As we look ahead to the coming year, we can get in gear in a number of ways. Here are a couple of the more indispensable methods.
One important way of preparing yourself for the new year can be in reviewing calendar notes. Some market players evaluate their trades, by way of a journal, on a monthly, weekly or even daily basis. While these notes do not define our actions, revisiting them allows us to step back and evaluate ourselves and our actions -- and, sometimes, our inaction. The challenge here is: Can we change our behavior to become better?
As traders, we are always looking to improve and gain an edge, and around this time of year I like to engage in a thorough evaluation of my entire trading plan and system. Perhaps I'll be able to find something that worked and continue to use it or, conversely, I could find something that I did not do right, in which case I could identify it and change my ways.
Below is a laundry list of items that I review at year-end to help prepare me for the 12 months ahead. In your own analysis, using annual, quarterly and monthly calendar markers is a great way to get started.
1. How did my portfolio(s) perform last year? This is the first measuring stick, but it does not tell the year's entire story.
2. Were there any big trades that moved the portfolio(s) in a big way, whether up or down? In 2013, the one standout for me was Onyx Pharmaceutical (ONXX), a position that gained nearly 1,500% in about a week in late June on a buyout offer from Amgen (AMGN). This was the best single gainer I have had in about five years. The timing was great, and the execution was even better.
3. Did I miss out on any big trades due to something I missed? I keep a journal and write down notes each trading day. Now is the time when I'll look back and study my notes in order to find out where I missed out and why that occurred.
4. What events transpired outside of trading? After all, these can constitute big distractions and draw my attention away from the trade.
5. How is my health? In other words, am I of sound mind and body? You may laugh at this, but taking a regular pulse of your health and recognizing the good and the bad can be quite helpful in your work.
6. How is my mind? Here, I take a look at whether other things have been distracting me during the day. I determine whether they can these be controlled so I can always be at my best.
7. What new things did I learn that had an impact on my trading results? I make it a point to read three to four books annually about trading, technicals and psychology.
Size Up the Macro Picture -- and the Fed
Once I've determined all of the above, I look beyond my own strategies and state of mind as I continue readying myself for the coming year -- that is, I evaluate the bigger-picture situation for equities. The one question I ask above all is: "Will this be a good year for stocks?"
To help me answer that, I must know where the Federal Reserve is positioned. Regardless of your viewpoint of Fed policy, we must hate neither the player nor the game -- and we need to pivot off their actions and assertions. This is a liquidity- and sentiment-driven market, and the Fed is the supplier of fuel.
With that in mind, here's my own opinion (not prediction) on the matter. The big Fed test will be determining whether the central bank will remain accommodating -- and the answer to that is an absolute "yes." Don't believe me? Just read last week's statement and listen to the press conference.
Could the central bank change its mind and move to a more hawkish view? Absolutely -- and we will be on guard for that, as well. There are certainly times when the market doesn't present a favorable playing field, and if that scenario materializes we'll play it accordingly. But this isn't often the case, and it does not describe the current situation. As long as the Fed wants us in risk assets -- and the size it wants is immaterial here -- that is where we will be.
Regardless of what comes of the Fed, I have to be comfortable with where Mr. Market is at the moment, always realizing things can turn on a dime. That said, at the moment, the market is still looking fine to trade even after a great 2013.