Remember, during periods of elevated volatility, directional trading can be more difficult and results not nearly as consistent as when the market is trending. Risk management & living to trade another day are more important than trying to “guess.” Hitting a trading home run is far less impressive, than the grind of consistent returns generated by repeatable and tested strategies. Different plans for different market conditions, holding as many non-correlated assets as possible and managing trade risk and portfolio heat are the ballgame.
Remember, we have other tools in our toolbox when the VIX is higher. Fear and Greed mode can turn on a dime in highly volatile markets. We use sold option spreads, iron condors, and (advanced students only) cash-secured puts and strangles to make bets that carry much higher odds of success and pay us when the market is gyrating and directionless. When less educated traders panic, we can take advantage of their fear. However, for premium students like you, I keep those strategies carefully guarded , reserved for our one-on-one sessions. But access requires a grade of B+ or better on the risk management quiz to get access. So, take the time to make sure you can pass with three incorrect answers or fewer. Reach out to firstname.lastname@example.org for a new link. Also, I now accept Venmo payments. We’ll provide the information you need on the Janaury invoice.
Relative Strength Charts and $1,000 Investment Account Grand Prize.
Today’s email includes your proprietary Relative Strength spreadsheet (which won’t be made available to non-premium level students). It will also include 3 weekly picks for initiating paper-money positions. Use what you’ve learned so far to place those trades early next week, ahead of our Friday one-on-one meeting.
Remember, demonstrating proper risk management is 50% of your end-grade. Each assignment grade and the points earned will be used to tally the top student of 2022 and the award of a $1000 funded trading account on ThinkorSwim or Tastyworks. Your choice!
One of the bullish stock picks is a fake-out. It’s your job to determine which two stocks are most suitable for directional bullish trades, and which ONE is likely a portfolio landmine. Try not to step on it without having a bearish trading strategy to go with it. Be prepared to explain strategy selection, trade exit plan and how you are capping portfolio heat. By “heat”, we mean the impact of a sudden market shock the triggers the stop loss on every position you hold. Remember, the more in percentage terms lost, the longer the recovery term. Traders that hit downward terminal velocity in their portfolio can spend years crawling back an easily prevented, outsized decline. Capping heat at 10%, using diverse, non-correlated assets from different sectors, industry groups and asset classes while focusing highly liquid stocks is how to survive.
The Emotional Scars of Lazy Portfolio Management
I remember being at sea on a cruise, helpless when the Fukushima disaster struck Japan in 2011. I foolishly placed stop loss orders with no “Good to Cancelled” stipulation. I easily paid for a second cruise with the losses on mismanaged portfolio heat while I was at sea, helpless to exit until I had a reliable internet connection at the next port. Did I mention I was unemployed at the time? Yup, I was trading with money I really couldn’t afford to lose. At that point, I was an experienced veteran trader running my own for-profit entity. No excuses. It was a painful lesson of lazy follow-through that I’ve never forgotten. To this day, I’m still mad at myself.
Remember your signed oath that, while enrolled in your private one-on-one personal trading curriculum, you promise to limit all trades to paper money. None of the securities that we use for educational purposes are necessarily the best options for any individual investor. Sometimes I play the role of charlatan “expert” talking my own book and throwing landmines embedded into trading “recommendations”. We do this to keep you on your toes. Remember, a retail investor is continuously subject to efforts to separate him/her/you from precious trading dollars. The purpose of personal training is empowering you with weapons to combat even the most sophisticated scams. Simple checklists and regular weekly and quarterly routines allow you to be a disciplined investor, with emotions in check and healthy skepticism about market sooth-sayers burned into your DNA.
Thank you for trusting me with your trading education. Have a great rest of the weekend.