I was out of the office all day as my portfolio was going through lockstep reversals against my positions. It was a serious down day for my total portfolio. Everything that has coined money over the last few weeks (trends everywhere!) went the other way today. Am I concerned? Not in the least. The mentality is that:
I have had a huge run in the last few weeks with all these trends and was at equity highs yesterday. I have a lot profits to work with.
I can afford to give the markets some room to the stops as most of these are into profits taking into account the stop points and this amount of extreme volatility requires lots of room for normal “market noise”.
Some markets have already stopped and reversed, so if this action today continues, I’m not going to have every market going against me.
Over the last 4 days, I have had total portfolio risk control adjustments which peeled off partial positions to keep my risk and volatility as a percent of equity constant and under control. This means that the positions I had with the equity climbing fast were far greater than the positions that I now have, so I’ve buffered some of the potential risk and volatility, allowing me to sleep well at night.
I moved up a number of stops a huge amount as my strategies permitted and indicated. That means that should the reversals continue, more markets will reverse and continue to break apart the lockstep that the markets seem to have been in.
As many of you know, I’ve been through a lot of these over my last 45+ of trading the markets and it happens the same way every time you get one of these news driven, world changing moves in various markets. Those traders that have missed the moves don’t want to get in late. Those that have enjoyed the nice runs are itching to take profits. Only a few can step back, look at it through the lens of a normal trading strategy with good position sizing controls and realize that it’s just another day of trading.
If the risk to your stop has doubled, but your position size is half of what it was when you got into the position, should you be any more worried about the position than when you entered? It is mathematically exactly the identical risk as when you started the trade!
Trading well means having a plan and executing it flawlessly. That plan should realize that these types of moves happen both in your favor and also against you. That is expected and part of plan. When you finally get to that realization, you will have arrived in a different place than most of the traders trying to predict whether or not this correction up in a bear market move will continue or not, AND you definitely will be enjoying the ride!
Nice post. Always learn something here