Year 2023 Trading Review
It’s been a good trading year if you were lucky enough to get into a few strong sectors and weren’t beaten down mentally by the horrible 2022.
Summary Statistics for 2023
The most important stat is how much money you make. I won’t disclose the amount, but I can share the equity curve of realized profit:
I executed 282 trades. My winning %, (trades were I made profit), was 47.52%. The year was profitable and I am happy that this occurred with my winning percentage below 50%. I basically do not need to be right to make money. Why? Because my wins ended up being on average almost twice as big as losses. I use Reward-to-Risk ratios to size and evaluate my trades, referred to as R/R. My cumulative R/R was 53.37 and R/R in wins vs losses was 1.91 ← almost 2x. More on R/R concepts below.
Nice spike in January where I had the second best month of the year. Then I proceeded to give up about half of those gains in the next two months via dumb mistakes and not having learned some of the lessons I learned afterwards. Nice spike in the summer, and this year is ending with a huge spike, the best month coming in December, where I closed only 1/3 of my positions yet achieved the highest profit. The remaining positions will ride into 2024 and will count towards that year.
If I was working for a firm and was rewarded on a yearly basis, that ending spike would have been 3x as large.
There is a deep gash in September where I almost gave up half of my summer gains but caught myself just in time to walk away with a small loss and rebuilt that loss rather quickly. If I didn’t have that amnesia moment in September, my year would have been even better.
Profitable Periods
As a “long only” trader I basically had three distinct periods to make money this year:
- a very powerful and profitable January. It was short though, if you snoozed, you missed out on a lot of gains
- long and nice June/July rise up
- very powerful and prolonged rally that started end of October/beginning of November
This is not your 9–5 employment were paychecks arrive at a regular cadence. You have a few periods to make money, and if you miss them, you don’t make anything.
It was interesting to see how my equity curve correlates with market strength. First a chart that shows new highs minus the new lows. They are not all the highs and lows across all the stocks, but highly filtered list where I take into account certain price and volume parameters. Here is the chart:
And now here is my equity curve chart:
If you look at the charts side by side, equity rises align with the end/mid points of when the highs — lows was positive and rising. Basically my trading this year was a trend following strategy where I try to go long when markets are rising and ride that wave out, take profits, and wait for the next rise.
I think I did a decent job of that with the second and especially the third wave. As I said earlier, I still have around 65% of my trades from November/December open, so that equity curve rise is not telling the full story.
I did a terrible job on the first wave in January. I think that after I had a successful month, I tried a bit too much to hang on to the “feeling” and traded when there was no trades to be made and the market was pulling back.
This is where reviewing your performance and constantly working on yourself comes in handy. I regularly go over my past trades and take a step back and replay the trades. I soon realized how many profits I gave back in Feb/March and how I didn’t fully take advantage of the January rise, and made some adjustments soon after.
The lessons I learned from that period were put to the test in the summer, and in November, and the equity curve shows the lessons were learned.
Trading frequency
I like the progression of this chart:
The number of trades normalized and came down from a feverish Jan/Feb period and stayed pretty much consistent. September spike almost led to a big disaster for me and giving up a lot of my summer gains. But I caught myself just in time and closed a lot of trades I had no business being in.
Reward-to-Risk ratio, RR (or R/R)
As I mentioned earlier, my cumulative R/R was 53.37 and R/R in wins vs losses was 1.91. Let’s unpack the last numbers a little bit.
I learned about R/R concept from this excellent blog post: https://www.lonestocktrader.com/r-and-r-multiples/. I remember in 2020 sitting down and reading EVERY blog post by this author and just trying to absorb as much as possible. And R/R post made a big impression to me. It just made so much sense and made a big difference in how I size trades and how I measure them.
Percent gain or the amount gained matters, but I feel like that’s secondary. What is most important to me is how much do I gain or lose based on how much I am projecting to risk on each trade. I usually go in and size my trades where if it reaches my stop and I need to close the trade for a loss, I aim that loss to be a certain fixed amount based on my trading portfolio size. And then, I want my gains to be at least more than that, but ideally multiples of that number, and in my ideal world it’s 3–5x, but right now I can only squeeze out close to 2x on average. It’s an area I need to improve.
Honestly, I think I already applied the changes to my trading to get better R/R and the beginning of the year trades are weighing that ratio down. Look at my R/R chart:
Note how for the first three months of the year it spent a lot of time under 2x and then later in the year, especially in June and August (and now going bonkers in December), it’s frequently hitting 4x. If markets co-operate and I stay disciplined and mindful, I should be able to show the improved R/R ratio. My last 100 trades (almost for the last half of the year) R/R is at 2.6x.
What’s next?
I feel like this year has been incredible for my personal growth as a trader and I have walked away with quite a few of valuable lessons. I started writing them out here as part of this post but it was getting way too long. So I think I will finish this post up and will write a follow up one with what I learned and where I will be going next with my trading adventure.
I am extremely thankful for how this year turned out and here is to continued success in 2024!
