Reflections On A Record Day And Then A Big Give-back

Complacency gets the best of us

There are times when the market gives you everything - and demands your full focus in return.

Last week was such an example where there was one major opportunity after another. Every morning felt like a new move and a new reason to stay in the chair. It was one of the most eventful I have seen this year.

I kept trying to write, but each time I started it seemed like a trade would pop up that demanded maximum attention. My thoughts are that if you don’t have the time or energy to do a deep review at the end of the day then that’s ok - the manpower is better spent on trading in busy periods. This is when you get paid. Being present on what’s in front of you cannot wait.

Right now, it takes enormous drive to sit down and unpack it all. The sun is out, the kids want to rip around, and every distraction feels more inviting than another session in front of the monitor.

However, without a break or a pause for reflection, overconfidence and complacency creep in. You cannot sustain the high-level focus and required discipline for optimal performance without this. I felt this at the end of last week. Furthermore, by not analyzing trading, an amazing opportunity has been lost to get better and learn.

As Trade Dante writes:

If you have done well, you might tell yourself “why bother?”.

If you’ve done badly, you might think: “I can’t bear re-living all my mistakes, i’ll just try harder next week” without any solid plan of exactly what youre going tow ork on or how ti improve on it.”

You have to fight these thoughts to consitently elevate performance

I find myself caught in the middle of these two extremes. Last week brought out the best AND the worst. It was a record day followed by inevitable givebacks as the market turned lower, and then some poor trading to chase my tail. The planned and structured nature of the prior weeks was sporadic at the exact time I needed it most in a toppy market.

So in this post, I thought I would conduct a specific weekly performance review using the Tom Dante template. The goal is to get back into best habits, update the market structure, and make plans going forward with SPECIFICS so that trading does not spiral further. This review is targeted at the Australian equities market but you may find a lot of value in a similar process to your specific niche.

What worked well this week?

• Intraday trend trade and core in SYR

• Breaking news in NVX adr

• Overnight momentum in Critical minerals such as ARU, COB, FXG, LIN, LRV, NTU, and NVX.

• Stock-specific news events such as 29M guidance downgrade, FFM drills, SRG accretive acquisition, SS1 on Rudd love, and TLX guidance upgrade.

→Overview

The main event was momentum in critical mineral plays post China’s new wave of rare-earth export controls announced on Thursday, 9th October. The scope added recycling technologies to its list and increased license scrutiny to sensitive end-uses such as defence and semiconductors. This was then followed up later by new export controls on the Lithium and Graphite battery supply chains. It was a clear retaliation to continued US meddling and attempts to create a domestic downstream chain of their own. The news has been months in the making, so it was there for the taking for the prepared.

Australia was perfectly positioned with the release of this initial news at midday. It set in chain a sequence of Global flows that fully kicked off into the weekend and culminated in a gap-up exhaustion on Wednesday, 15th October.

To me, the options were:

i)) Trump doubles down on building out his supply chain with haste

ii) Trump folds to China

The market voted by sending all names viciously higher that were linked to US financing on Friday US time. Trumpy doubled down.

→Did I enter trades correctly?

Immediate reaction was to enter Au-exposed names on the breaking news intraday and add to core swing positions such as LIN, VMM, and FXG. In the evening, I entered NVX adrs promptly on the release of the graphite controls.

On Monday, the whole critical minerals basket lit up with solid trends into the close. I took overnight momentum signals in MEI, NTU, SYR, and LRV. This was followed by more momentum signals in COB and LRV on Tuesday. What triggered the move was a surge of volume in the US OTC market as traders positioned for companies that could be on the shortlist for US government investment. This was a clear front-run into the Albanese meeting the following week.

All these signals were correct as per my rules and systems.

→Did I risk enough?

I spread my risk with a basket approach and with concentrated bets in NVX/SYR. I was never too exposed to one individual name, but allocated a portfolio across the theme.

On review, I could have been bigger in NTU given the liquidity and denomination of this stock.

→Did I miss any trades?

You can’t kiss all the girls. However, I had a fundamental bias that stopped me from taking valid momentum signals in ARU and ASM.

→Did I exit correctly?

Yes, but I learnt a lot about position trading management. I can do better.

I was completely automated with my overnight momentum system as per the rules. This was ideal. Exits in adr trades were fortuitous.

It was residual position trades where I was slower to act. You can’t have it both ways, so you have to take the good with the bad when it stops working. You are never going to sell the top and the goal is to ride the fat in the meat of the move. However, I was aggressive with only parts of the position and never really committed to a full exit.

I have spent a lot of time building out risk tools, which did a good job of defining worst-case scenarios. I had trail stops to define my risk, but this is easier said than done on the way down in smaller stocks when liquidity gets poor. Of course, multiple positions expressed the same thesis, so when it turns, it gets ugly quickly. Correlation all goes to 1.

→What did I learn from this experience? What to improve on?

I acted quickly when needed, as well as planned for systematic trades. I did so much right BUT greed took over.

Specifically, I did not accept the price action. On Tuesday, I expected more of a gap up given the move in the overnight comps, so I wasn’t looking to take any profits. SYR and the sector fell sharply. The stock is 2x off the low and 3 days up post news, so it is primed for extension at a minimum.

Furthermore, there was a strong reversal lower on Wednesday night in the US, which was confirmation of a top—total climax everywhere across meme stocks and Resources. Instead of heeding this, I put on a fundamental hat. I thought the risk was to the upside into the weekend Albanese/Trump meeting despite the chart extensions. The US markets had other ideas. The truth is that all these stocks are extended and trading at ridiculous valuations.

I was prepared to cut some, but not fully or aggressively. I did not entertain the short in very valid setups such as ASM or NVX. There is an element of hindsight here as a prerequisite for my playbook is a big gap up which did not eventuate on Wednesday.

The big lesson: volatility expansion = unsustainable trends

It is this expansion where I need to be de-risking and taking off more meaningful chunks of trend positions. The truth is that lots of stocks get very thin on the way down, and it is hard to exit fully, e.g., VMM or FXG.

The other major lesson is to accept my Daily stop loss and move on fully. I knew I was going to give back, I was professional and committed to selling, but I didn’t stop trading and instead dropped a further $20k day trading in an EOS/DRO headline. I didn’t put up the guardrails. I compounded the situation. Complacency got the better of me after a good run.

→What is the recurring pattern to be addressed:

i) Trying to trade my way out of a hole. The solution is to create a $ risk Daily stop-out plan where I stop trading. At best, only 1 new position can be entered with a max $5k e.g. a breaking news trade. Share with the risk desk.

ii) Complacency when I am up money and the need to be involved. Greed takes over, and I start overtrading by jumping into stocks in random spots that have already moved. The solution is to take my 11 am check-in to get present. The solution is to make sure I have graded each play. I instantly know that feeling of being loose, so just hit out straight away and take the loss. Refer back to my overtrading journal and the commonalities.

Summary of the report card on Tuesday, 14th October here

Biggest Closed Wins: