2023 Review
In 2023 I used a structured process based in price compression and expansion, from the concepts originally taught to me by Jack Ponti, a prior mentor. I took advantage of the oversold conditions after the 2022 bear market, to capitalize on the reversal of highly-shorted stocks, such as PLTR and RIOT, which were down 90%+. My strategy used price momentum, identified by highest % increases over the top 6-12 months, and currently up-trending moving averages. I would then identify points of either price compression or unexpected, rapid expansion as a reaction to catalyst.
I sized the trades at about 10-20% of total account value and would set mental stop-out points if the trade didn’t work. The price action at the time had a lot of shake-outs early in the morning each day, so I would typically either place an offer lower than expected in the morning, or, wait until after 10:30 AM, to enter the trade once the shakeout happened and price action was more confirmed.
I traded gaps based news catalysts, typically earnings, as made famous by Pradeep Bonde and Kristjan Kullamaggi. I adjusted their strategy based on my morning observations above, to get a lower-price and lower-risk entry upon the gap. This strategy worked well in 2023 as we came out of a bear market, as reaction were extreme and directional, as there were not many places to go but up. Funds were re-investing into the top companies and when news came out that was surprise, large investors would pile in.
I capitalized on Federal Reserve news as well, such as the market’s reaction to the Nov 1st 2023 Federal Reserve announcement, which came after a negative 3 months in August through October. I founded highly-shorted stocks such as CVNA, and made a significant portion of 2023 return there.
My most notable error, by far in 2023, was continuing to trade through the choppy and uncertain price action environment in August – October mentioned above. I lacked a data-driven method for identifying periods in which price momentum slowed. I made it a point to revamp my approach to this heading into 2024.
Overall, despite the large drawdown in late summer, 2023 was a year executed very well, based on structured strategy from studied observations and phenomenon, as well as mentally training in executing that strategy.
Coming into 2024, I did not adapt quick enough. The strategy of capitalize on price gaps overnight was weakening due to an established bull trend that no longer caught short positions or large speculators by surprise. I did not fundamentally understand this as the reason for the edge in trading gaps in price in certain contexts, and so I failed to adapt, which caused significant losses.
Additionally, I decided to try and scale the business, due to my success in 2023, by looking for longer-duration holds that had more momentum behind them then pure technical price expansion. I wanted to transition to holding core positions in stocks that I could see affecting the world, and building a scalable model that I could apply a larger amount of capital to, by investing in large companies and industries for longer periods of time.
Unfortunately, my adaptation in execution lagged behind, the scaling failed, which resulted in losses. I’ve spent the second half of 2024 recalibrating the method to be scalable and do more than take advantage of short-term price movements, which I foresee being dominated and owned by trading algorithms. A summary of the new approach is in the Methodology section.