1. Trading journal
2. Tip of the day: Triage, kick out the free loaders and never trade laggards
1. Trading journal: Round 2, time to short again and don’t complain there aren’t enough short ideas
This is the big day, time to get back in the ring. Short squeeze came and went. Now, stocks are rolling over again. This is quite an unusual to do so though. Roll-over usually happen over the course of a week. This time, it’s different (just love to say that to confuse people).Roll over happens across asset classes on the same day. In fact, there were so many they had to be split in two files. It took more than an hour and almost half a bottle of Prosecco to process them. So, don’t complain there aren’t enough short selling ideas.
So, “is it the right time to dip our toes in the water ?” When everyone is buying, short selling seems like a bad idea. By the same token, when everyone around the world, across asset classes is selling, does it sound like a good idea to go out and buy ?
If You want details on any signal, send a mail or a comment and i will post it with comments.
All signals are ranked by size assuming a 0.10% risk per trade. I placed a whole bunch of orders. The priority algo was as follows:
- Free up some space and kick out free loaders: see Tip of the day
- Top-up of existing positions: SPY, EWL, EWH, EPP, PHO, VWO. Ignore EWA, IDV and TDIV already fully loaded or expensive borrow
- Enter qualified trend reversals: we have designed a neat trend reversal qualification test some time ago. This is as early and as safe as a trend reversal can be detected. So, anchor positions with minimum risk per trade very near the top
- Enter trending shorts by size and lot numbers: the bigger the size and the higher the number of lots the better. High lot number means easier partial exit
Tip of the day:
- Make space, get rid of stale positions: multiple simultaneous positions means something happened in the markets. So, the first thing to do is to get rid of the positions that did not react. Those that do not react are likely to hurt when the market moves the other way. For example, during this sell-off, some positions held their ground. Two of them even went up. Fine, OUT now. Yeah but the thesis, the long term prospect, blah blah blah. Sure, when ready to cooperate, we will talk about it, but for now OUT. This frees out some resources to more promising ideas
- Weight ranking: position sizing algo is fixed fraction position sizing of equity at risk -0.10%. So, for the same risk budget, the bigger the position size, the lower the volatility. Yeah, but i like the thesis on bio stocks. Great, they are too volatile still, so wait until they are ready for a serious relationship
Managers often fail to meet their objectives not because of spectacular blow-ups, but because of the drag of poor performing stocks. So, relentlessly kick out stocks that do not react or perform poorly. Here is a simple powerful way to reframe the situation
If You owned a building, would You allow tenants to stay rent free ? No, You expect them to pay their rent. Apply the same discipline to stocks and performance will mechanically improve. Here is a simple elegant “how to” article
Never trade laggards
Brokers and fund managers have this constant fear of missing the boat (fear of missing out or FOMO). So, they have come out with this brilliant idea to round up thematic stocks and identify laggards. The basic thought is “This is the next…”. IBM is not the next Apple, Squarespace is not the next Facebook. Laggards are just left overs
The best remedy is to think that the boat You just missed is not an ocean liner but a Vaporetto. There will be another one shortly. The market will give You another chance