Background

In various chatgroups, some of you may be aware that over the past 3 months, when the Ringgit first strengthened, I have been buying USD and then gradually converting my Malaysian stocks into Interactive Brokers which allowed me exposures to US markets.

It started with taking profits on my Malaysian trading stocks, and then closing all my trading stocks in Bursa when Bursa was acting strangely with lower highs.   Then, as my US account did well in September and October and Bursa market continued to decline, I accelerated my profit taking on Bursa stocks including some of my longer term dividend stocks.   A couple of weeks ago, when KLCI started acting questionably near the 200 day EMA, I posted a KLCI Update and advised to close positions as KLCI runs up and as a result, very soon after, I was completely in 100% cash.  At the same time, I am always a believer in finding bull markets elsewhere, which I did and as a result, I have been transferring funds gradually and consistently into my US account.   

Let's take a look first at KLCI Update.

KLCI Update

Key observations:

• In early August, KLCI touched the 200dEMA and bounced back strongly to make new highs which is a healthy trend.
• After peaking in early September, KLCI started to dips and started to raise slight concerns when it make the first lower highs.   During this period, small caps and market breadth in Bursa was no longer as strong, but this could also be interpreted as consolidation.
• When it makes a series of LH and then touched the 200dEMA again in early November, this can still be regarded as healthy consolidation, although beneath the surface, small caps and market breadth were not performing well.
• A couple of weeks ago, when it revisited the 200dEMA the 3rd time, I blogged here that the price action has become questionable.
• Within 1-2 days after I blogged, I decided to cash out everything (100%) of my Malaysian stocks (including my dividend stocks like MAYBANK, PBBANK, TENAGA, etc.) as my US market performance was doing well.
  
• After cashing out, KLCI has traded in a tight range over the past 11 days, trying to make a decision whether to break out or break down.
  

My Malaysian Portfolio performance.

• As many of you know, my investment objective for Bursa was to target 9% per annum.
• I returned to Bursa to invests in 2021, just 3 years ago.
• When KLCI hit the peak in early September, my holdings has beaten my investment objective.
• However, I was also trading some speculative stocks and even though I eventually closed them during September and October, the weak small caps and market breadth has caused me to take some losses.
• As markets approached the 200dEMA, I no longer met my 9% per annum investment objective.
• By the time I fully cashed out, my total performance just slightly exceeded 8% per annum.
• I did not meet my investment objective of 9% but I did meet my primary objective which was to beat EPF returns of up to 6% per annum. and so, I am blessed and thankful.

My US Performance

First, some background on my US strategy:

• Whilst in Bursa, I am primarily a dividend investor, my trading and investment background is actually extensive with nearly 2 decades of investing in US stocks, futures, options, futures options, crypto and other instruments.
  
• However, my US performance historically has been a roller coaster due to the use of too high a leverage and aiming far too aggressively.
• As a result, by 2018, I decided to take a break from US markets to focus on my career and the latter has done extremely well and I am thankful.  My active income from employment far exceeded my investment profits pre-2018.  Additionally, my active income is also stable and grows with inflation (definitely no reduction) and I am blessed to have an engaging career in an MNC environment and thoroughly enjoying it.  It was a right decision not to rely on investment income and trading.
• The break from US and investment markets as a whole turned out to be good - it allowed me to reflect a lot on where I did well, where I didn't do well.  My Bursa experience in 2021-2024 and blogging here further cemented my learnings.  I continue to learn every day about investment markets and it's a wonderful learning journey so far.
• I finally decided to reopen my US trading account with Interactive Brokers on 23 September 2024 and eventually successfully funded it a couple of days later and immediately started trading small.
• The thing about riding a bicycle is that you never forget how to ride it.   Pretty soon, I got my groove back but stumbled a few times but each time, I continue to journal, reflect and reminded myself the lessons from the past.   
• The biggest difference this time around is that I decided to be very conservative this year, than prior years.
• I set my investment objective in the US to be 15% per annum.
• This may be seen as very aggressive because my Bursa objective was only 9% per annum and I didn't beat it.
• However, I benchmarked against S&P500 where over the long term, it returned 10% per annum.  I added additional 5% higher benchmark because I am at heart an Options trader and I knew that with leverage, I should be able to double / 3 times the returns.  However to ensure I continued to trade conservatively, I didn't want to set an objective where I had to chase returns - instead I wanted to earn low returns, wait for the perfect opportunities and then size up bigger for my A and A+ grade trades.  Meanwhile trade normal size for B-grade trades and half size for C-grade trades.
• Pre-2018, I did not grade my trades as explicitly and did not have proper risk management limits and sizing limits that varies with individual trades, individual strategies and overall portfolio risk limits, which is why my past returns were volatile for nearly a dozen years.  Whilst the subconscious awareness was there, it was still a blindspot.   Today, it is crystal clear and I don't know how to describe it but after deep studies of thousands of trades, the way I look at trades today is no longer the same as I looked in prior years and definitely very different than pre-2018.   I feel like I have returned to my roots and returned to a place where I truly belonged which is Options trading in the US.  
• I put it to the test - where regularly it was not hard to discover many profitable C and B grade trades - occasionally, I encountered A and A+ grade trades and then size it up quite substantially and reaped the rewards.
• I would say > 98% of my trades are C-grade and B-grades. 
• Since September 2024, I have placed hundreds of trades.   Here's a snapshot of my current position.
• You should not be surprised to see my highly diversified positions - I traded well over 50 different stocks/ETFs and my current position today is around 250 different positions + different option strategies across nearly 50 different instruments.

