What does one do when he, as a trader, feels like nothing is working right? With the market reaching new highs on a daily basis, and with me so bearishly tilted, this is certainly a question I'm facing a lot.
It's hard enough addressing such a question in private. But since I've been doing this very publicly, it's far more emotionally challenging. It's especially hard since some of the nastiest, most hateful creeps on the planet get a real charge out of seeing someone like me struggle. Most people would just quit blogging if they got some of the emails I got.
But I'm not the sort who, as the saying goes, lets the terrorists win. So – back to my question – what does one do at a time like this? Here are some possibilities for someone bearish like me right now:
Action 1: Go entirely into cash
Advantage: Risk goes to basically zero. Emotional anguish ceases. No more risk of getting squeezed.
Disadvantages: Profit potential goes to zero.
Action 2: Buy stocks and increase long exposure
Advantage: Attenuate damage to portfolio in case of continued push higher.
Disadvantages: Entry is at high price – upside potential is questionable.
Action 3: Wait it out
Advantage: Most closely follows trading plan (after all, a "plan" is meant to be executed); just let the stops do their work. Profit potential still intact.
Disadvantages: Exposes you to continued losses.
Action 4: Completely switch – cover all shorts and go long
Advantage: Fully participate in any continued push higher.
Disadvantages: Very expensive to cover shorts at these levels (and likewise potentially expense prices on long positions)
Action 5: Trim Back
Advantage: Reduces risk if market keeps going higher
Disadvantages: Also reduces potential profit potential is stocks go down
I'm doing a combination of "2", "3", and "5". That is……
- Earlier today, I bought the fifteen securities I mentioned in my earlier post.
- I'm letting my stops do the work (and, make no mistake, they're doing their work; I've been boinked out of something like 20 positions).
- I have, in some cases, trimmed back my position (such as with XLU)
Today stinks – no doubt about it – just like most of the past two weeks have stunk. But I'm not the quitting type.
