The other day I was asked what I mean when I say slow the markets down.
I guess with the excitement of the chats in front of me I fail to realize when I make statements like this it may be clear to me but it isnt always as obvious as I intend it to be.
I realize I took some time to go over it in the live room but it needs to be documented and erected as a pillar of trading in a bear market.
Slowing the markets down is a process for taking control over a bear market and volatility. Absolutely, volatility is a trader’s best friend, we love volatility.
When we look at VIX it is meant to be the predictive aspect of the market. When we see it forecasting 2, 3, or even 4% swings in the market it tells us it’s time to take action on the volatility. You can choose to be trading with Kenny and this is why I kick stocks like REV over to him and steer far away from it.
Using the VWAP is the way to trade a stock like this. Trading it with the Options activity is tough to do. REV has been at the top of my stocks under $10 list for the last two weeks. The stock has bounced around but, this stock cannot be slowed down.
Inversely when you look at a company like Microsoft as an example the trend had been clear since November. Everything from the fundamentals and reaction to their earnings, all the way to the rollovers we have seen consecutively in the 20, 50, and 200-day moving averages tells us that it will go lower.
Now you could trade a single day on Microsoft we will use April 5th as an example. It closed at $310 and opened at $300 Kenny would have made a killing on a trade like this.
Now my Night Traders that were following me started off back in January buying longer term puts on MSFT. This gives us some time and stops our worrying every day. Sure, if MSFT went up by 2% in a single day I looked at my portfolio and winced a bit. Its only human, it’s involuntary.
Knowing that the technical Analysis, options activity, and most importantly the sentiment would still continue to lead Microsoft lower.
Knowing we are slowing the market down and letting it come to us.
If you are going to chase this market, and I don’t just mean for a few minutes or an hour but if youre going to consistently chase the market for multiple days youre going to need to hang it up and sit in cash. You’ll have to wait for the market to hit a true bottom or you’ll need to dollar cost average. Once a month just put a set amount in and let it ride.
In today’s markets youre ether going to trade like Kenny and end every day in cash or you slow it down like ive done. Take the anxiety out of your trading and make it fun again. Be willing to reach over the table a bit and buy some time and space for your trade to stretch its legs and hit its stride.
This system isnt being developed as we go. It isnt my first Dead Cat herding rodeo. We know how the markets react in times of certainty and uncertainty. This is the approach that will get us across the muddy waters with pockets full of green.
But you know what, when the markets hit their floor and the markets are going up again. It won’t be in a straight line. You’ll have calls that will work against you on one day and be working for you on the next. We are learning to slow the markets down now, in harsh conditions, so when the markets turn back up it will feel easy, simple, and relaxing.
Much like this long weekend we are heading into!
Don’t forget Monday is Independence Day so I won’t be on but, Tuesday is financial Independence Day.
I’ll see you then. Enjoy your time off, you’ve earned it!
Quantitative Specialist, Penny Hawk
June 30 2022