My Worst Name of the 12 months | The Aware Investor

After I labored on the institutional buyside, we had the chance to listen to from numerous brokers, strategists, and analysts within the trade. And I used to be thrilled to have a few of the high technical analysts round coming by means of to speak charts with us. One in all my favourite inquiries to ask was, “What was your worst name within the final six months, and what did you study from it?”

For an expert strategist, dwelling on dangerous calls is actually not the way you need to spend your time. You’d a lot slightly speak up your exceptionally prescient calls that everybody ought to hear about! However if you wish to change into a greater investor, it’s essential to spend much less time celebrating your wins and extra time dissecting your losses. And if you wish to change into a extra profitable investor, these are the sorts of questions you need to be asking after a giant miss:

• What proof did you miss that will have pointed you to a extra ultimate conclusion?
• What instruments might you add to your toolkit to raised handle this kind of atmosphere the subsequent time it comes round?
• How might you higher spend your time through the day/week to ensure you’re higher geared up to know what’s taking place round you?
• What might you do to enhance your cash administration processes to extra successfully handle threat if you find yourself improper?

These are the questions which are actually solely answered should you strategy year-end as a time to replicate constructively in your experiences as an investor.

That brings me to the ten questions that I ask myself yearly, with the objectives of bettering my funding efficiency, reviewing missed alternatives, and upgrading my routines. I am blissful to share with you now my reply to most likely probably the most painful query of the ten: “What was your worst commerce, and what did you study from it?”

Whereas, total, I really feel fairly good about remaining bearish by means of most of 2022, I had a pair large misses. And that brings us to the chart of YOLO, one of many US-listed hashish ETFs.

Now to be clear, I very a lot contemplate myself a trend-follower. My aim is to not purchase the underside, just about ever. Fairly, I would like to attend till there are some “indicators of accumulation” within the type of value enchancment and bullish momentum traits.

Understanding this reality, chances are you’ll fairly ask your self why I believed YOLO was an excellent purchase at $6.

The non-technical purpose is that I imagine within the long-term potential for the hashish trade, just like how I really feel in regards to the long-term potential of blockchain know-how. I see the indicators now that inform me there’s tons of upside for these rising themes. However, as Jon Markman so aptly described in his guide Quick Ahead Investing, even when you recognize {that a} sure theme goes to work over the long-term, there is no such thing as a assure as to which merchandise, firms, and buying and selling automobiles will profit probably the most as these themes change into extra developed over time.

That brings me to the clear technical proof in opposition to shopping for YOLO at $6, which I clearly ignored on the time. This is my chart, however with some extra annotations to assist illustrate what I might solely describe as affirmation bias run amok.

First off, the chart began making decrease highs and decrease lows in early 2021, after the joy from the 2020 election cycle had all worn off. Hashish shares had skilled a giant upswing within the fourth quarter of 2020, however, by spring 2021, a downtrend was clearly in place.

I bear in mind precisely what caught my eye in July and August of this yr. Fairly merely, I seen that YOLO wasn’t going any decrease. The decrease lows (which had been a signature transfer on this chart for about 16 months) had dissipated, and the chart appeared to have stopped its infinite decline.

Now did the worth truly break above resistance? No. And that is the place I missed one of many primary tenets of the Dave Keller funding process–to anticipate affirmation of any change.

I’ve spoken and written about follow-through days, or the two-day rule, or no matter you need to name the concept you want affirmation of a breakout earlier than declaring the breakout. I didn’t have the endurance to attend for a break above $6. So, as an alternative of ready for a breakout, I positioned the order round $6. And I am nonetheless ready for that upside follow-through, with YOLO having damaged under $4 this week.

Subsequent, I ignored the momentum traits, which have been clearly nonetheless damaging. Word what number of occasions the RSI bumped as much as across the 60 degree on short-term rallies, solely to see the worth revert decrease quickly after. In early December, the RSI briefly broke above 60, however, as this was taking place, the worth was forming a taking pictures star candle with an intraday excessive proper on the well-established resistance degree of $6.

Lastly, and maybe most embarrassingly, we have now the long-term continual underperformance, as illustrated by the relative energy ratio within the backside panel.

So, on this case, I ignored one thing I inform our viewers no less than 12 occasions every week: give attention to charts with bettering relative energy.

Full disclosure: I nonetheless personal the place in YOLO. It is in a retirement account and I am blissful betting on long-term upside for this trade group. However, in my pleasure at seeing a stalled downtrend in a bunch of which I am basically bullish, I managed to disregard what now seem like clear indicators that the chart was nonetheless bearish.

Why am I taking the time to relive this colossal miss at year-end 2022? As a result of I need to change into a greater investor, each single yr. And the one method I am actually going to take action is by proudly owning as much as errors, reflecting on my decision-making course of, and making adjustments to attenuate the probabilities of having an identical mishap in 2023.

Your flip. What was your worst commerce in 2022, and what did you study from it?

By the best way, need to see the opposite 9 questions I ask myself at year-end? Simply head on over to my YouTube channel.

RR#6,

Dave

P.S. Able to improve your funding course of? Take a look at my YouTube channel!

David Keller, CMT

Chief Market Strategist

StockCharts.com

Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your individual private and monetary scenario, or with out consulting a monetary skilled.

The creator doesn’t have a place in talked about securities on the time of publication.   Any opinions expressed herein are solely these of the creator, and don’t in any method symbolize the views or opinions of some other particular person or entity.