Environmental Hedging: Market Fortitude

Kia Ora Tackle!

So the South Island saga continues… even though I am in Tasmania at the moment, lol. In short, both Matt and myself were caught up in our dealings and posting this blog became difficult, i.e. lack of internet, drastic time differences, and travel schedules. However, we’re going to get you caught up in two blogs time and things will sync up better down the road.

The last time we left off I was on the South Island in New Zealand wherein shortly after I had the pleasure of being joined my mother and grandmother of 84yrs for a two week journey through my favorite region of Southern New Zealand. As seen in my prior power blog montage the landscapes here are amazing and it was an honor to show the girls what I have been up to in this great nation. And I am very proud to report that their time abroad was (according to the grandma):

“the best vacation of my damned life”.

Now, anybody that has been to New Zealand and has properly traveled the country will unanimously agree it’s one of the most beautiful places on the planet. Naturally, such a statement is subjective, however, there are only two places on the planet where glaciers meet jungle, where rivers flow aqua blue, and fauna outnumbers human beings tenfold. I haven’t been to a place wherein a span of 20 miles you can go from high glacial alpine to pine forest, to jungle, and end the morning on a beach in an 80-degree heat wave for brunch. It’s even better if you do so in a helicopter! If you ever have the chance to do a serious travel and your trading is going well and have some folding money, check out NZ for sure.

In terms of the market, we’re getting close to being out of the bush; that, or the second leg of this modest correction will begin. For one, Gary Cohn leaving will not help put the Bulls at ease in my opinion. I mean, for Wall St. and London, Cohn represented competent guidance and effective policy advice in many regards. And in certain circles much of the recent market boost we have seen since the election was aided by his mere presence in the White House.

Second, and the reason for Cohn’s departure, is Trump’s move toward larger steel and aluminum tariffs — which is incredibly problematic for a majority of our trading partners and it is unclear if such a move will benefit America in the First place. Im sure Cohn would have been a fine judge of potential benefits or drawbacks of such tariffs. His leaving the White House is indicative of the latter. That, and I have been hearing a lot of complaints from Australians and New Zealanders about this recent move. The announcement of these tariffs in and of itself slowed, (if all but eliminated), a quick return to normal and has many of our closest allies at odds. That and it is a move that China will gladly confront and easily win out on. Let’s be realistic here, folks.

Now, I’m not necessarily calling direction, all I am saying is that there are more conflicting variables at play in what should be a simple Bullish Retracement. I mean, these announcements came right as the market was nearing resistance and as result was unable to breakout last week. To my eyes, it is plausible to see an M-Formation beginning to rear its head and I can see another drop back down to where the initial drop left us over a month ago — wherein a W formation will form in the dip and the market will continue its bullish run. Just as it did in Aug-Sept of 2015 and Dec / Jan of 2015. That said, the above mentioned is merely an opinion of mine and we will certainly see for ourselves in the upcoming trading weeks. Either way, the market is still Bullish and as in the preceding examples it should bounce and continue upwards.

As mentioned in the video I am not doing much in terms of Naked Puts at the moment. I want to see the market either break back above resistance; that, or go back down to last month’s price levels. If this is, in fact, the second half of the dip then I will be issuing Naked Puts soon after it tanks and nears the double bottom. If it breaks above resistance, however, then we are back on track and I’ll be going after the Robin Hood list as I have in prior months. Either way, the market is still Bullish and it is always a prudent play to be patient in the “flutter” stages of a Bullish Retracement. Let’s see what happens ladies and germs.

So here is our teaching bit for the week folks, and this is what I call Market Fortitude. So often, the market will do things and react to things in very unexpected ways. Sometimes, what you would imagine as a positive may result as a negative. And sometimes… precisely the opposite will take place. But very rarely do two negatives equal a positive in the stock market.

In the Options market, however, such equations offer opportunity. But its opportunity that is muddled and sometimes best left alone in many regards. For example, I’ve all but ceased doing directional trades (or anything of the like) until resistance is broken or support is tested in this current situation. And let’s face facts, patience is a virtue that new traders have a hard time acquiring. For example, Cohn’s resignation may present an opportunity to short the market… But then again this market may very quickly shrug it off to no avail. And most likely it has already been priced into the market in all honesty. Once again, conflicting variables at play here.

The point is all too often I have chased situations like this one in my younger trading years and very often do I come out the other end empty-handed. So here are a couple concepts I wish to express and are more so in sync with Zen then objective trading — such as strategy or technicals. Yes, believe it or not, there is an emotional side to trading and investing and mastering the emotional aspect of this business is essential. This was something that took a lot of trial and error for me due to my nature. For example, I can easily be distracted (*a look theres a butterfly*) and by god if there is a carrot dangling in front of me Ill chase it, almost always.

