Welcome to Q4, 2019. It’s hard to believe a year has passed since my final exam. I don’t mean a university, FINRA or other written exam given by a financial institution. I mean the final exam given to me by Mother Market that I along with several other traders I am close with, failed with flying colors.

Perhaps you were around. Perhaps you remember the signs. The signs that included the Russell 2000 small caps lagging their more steady, risk-off constituents, spiking ATRs, and correlations among stocks climbing higher. The signs were all there and we ignored them. We thought we knew more than the market. Rookie mistakes being made by veterans due to clouded judgement. Maybe a picture will help:

It wasn’t pretty. Sometimes I get panicky when I think of the money lost, when I remember the recklessness. Position after position going against us and we continued to believe we were right and the market was wrong. Less than novice risk management parameters that wouldn’t pass for a legitimate trading or investing plan anywhere.. A laughable display of subpar performance that is and will continue to be unforgiveable.

But someone much more financially well off than me once told me, “If it’s a problem money can fix, it’s not a real problem.”  Every situation especially those so challenging are learning experiences. Expensive ones in this case, albeit necessary. The lessons I learned last year in Q4 have changed the way I trade, and will trade forever. I’m still making up for it but I am on the right track. Risk is respected. Humility is constant. The future is bright.

There will be no more failed exams.

Welcome to Q4, 2019 friends.

Trent J. Smalley, CMT