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Wednesday, July 6, 2011

Airelon's Challenge Chronicles 25: Adapt or Die

So what is "Airelon's Challenge Chronicles"? You can find a description by clicking here.

For the month of July, 2011, all of rule no. two has already been applied TRADING account.

I have often stated (in fact, I did so in yesterday's podcast), that the capital markets are like an extreme 'survivalist arena'. And believe it or not, as often as I will rail against the "doom and gloom" crowd that finds perverse pleasure in the idea that others will suffer in some sort of disaster scenario ... I do enjoy learning about survival techniques. Because I enjoy the concept of self-sufficiency.

A survival instructor that I am somewhat fond of following enjoys quoting the unofficial United States Marine Corps mantra: "Improvise, Adapt and Overcome". It is believed that the origin of this mantra lay in the history of the Marine Corps. When forced to use poor equipment, Marines would creatively discover new ways to work with what they had on hand. It has been called a 'success-based attitude'.

You work with what you have in order to overcome.

The capital markets are no different. Back in 1998 when I followed Larry Williams, something he would often repeat, is the need to be disciplined, yet flexible and understand the difference. He would stress that the markets were frequently in flux and ever-changing. That a successful trader needed to adapt and overcome to such changes. When I was following Larry's material, he would talk about the great changes that the Index Futures presented to the markets (there was a time, where we did not have the index futures as they exist today). I really didn't understand that change. When I began, the index futures markets had always been present. But he traded during that time, and observed that change as it occurred and the effect that it had on trading and the markets overall, and he would often discuss that change.

Today, it's much the same. When I began? There was no broad based Forex market as it exists today. Sure, some traders could trade a currency cross. But 'retail' had little to zero access to those markets. There was no 'computer based' trading. I often related how all charts were drawn on paper with rulers, pencils and calculators. Discount brokers were the rare. Full service brokers would charge $35.00 in, $35.00 out. The only day traders were really the guys in the pits, which have now almost completely disappeared. I would almost argue that we live in 'the age of the retail trader'.

Now let's bring the above concepts together. A good trader knows how to improvise, adapt and overcome; while at the same time, remaining flexible to changing market conditions, or conditions of his own account and money management metrics. This leads us to "Airelon's Challenge Chronicles".

I have a positive trading yield at the moment. Off of an initial tiny amount of $2,607.82 on January 1st of this year? I have managed a pure yield, not counting capital additions, of 5.465%. That yield offers some chance to reflect on the 'perspective' that I have discussed lately. 5.465% for six months is absolutely fantastic, when you look at it from the lens of returns that you can receive institutions. For my own trading career? It's one of my worst trading years. Of course, that's said with the understanding that I've managed 5.465% off of only $2,607.82.

Yet a flaw has been revealed with what I am trying to do; namely ... there is an extreme temptation to trade markets that I should not yet be trading, since the account is so small. Even with day trades those are some pretty leveraged positions. The ATR of each of my usual time-frames have been killing me, and my money management numbers are telling the story of this drift with the increase in drawdown. A danger lay there. If the trend continues, then mathematically, despite a high degree of accuracy ... I could end the account in ruin.

So how do I "Improvise, Adapt and Overcome"?

Good question. I'm still mulling on that one. For the actual Challenge Project, since the "dividend investing sister" account and the "savings side-pocket sister" account have 'graduated' to 'live', and following yesterday's comments, I may focus a bit on the dividend investing account, as well as the savings side-pocket accounts when it comes to rule number two for the actual Challenge Project. That is not to say that I will not fund the trading account at all. After all, if I'm going to once again reach those 80% years ... then it has to be funded. But I suppose it is fair to say that "Airelon's Challenge Chronicles" has provided some illumination to dangers and risks that I had perhaps 'glossed over' previously. So modestly, humbly, I must recognize my limitations, and adapt.

In addition, I am going to more seriously take a look at the Forex market. I do not want to 'style-drift'. But this has less to do with 'style-drifting', and more to do with keeping up on my own 'continual education' for my vocation of a professional trader and investor in the capital markets. I will share my 'continual education' here on the blog.

For right now? I have no trades for "Airelon's Challenge Chronicles".




As follows is a summary of the "Challenge Chronicle" 'Three Sister' accounts as of this entry ...



Investing "Sister" Account: Will no longer make Rule No. Two Deposits to this Account. Challenge Project Investing Account is Active. I will continue to track this account so as to mark progress of previous decisions.