Some comments on my positions:

• I have 19 years experience in trading Options in the US.  
  
• Generally, I did okay historically, but, extremely volatile experience due mainly to not defining Risk limits and adhering to them.  In the past, I wasn't aware and didn't have grading systems for my trades, and relied on "gut" alone which was a blindspot and not objective enough.  Additionally, I wasn't journaling and critically comparing the opportunities and my record keeping was apalling.  Back then, I didn't size appropriately and by today's standards, I was trading far too big back then even for B-grade trades.  Today, my C-grade trades exposures are less than 0.5% to 1% of capital, my B-grade trades around 1% and not more than 2% capital, my A-grade trades can go up to 4%-5% capital and my A+ grade trades can go up to 10% capital.   Whilst vast majority of my trades are small, thankfully when the odds are stacked heavily in my favor, I leaned on the trades quite substantially.   
• I have spent months defining risk limits for each of my option strategies, within the context of my trade grades as well as portfolio risk limits.  I am constantly refining them as a part of me is aware that risk limits should be dynamic and varying with different market conditions, so, I'm still learning and documenting.
• The past 2 weeks, I have adhered today to the risk limits better than when I first started a couple of months ago in September and October.
• Reflecting, my mindset have improved substantially relative to pre-2018, largely due to the long break away (years), the journaling (every weekend, intensely), going back to basics by learning how to crawl and walk slowly by targeting only 9% per annum returns in Bursa for 3 years from 2021 to 2024 (despite missing by a little bit), nothwistanding my past achievements of > 100% per annum returns for 2 consecutive years (only to crash the 3rd year, with little to show for over the 3 year period).
• 258 positions reflects my deep belief about diversification.   
• If you know Options, they can be capital intensive.   My Excess Liquidity is nearly 40% of my Account and growing as I expect to come off winning positions to release margins.   This is a Margin account where for Options trading, no interest is charged when I have an Options position open, however, if I am assigned stocks, and Margins are required then, it may be possible that the situation changes - so far, I have never tested this and have zero interest to try this, as it would then exceeded my risk limits.  Actually, my total risk limits is 50% Excess Liquidity and as of today, I leaned a bit heavy towards the positions to push the returns.  However, I expect my Excess Liquidity to fall back to safe limits by end of this year. 

My YTD performance and my equity curve below:

Key observations:

• Account started on 23 Sep 2024 with successful funding a couple of days later and first trade started 25 Sep 2024.  This report is dated 29 Nov and the period of trading is slightly over 2 months.
• Over this period, I have deposited 9 times, gradually building up my US portfolio.  I am now 40% funded and expect to complete the remaining 60% by January 2025.  I believe in gradual scaling up when trading options.
  
