Handling a Long-Long Trading Portfolio During a Market Correction

You’re probably laughing at the use of the term “long-long”!

Hahahahaha, I laugh with you, 🙂 !

In India, we like to get our point across without caring too much for terminology, and / or how funny it may sound. 

What I mean is, and you’ve obviously gotten the drift, that the average trader is normally long in a trading portfolio.

Now, how is the trader to deal with his or her trading portfolio and its dwindling valuation during a long-drawn out market correction?

Sure, there are many options. 

One is to hold and sit it out. 

No good. 

This is not investing. This is trading. Trading means that once a stop is hit, you’re out. Period. 

Second option – bludgeon it. Cut the entire portfolio. 

Hmmmm, that’s not trading. 

Many stocks will not have their stops hit yet. Why are you cutting these? This would mean losing your position. What if the reversal starts right now? You did the right research, you entered, and now you’ve lost your position. 

Not good. 

We’re not bludgeoning it all. 

Of course we are continuing to cut those stocks whose stops are hit. 

No question about that. 

Now comes a kind of a “pointe”. 

You’ve hit a stop during the correction. You’ve gotten out of this stock, as per your trading rules. Look for another stock with a northwards chart that is not getting so affected by the correction, but has fallen a tad so as to allow margin of safety during trading entry. 

You’ve done three things here. 

You’ve entered a robust stock. 

Simultaneously, you’ve benefited from a slight price advantage. 

Thirdly, your trading portfolio is still going. Its contents are getting robust. Come the rally, and the robust contents are going to zoom. 

You’re trading on surplus. You’re not afraid to lose till your stop. You’re not afraid to reenter. So why cut it all? 

There’s no telling about turnarounds. 

However, when they happen, you are positioned. 

Optimal positioning while trading leads to big profits.

What’s the worst case scenario?

Stop after stop being hit, and eventually you being out of the whole portfolio?

Remember, the other side of the coin promises big profits, were the turnaround to happen now, with your portfolio full of robust stocks.

Are you willing to make the trade-off?

No?

Well, then don’t trade an entire portfolio. You’re better off trading one underlying, like an index derivative. Cut it when you like, no questions asked. 

Yes?

Well, then, what’re you waiting for? Make the trade-off. Go for it!

🙂

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Breathing Space

I like to breathe…

…between trades. 

There’s something fresh about being market neutral. 

One is decoupled from market forces. 

One feels light. 

If one has just closed a losing trade, there’s hung-over disappointment. 

Forget. 

Breathe. 

Move on. 

On the other hand, if one has just closed a winning trade…

…there’s remnant euphoria. 

Forget.

Breathe. 

Move on. 

Why forget?

The next trade is the next trade. 

It has nothing to do with the previous trade. 

Also, one is recuperating, remember?

Market forces take a toll. 

Market neutral air allows the system to regenerate. 

Don’t mistake this market neutral with the other market neutral. 

Insiders speak of being market neutral when they are hedged, and trades on both sides result in an overall market neutral stance for them. 

Hedged market neutral candidates experience a double whammy of market forces. 

You’ve understood by now, that we are talking about the “not in the of the market” neutral stance. 

Should one then even call it market neutral?

I mean, one can call it sitting out, or something. 

I like to call it market neutral breathing space.

When does the neutral strictly apply?

When I don’t know if the next trade is going to be long or short.

What will the trade direction depend upon?

Data. 

Chart. 

Technicals. 

Fundamentals. 

Whatever cooks your goose. 

However, sometimes, one is on a short-short strategy, or for that matter a long-long strategy. Meaning, that one might be out of a trade, but one is waiting to go short (long) on the next one, and so on and so forth. Meaning that one knows one’s trade direction for a defined time frame. 

Well, I still like to call the breathing space between trades market neutral, even here, because the word “neutral” reminds me to keep an unbiased mind about the next entry point. 

I try to then look at the chart free from the remains of previous experience, in my search for an entry point, even though I know the direction that I will be trading.

How much time can one spend between trades?

Depends on when the next setup arrives. 

Why the hurry?

Enjoy the calm of the space.