If there is one unrewarding duty I continue to claim my own then it is to caution you against relating your trading activities with your own personal beliefs, may they be ideological, political, spiritual, religious, or otherwise. I am not saying you should abandon them in any way. Quite on the contrary – they may be the ones that keep you sane as a human being, especially in these trying times. Bu if you hazard in participating in the big game you will have to force yourself to draw a clear line between your actions as a trader and any other pursuits or interests in life.
Although I very well should I unfortunately don’t make the rules. I merely work here and so do you by the way. Assuming of course you hold an active trading account. And believe me, this is not just some trite old sermon I picked up in some dusty old trading book. In fact, this old dog has been there and done that – a few times over until he finally smartened up.
Back in 2008 I played King Beartard and eventually had my ass handed to me by SEC chairman Christopher Cox…. when he announced a short sale ban on September 19th of that year. I lost 2/3 of my trading account in that one day and it took me years of hard work to recover from the event.
Three important lessons I learned that day:
- You cannot fight the Fed (case in point: 12 years of unbridled bullishness).
- You cannot predict what happens next (case in point: 2020).
- Never ever trade your opinions – just follow the tape.
Here is a good example of doing just that. I’m not known to be a raving fan of the financial sector but back in late November I recognized the island formation at the time as a stepping stone to either massive downside or massive upside.
Given what I saw in regards to the price action and the political implications of either a Biden or Trump confirmation the odds strongly supported an outlier move.
Instead of predicting a particular direction I did the next best thing: I offered my subs two clear price inflections points that would enable them to jump on the bus while a few seats were still available (see the chart above from November 20th).
So what happened next?
What happened next was a breach of the upper inflection point and face ripping rally that has boosted the XLF by over 16% in less than two months. It’s been printing money non stop with nary a hint of retracement.
Individual issues have done even better. Here’s GS which has pushed from roughly 220 to 300 – that’s a rip of 36%. They are truly doing God’s work – in my trading account at least.
JPM has gone from 120 to 140 and change – not as impressive but still very respectable.
Even DB got a small boost but I would never touch that turd with a ten foot pole. In fact I consider it highly overvalued and if it wasn’t already near single digits I would short the living heck out of it.
Which brings me from the now back to the future. You may also recall that more recently I recommended medium term short positions on XLF or the financial sector as a whole in the form of OTM puts. A bit early on that front but IV was low at the time and so far I have not lost much.
The main reasoning here is that earnings season is coming and we’ve already seen a huge move mainly based on perception and the systematic weakening of the U.S. Dollar. It’s a crapshoot with a low prospect of playing out but if it does it’ll print bucko bucks in a short amount of time.
And that’s what it’s all about. Repeatedly taking calculated risks risking small amounts of your trading capital. It’s boring – it’s not something you read about on social media or in the financial MSM. But it’s what works and it has the capacity of producing consistent returns on a long term basis.
Everything else is nothing but noise and lucky one-timers.
By the way, if you missed these or other recent entries or perhaps even found yourself on the losing end, then head over to the sign up page to once and for all remedy this unfortunate situation.