at home, the Federal Reverse provided us with coal in Wall Street’s stocking by raising interest rates by a quarter percent. Then you have Twitter, not the stock, but the tweet, and by that I mean Hillary Clinton’s mention of regulating drug prices and the massive sell-off in biotechs that ensued. And of course there was the IPOs – FIT, SHAK and BOX to name a few – all of which sucked. Though SHAK was pretty impressive at first – more than doubling before its eventual tanking.
So as you can see, this was no ordinary year, and while I managed to stay profitable, it wasn’t up to my traditional standards and I realize that.
How will I be trading in 2016?
When looking back at my trades in 2015, about 70% of my trades were favorable towards the market going up while 30% favored the market going down. What was most noticeable in the short trades is how much of that minority of trades represented the overall profit that I made in 2015. Simply put the breakout plays to the long side did not play out well, and left me in the aggregate with hardly any gains. If you take out the ETF long positions that I purchased, like UPRO, SSO, and QLD that I went long on following significant market pullbacks, the gains were in the negative for equity breakout plays.
Also of irritation in the second half of the year was the major growth plays, particularly those belonging to “FANG”. Despite constant alluring trade setups, pullbacks to support and bull flag patterns, these particular trades hardly ever amounted to anything. Instead I found much better action in the ‘lesser-known’ or less traded stocks.
For 2016, I will be trading more, but holding less. Stocks that take two weeks to materialize into their full potential, frankly, aren’t likely to materialize. The ideal trade in 2016 will be those that I can hold 1-3 days and book 2% to 5% in gains (if the wants to provide me with more, then that is fine too!). This was what I successfully did with my short positions throughout 2015, and what will also be my strategy in 2016 with my long setups too. I’m not going to be looking to hold trades over 1 to 3 weeks in order to make 10-15% in gains. Instead, I am looking for more of the sweet spot in between the 3% to 7% range – and to continue doing that over and over until it bores the strategy becomes so profitable that it becomes boring. Then of course we’ll do it some more.
AGGRESSIVELY BOOKING GAINS: LONG AND SHORT
That will be the theme. Even on intraday swings that can provide us with 1-2% in gains will be worth profit taking. 2016 could be an extremely wild year and I expect to be swing trading often in both directions as well as with a hybrid portfolio of long and shorts. It’s an election year with all sorts of headwinds that could create problems for equities and the Fed wants to continue raising interest rates. Taking profits when we have them, even if it means sacrificing potential gains had we just held a day longer on the individual trade itself, will be key to sustaining long-term gains in a market that is ever changing and never forgiving. While I managed to remain in the green for 2015, the market has provided little opportunity to swing traders that wished to make sustained gains over a longer period of time.
As a result, making changes in an ever-changing market is what it takes to surviving year-in and year-out. And as a trader, I have had to do the same for many years now. If I don’t re-evaluate all my trades and look at the opportunity for improvement each year, then I won’t last as a trader. I’ve changed and tweaked my trading in the past and I am doing it again in 2016.
I plan to double down on the time I spend on studying the market each day. As it stands now, I spend countless hours every week evaluating charts and trading opportunities. While my hard work is matched by none, I plan to improve even more upon that going forward and finding and routing out more of what makes the Splash Zone so profitable for traders over the years.
My confidence is unfettered, my belief of attaining great profits in 2016 is even greater, and I’m looking forward to another year of trading with you all in 2016.
And when it is all said and done, this time next year, we will be looking back on one incredibly successful year of trading!
