Cash Club: What position trading taught me about investing

Njabulo Nsibande Cash Club, Latest

I’ve been trading equities with real Randelas for just under a year now. Unsurprisingly, I sucked big time in the beginning. I took loss after loss with no win in sight. The reason? I lacked a good trading system – not entry strategies/setups, but system.

I initially thought setups were a trading system. Far from it. I cut my losses short, had a good position size going, and ran my winners as far as I could. So I had parts of my system, but not all of them. My strategy was to throw everything at the wall to see what sticks. 

It took me about three months to see what stuck, and another two to four months to refine my system to its current state and have an identifiable and quantifiable edge in the market. Looking back, I was just out of sync with the market. That was my first lesson. “Only swing for the right pitch” (but that’s another story for another day).

Holding period

The biggest takeaway highlighted the importance of the holding period. The longer the trade runs the higher the odds of having a net winning trade. However, in the universe of trading a “long holding period“ doesn’t mean the same thing for different traders. 

This lesson came in the form of my first biggest winning trade. I didn’t get to know the other side of the trade because I cut my losses very short. An average holding period of a losing trade for me is somewhere between a few days to a couple of weeks. A stark contrast to the months-long holding period of winning trades – my longest being 9 months.

The trade has been live for 9 months now, which is an eternity in the trading world. I have +43% risk on the trade. This means the worst that could happen is that I only make 43% of the trade. The gross P/L of the trade is 64%. I never look at P/L anyway. 

Ups… and downs

In these 9 months, the stock has been up and down.

  • 7 of the 9 months closed green and only 2 closed red. 
  • 27 of the 41 weeks closed green and only 14 closed red.
  • 108 of the 199 trading days closed green and 19 closed red.

We can see this pattern in ETFs as well, especially vanilla ETFs. Take the Satrix40 for example. I chose it because it has a 20-year track record. 

Only 95 months of the 219 months (my count started from January 2003) closed red and the other 124 were green. This includes the 2008 and COVID-19 crash. The ETF returned a little under 700% in the 219 months.

I know using 4 different holding periods isn’t a big enough sample size to draw any statistics (but this isn’t a stats article in any way). On average, the red bars (days, weeks or months) are on average only 28% of the time.

During the holding period:

So the next time you see your ETF portfolio in red, remember that it was always going to happen at least (based on my analysis) 30% of the time. There’s the other 70% somewhere on the horizon. The longer the holding period the higher the odds of net profits. 

I want to leave you with the following thoughts:

  • The biggest risk to your portfolio is YOU. 
  • Losing feels twice as painful as the good we feel from winning – and YOU are the holder of those feelings. 
  • Fewer peeks at your portfolio will save your portfolio from its biggest risk, YOU. The less you peek the more you stand a chance to experience more of the 70% and less of the 30%. 

Cash Club blog

Njabulo Kelvin Nsibande

Njabulo Nsibande is a Just One Lap user-turned-contributor and a founding member of an investment club. His “Cash Club” blog details his experiences balancing the financial obligations of a young parent with his investment aspirations.

Follow Njabulo’s journey here every month. You can also follow his trading journey by listening to his Village Trader podcast.

Find him on Twitter: @njabulo_goje.

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