The Trades I Didn’t Take And the Lesson I Learned

This post is not an endorsement for my firm’s asset management services nor is it a recommendation to buy or sell securities mentioned. Everything written here (like all my posts) is for education purposes only.

One of the processes I go through as a professional trader and Portfolio Manager for an asset management firm is running a systematic signal that generates buys and sells based on a set of criteria I’ve created. These signals are used for one of our more aggressive portfolios and fills a piece of the portfolio pie to create the equity allocation. I have a preference for system-based trading because it helps eliminate the emotion of trading and also acts as a more efficient way of finding trade opportunities.

Like all traders, I make mistakes. And one of those mistakes is the subject of this post. As I mentioned before, one of the benefits to system-based trading is the removal of emotion. This is true if you follow the instructions of what the system is telling you to do (i.e. buy or sell a security). However, by getting involved in the decision making can happen and have either positive or negative implications. The thing is, you’ll rarely know if your involvement is for better or worse until after the fact.

Recently my system told me to buy two airline stocks on two separate days – American Airlines and Delta Airlines.
Delta Buy signal American AirlinesDue to the risky nature of the airline industry and their tendency to have boom-bust cycles, I ignored both of these buy signals. American Airlines chart has looked like trash lately and the industry as a whole as gotten quite a bit of bad press lately which filtered like a virus into my thinking. Today American Airlines rose over 11%, which is approx. 20% above the signal’s entry. Delta also had a strong move today, up 5%.

My preconceived bias towards airlines made me miss these trades, and thus the opportunity for potential gains. This acted as an excellent reminder of why I have the process and the systems I’ve created and an example of one result of not following it to a T.

Many times on social media traders just share their winners. They show the best parts of their highlight reel. I view things a little differently, I think the bad traders or the missed trades are part of my highlight reel. They are what help make me a better trader and teach me the lessons required to improve as an asset manager. I am constantly seeking improvement and reviewing previous traders or trades I didn’t take is part of how I grow and evolve as a trader.
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

About Andrew Thrasher, CMT

Andrew Thrasher, CMT is a Portfolio Manager for an asset management firm in Central Indiana. He specializes and writes about technical analysis as well as macro economic developments.

    The holy grail of trading is not an indicator or a particular system – either mechanical or discretionary -; you find it when you finally accept that trading is a stochastic (probabilistic) process. At that moment you understand that the result of an individual transaction is governed by chance and in no way influenced by what you think, feel, or do. At that point you know you only have control over the collective result of a group of transactions if you run the same entry and exit signals that you used to characterize your trading system.