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Year End Review - 2010

As 2010 draws to a close, I thought a review was in order. This year marked the first full year of trading since 2007. During the turmoil of 2008 and 2009, I was in and out, and did not get much done (on the bright side, I did not lose much money).

The lesson for this year is one that every trader who relies on technical analysis should know and follow. Sadly, I am writing about it today only because I did not follow it. However, I think from now on I will remember: never let emotions rule your trading. Always rely on technicals to do your trades (both buy and sell). Not only could it save you lots of money, it could also make you lots of money (see below).

The lesson can be marked by four distinct periods: January, April, July/August, November. During the January period, I made some selections that, in retrospect, contributed to the largest single peak to trough drawdown my portfolio has ever seen.


January - It Seemed Like A Good Idea At The Time

While the January selections themselves (LZ, CTSH, CHSI) were good to neutral, the timing of those selections and their performance relative to the market (as measured by SPY) caused me to ignore all the sell signals that popped up regarding the April trades. As a result, the portfolio dropped from an April peak of +40% to a July low of -20%.

I made the first 2010 trade on 19-Jan. From there, the market faltered for several weeks (in fact SPY made a cup with handle pattern on a daily chart). Looking back, the proper time to buy was closer to week of March 2nd.

When the market eventually turned, LZ netted me 100%. CTSH took a bit longer, but I managed a small gain (it would turn out to be a good calendar spread up to about September). CHSI flopped.

April - The Joke's On Me

Building on the LZ and CTSH successes, I made a selection of picks on 6-Apr (EL DBRN BIG IPXL HSNI RMD). From buy date to about first week in May, everything went up and I was on a roll. Then mid-May came along and everything started to fall apart.

From 12-May to about 21-May all my picks exhibited at least one major sell signal. However, because I ignored the sell signals in January and made money, I decided to wait. As a result, by the time the market bottomed in July I was down 20% in the account. Moral if this story? Never ignore the sell signals. Even if the stocks would have worked out, there is no telling, as I have learned the hard way. (Read on for the real kicker to this story).

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