1). So in situations like the current one, I do what I call the “duck and cover” method. Cover my share positions and get rid of the directionals that I am able to. Pretty simple, right? As Matt Justice once taught me, “always insure in moments of uncertainty”. And if you do not have any trades going already, “sometimes the best trades are the ones you do not make”.

Now, those statements always resonated with me as an individual… but then again Matt is also the person that warned me about trading “in a field full sharks” once upon a time ago, which definitely did not make sense. Or did it? Who knows. The point is analogy and metaphor always come with a grain of salt that one will eventually have to swallow. And sometimes its a lesson learned the hard way, folks. So once again, in moments like this, I am not going to try myself against the altos or the big boys, those “field sharks” if you will. I’m going to sit back, and patiently wait in the fetal position, (i.e. the duck and cover position) and pick up scraps from covered calls and collar trades while the big boys battle it out. This is an act of patience, folks. Which, (if you want to be a PROFITABLE trader), you need to have heaps of patience. No questions asked.

2). Now, I am sure we have all heard the analogy “when people are greedy to be fearful and when people are fearful, be greedy”. This a hard one to come to grips with because it opposes human nature. For example, let’s say this Cohn tidbit does send the market south and creates a double-bottom…Well, there’s always that moment at the bottom of that double-bottom does one wonder if support will actually hold… I call this the testicular fortitude stage and some of us got it, some of us do not.

Analogy aside this moment is where one “buys the dip”. If the market is bullish and nothing fundamentally has changed yet, then don’t be afraid of buying the dip. 80% of the time, literally 80%, its not a bad play. Folks, trading shouldn’t be a fear packed daily event. In fact, if you are trading correctly, one might not even be bothered to “trade”, but merely monitor and continue to watch that paint dry.

I cant tell you how many times I’ve not even checked my account until the end of the day, if not at all during the entirety of the trading day only to discover nothing has happened at all. However, if I go through the 5 min daily chart I see ups and downs and emotionally packed events leading up to that last hour I know much of that may have caused me to make a trading decision if I had been in front of the market. Which leads me to my next point:

3). I only check my account or trade for that matter during the last hour of the market. There are many reasons for this. For example, let’s say something moves big on you in the morning and you are on the wrong side of that trade. Well… wait until that last hour to close it out, assuming there are no stop losses in play. More often than not your loss will be less than it was in the morning. Secondly, something that may seem appealing in the AM may turn out to be a complete nightmare by the end of the day. Once again, it will keep you from making poor trading decisions and just remember that: “some of the best trades I’ve had are the ones that I did not make.” But then again, there is a fine line between “paralysis by analysis” and way too much “testicular fortitude”. Which leads me to my next point:

4). Trading is 100% about balance. You have to ride your highs and ride your lows and at the end of the day, just keep it medium as Beau Moody would say. In other words, its balance, folks! Pure unfettered, unemotional balance. You shouldn’t even have a moment of anger or fear and god forbid a moment of excitement in the process that is trading…

It is the balance of a professional. The kind of balance that is achieved through heaps of hard work, education, and trial and error — which removes all base emotions from the equation. You see, education made me capable, the hard work created a sense of competency, and trial and error created profit…and losses. But because of balance and the first two objective elements, (education & hard work), profits have outweighed my losses, fortunately. But even then, if I was on a losing streak (which happens from time to time) I am well aware probability “will eventually win out”. Just as Michael Jordan about that statement.

Anyways, if I had gone lone wolf on trading it probably would have delayed my profitability phase by several years. I’d be the first to admit this reality… But because I have had that boost, that guidance, if you will, I have finally learned what trading is for me as an end all be all — which leads me to my last point:

5) Life is not about trading as trading shouldn’t be one’s life. Life is about the people around you, it’s about the places you see, the places you’ve been to, and the places you want to go. Trading just helps you get there. It’s a tool and nothing more. And as a tool one should not attach emotion to it. Its just there, doing what it was designed to do, per application of education, hard work, and probability. And the better you are at yielding this tool the broader your horizons will become.

Some of us use it as a supplement. Some us use it as our primary source of vigor. But all of us should use it as a means to make a lasting impact, a translation of virtual reality into an actual reality. I can assure you if it wasn’t for trading this last 1.5yrs none of my adventures would have taken place. Thus I challenge each and every one of you to do good things with this tool. Just know that money is just money…but being able to translate money into a force for good rather than greed is the only thing that matters in this day and age. Trust me on that one.


Bob Shannon.




Learn. Trade. Connect. Succeed. tackletrading.com

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Tackle Trading

Tackle Trading

Learn. Trade. Connect. Succeed. tackletrading.com

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