• My investment objective remains 15% per annum.
• In the first month, I had some serious sizing errors that caused negative returns (see the "W" in red).  That led to serious reflections and journaling but not completely resolved yet.   
• It is easy to give up after making dozens of trades, being up to almost 10% and then becoming negative.   However, the thought of giving up never occurred to me at all as after deep intense scrutiny with lots of self journaling and constant questioning, I eventually realized what my mistakes were (risk limits) and I think generally speaking, experienced traders are resilient.  The cure to risk limits is simple - GET SMALLER immediately, accept and embrace the new levels, clean the slate, be patient, grow slowly again.  Go back to basics, learn how to walk again.  Resolved not to break the risk limits.   Be resilient, never give up.   Eventually, the lessons will hit home and changed you from inside out.  Only when you are truly changed from inside out, then, you will automatically respect the risk limits at all times.  If you find yourself breaking your risk limits, it is because you haven't fully embraced them yet subconsciously, even if consciously, you think you have embraced them. 
• The big spike past 20% the first time was due to Trump elections - I sized up substantially on my A and A+ grade trades that led to the huge returns.  However, I had some rather large positions post elections that dipped back down that caused me to temporarily gave back nearly half of the returns to the market, and that led to more intense investigations and journaling and finally provided me with the detailed risk limits that I have today over the past 2 weeks.   Since then, the equity curve has improved although as my Excess Liquidity is still below 50%, I expect some more volatility in my equity curve in the coming month till end of this year ... as my positions are good but volatile, I will continue to hold these positions until they expired worthless to gradually convert me back to cash with no exposures.

Takeaways, Summary and Conclusion

I am thankful and blessed that my total Account kept making new all time highs since Bursa peaked in September notwithstanding the sub-optimal performance of Bursa stocks since then, due to diversification.   I shared previously that my 2 months in the US, despite trading a fraction of my Bursa account, has delivered much higher returns in $ terms and in % terms, than my previous 20 months of investing in Bursa.

Additionally, I did not set out to earn +22.6% in just 2 months!  Remember, my yearly target is and remains +15% per annum, i.e. 1.25% per month or 2.5% over 2 months.

However, during this 2 month period, S&P500 delivered 5.2% returns, more than doubled my target!  

The reason why I beat the market is due to a combination of leaning heavily (Options provided leverage) on my A+ and my A grades, which are a handful, less than 1%-2% of my total trades.  This reinforced my belief and validated my repeated statements, that it is critical for the winning trader to trade the strongest markets, the markets that give the highest chance of winning whatever your strategy is.   

You must also size appropriately.  Trading the best markets may not necessarily grow your account if your trade position size is incorrect - there's no point betting small amounts on your highest conviction trades and betting very large on your sub-par trades - this can cause accounts to shrink!   What I have learnt is that you must grade your trades and you must know your highest conviction trades and know your average profitable trades.  Grade them - A+, A, B and C.  Avoid D, E and F trades.  Have objective criteria.  Back tests, back tests and back tests.   And when you have robust grading system, then, apply them with discipline.  Size your trades logically.   Sizing appropriately is critical, because you will never win all the time.  You will encounter winning streaks and you will encounter losing streaks.   The difference between growing your account vs shrinking your account is the quality and the size of the trades and your portfolio, as you encounter losing streaks.

Additionally, in just 2 months, I have suffered 3 big drawdowns - these have provided me with accelerated learnings.  I spent the weekends (sometimes exceeding 12-16 hours a day, not realizing how fast time flies) carefully analyzing my trades, outcomes, risk limits, etc. and led to wonderful additional insights which I then write them down in my thick journals.   The past couple of weekends, I have developed a very logical set of comprehensive risk limits for my options trading which I look forward to test over the next 2-3 years before I retire.  Meanwhile I will keep working as I enjoy my current role.

It is important not to anchor to specific YTD returns.   Whilst it's nice that this year, I have already beaten my 2024 targets, when 1 Jan 2025 comes, we refreshed our targets to start from zero again and we will try to achieve 15% per annum returns in 2025.  This means targeting a modest 1.25% per month returns in January.

It is a very nice position to beat the full year target in less than 2 months.  We feel calm, relaxed and generally "in the zone".

Trade well, trade safely, wishing you all success in your trading endeavours.

Disclaimer:  Options trading are risky endeavours where the possibility of losing your entire capital is real and therefore not recommended.  As usual, you are solely responsible for your own trading and investment decisions.