One of my personal objectives this year is keeping money. This seems like a patently obvious notion --and it is-- yet this has been a notable blind spot in my track record which I'm looking to rectify. In practice this means being more disciplined and selective of the periods I will trade and how heavily I will expose capital. In order to better quantify these periods I've begun to increase emphasis upon my % Win/Loss and Avg. Winner v. Avg. Loser to determine when my risk of ruin is drifting upwards as well as a risk/reward quadrant that aligns my trading philosophy more closely with my trading objectives.
One thing I've noted as the month of February comes to a close is that my Avg. Winner/Avg. Loser ratio has begun to decrease. This is coinciding with the overall market reaching a zone that I consider to be extended. A metric I pay close attention to is the percentage of stocks greater than 70 over multiple time frames, the 20, 40, and 200 day period. As the number on all three time periods has clipped 70 over the past month of trading my near term expectation is an upcoming pullback across the shorter period with the possibility of carrying over into the higher time periods. There is already evidence of this occurring over the 40 day period.
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| % Stocks > 20 Period Moving Average |
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| % Stocks > 40 Period Moving Average |
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| % Stocks > 200 Period Moving Average |
Additionally the breadth trends I follow have been waning for some weeks now so the overall market is entering a phase that I consider to be higher risk with lower reward on my time horizon. At these levels I'm becoming increasingly skeptical and focusing more on capital retention then appreciation. I'll lean more towards reducing position size and expectation along with avoiding margin. Continued erosion of these numbers would result in a breadth flip that would increase my cautiousness and begin to look at exposing capital on the short side.
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| Ratio of Stocks > 25%+ in a Quarter |
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| Stocks > 13% over 6 Weeks |
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