Investing "Sister" Account:
$1,579.62

( YTD the account is +13.88 % Return on Capital YTD is +5.508 % )
  • 6.3585 shares of KO ( DRIP is on for 4.3585 shares - Yield is +2.7401 % )
- 0.0302 shares accumulated in DRIP on 7/1/2011 at $67.218
-$0.94 cash in cash dividend from Coca-Cola (KO) at other account
  • 5.2422 shares of JNJ ( DRIP is on for 3.2422 shares - Yield is +3.3723 % )
  • 10.15282 shares of GIS ( DRIP on for 10.15282 share - Yield is +3.7841 % )
  • Cash $390.81 ( 24.74 % )
Percentages of that Cash:
- $200.00 of this cash I reserve for 'maneuvering' capital ( 51.18 % )
- $ 45.94 of this cash I reserve to D.C.A. KO ( 11.76 % )

- $ 79.14 of this cash I reserve to D.C.A. JNJ ( 20.25 % )
- $ 31.98 of this cash I reserve to D.C.A. GIS
( 8.183 % )
- This leaves $23.75 cash available for a new purchase ( 6.077 % )
- This leaves $10.00 cash available for a second new purchase ( 2.559 % )
  • Additional $243.75 ( 15.7 % ) available from slush fund, up to $1,823.37


Trading "Sister" Account
: $3,293.47
( YTD the account is +26.29 % True Return on Capital YTD is +5.465 % )
  • 2% risk tolerance gives us $65.86 'at risk' levels
  • 3% risk tolerance gives us $98.80 'at risk' levels
  • Additional $243.75 available from draw-down / slush fund, to $3,537.22


Savings Side-Pocket Balance: Will no longer make Rule No. Two Deposits to this Account. Challenge Project Savings Side-Pocket is Active.
I will continue to track this account so as to mark progress of previous decisions.

Savings Side-Pocket Balance: $975.41
(YTD cash equity up about 8.379 % Return on Capital is 0.04205 %)

-$0.07 Interest Paid for the month of June
  • $243.75 for a Slush fund / Draw-down Kill Switch fund
  • $487.91 for a Base Savings
Percentages of that Cash:
-$401.91 of this cash I
reserve for 'burn rate / maneuvering' capital ( 82.37 %)
-$ 59.00 of this cash I reserve for CD Ladder creation ( 12.09 % )
-$ 10.00 of this cash I reserve for the first side-pocket purchase ( 2.05 %)
-$ 10.00 of this cash I reserve for the second side-pocket
purchase ( 2.05 %)
-$ 7.00 of this cash I reserve for the hedging account ( 1.435 %)
  • $243.75 for Emergency Savings
-$731.66 of this cash is in an interest bearing account.
-$243.75 remains at the brokerage in an account for draw-down


Total Airelon's Challenge Chronicles Balance: $5,848.50 ( YTD the account is +19.48 % Return on Capital YTD is +4.531 % )


And once again, here are the money management performance metrics as they exist ...



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Note: The above statements should not be construed as an investment or trading recommendation. Airelon's Investing and Trading Journal is a blog that allows subscribers to look 'over my shoulder' as it were, for my own personal specific trading and investing ideas and thoughts for the next week. But they are only thoughts as of the moment of publication, and are subject to change.. Any trades or investments that I discuss within this blog are simply my own thoughts regarding my own investing and trading outlook. Remember that entering any market is an individual decision. There is no guarantee that I will enter, or have entered any of the trading or investing ideas that I discuss in this blog; as larger accounts may require a different strategy as the ones presented here. This blog simply contains my trading and investing thoughts for the next week. I, the author do not grant this work for wide distribution beyond any single individual subscriber as this publication is protected by U.S. And International Copyright laws. All rights reserved. No license is granted to the user except for the user's personal use. No part of this publication or its contents may be copied, downloaded, stored in a retrieval system, further transmitted or otherwise reproduced, stored, disseminated, transferred, or used, in any form or by any means except as permitted under the original subscription agreement or with prior written permission. I personally only enter any market after watching and reading the tape and I trade using money management principles. The losses in trading can be very real, and depending on the investment vehicle and market, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. I do have 15 years of experience in trading and investing in these markets. Airelon's Challenge Chronicles are demo accounts,with all of the inherent problems therein, which are used within this blog in an attempt to track the results of my own thought processes., and is run as a model. Traders who should make their own decisions based off their own research, due diligence, and tolerance for risk. Any pictures used within this blog are believed to be public domain. Any charts that displayed using the ThinkorSwim platform, or any other charting software are believed to be public domain. Any other pictures were obtained through Wikipedia's public domain policy. As a reminder, any trades discussed for "Airelon's Challenge Chronicles" would only be 'day trades' according to the parameters discussed for Airelon's Challenge Chronicles, at this stage of the game in order to escape the risk of over-leveraged gap opens in the commodity futures markets. As a 'trading sister' would have grown to the $30,000 level, I would have graduated the account into 'swing trading'. In addition, it is understood that readers have read my YouTube methodology series. It is also understood that the writer of this blog has repeatedly warned against the dangers of shadowing any other traders thoughts. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

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