The Portfolio is Shifting
Discover more from Thoughts from Enjoy the Ride (Tom Basso)
Trading involves a lot patience, especially when a bear sets in. Recession is likely already here when the final GDP number comes out late July. The FED seems hell-bent on raising interest rates to stop inflation after messing up controlling the money supply for much of the last couple of years. Food shortages are showing up here and there in your local grocery store. As trader, I have to ignore all that negative and position my mind as dead neutral as I possibly can.
Why? Because little by little the portfolio seems to be shifting. The HEDGE IS GETTING CLOSE TO COMING OFF, which would put the DIRECTION UP. In the last few days my sector timing strategy, which trades in 20 stock sectors, has gone from 5% invested long to 30% long as I write this. The hedge trade I have been on for a long time is nearing the buy stops and may come off soon.
Of course I will wait patiently for that to happen. Buy stops are in and good-till-cancel. My momentum etf strategy still hasn’t come up with anything to buy. I’m not getting enough excitement in price movements up to have any make their way through my screening, so I patiently wait for some new candidates there.
Most of the futures markets I trade have now gone through transitions from long almost everything in an inflationary mood to short in a recession mood. The trends very clearly have at least tried to transition. The business news this morning has gasoline down as much in $0.50 per gallon in some places after screaming up a month or two ago.
So what’s the discussion about on Twitter, Facebook and the morning business news? “Where’s the bottom in stocks?” “Are we there yet?” “Is it too soon to start buying?”
My All-Weather approach to trading covers a lot of various markets with various time periods and various indicators to set the orders. I took a lot of time coming up with these various strategies that each have their mission in the portfolio. It’s kind of like having 9 children. You love them all, but each has his own personality.
While many of these strategies are showing signs of life, the entire mix of the portfolio hasn’t exactly shown many signs that we are now in a new bull. We may yet get there and my orders are ready and waiting, but in the meanwhile, we patiently wait, watch and enjoy the ride!
The Portfolio is Shifting
Great question. Here's how to solve the conundrum mathematically. You would look at the risk to try and set the initial position with and override based on percent of equity allocated to the strategy. So if you had a close stop and the position calculated out to say more than 5% of the equity, you would default to 5% of the equity position size. If it came out 4.2% of the equity, you would use that number. ETR!
Thanks Tom. I am always reading and learning what you have to say. Talking from Brazil. Big fan. You are a legend. Thanks for sharing knowledge.