I originally wrote this journal note in the summer of 2015.  This was the start of the most important change in my trading career.  Since then my approach has changed to less ideas, less positions and more size.  

This post from Base Hit Investing a few months ago got me thinking about sizing strategies.  Since then I’ve tried to adjust my approach to have less ideas, better quality of ideas and bigger size behind those ideas.

My first absolute favorite idea since then has been short oil via SCO and DWTI.  Why?  Well the 200 day moving average finally caught up to prices last month and it’s a bear market.  That’s not what this is about though…this is about us(me) learning from this process.

On a percent of portfolio basis, this is 2x as large as my prior largest position in the last 3 years at roughly 75%.  I’ll tell ya, from a psychological perspective it’s felt like 95% of my accounts.

I decided to try to position trade it by holding the SCO (~25%) and flipping in and out of DWTI
(~30%) to relieve some of that anxiety.  That worked excellently for awhile, until last Friday.  It might have just been how the market was trading, i’m not really sure.  If you follow me on twitter you’ve probably noticed a cluster of odd messages about oil lately starting around Thursday-Friday.  That large position size drove me to some absurd paranoia.

Yesterday, there was a beautifully timed squeeze and in an attempt to manage risk, I threw in the towel on a large portion of the trade and reduced it to a psychologically comfortable 19% of assets.

Of course, that rip was nothing and oil is hitting new multi-month lows today.  Sigh…maybe there will be another rip to beef the position back up.  Maybe not, but if things keep working on the downside there will be another opportunity to beef up.

A few other things worth noting:

  • This sizing really unearths beliefs and convictions.
  • It may have made my reactions to stops in other positions slower
  • The thing i’m really noticing is how even just checking in on prices every couple of hours made it seem like I was screen watching non-stop all day.

Undoubtedly every time I review this sequence, there will be more to learn farther down the road.

Trade ’em well!