Why am I constantly pounding the table on TRADE SIZE RISK MANAGEMENT of never putting more than 5% of one's overall portfolio into any one stock?
Why am I constantly pounding the table on having a high cash position all the time?
Why am I constantly drilling in everyone's head why I am always drawing support and resistance lines to guide us?
Why am I constantly pounding the table on NOT buying strength and breakouts in markets that have already moved higher?
See AMZN,GOOG,CRM lately? All ended up being shake and bake shake out highs when viewing a chart
Why am I constantly pounding the table on fluctuation risk management?
Because of days like today that's why. If there is one thing, one big thing I want and NEED YOU to drill into your subconscious its called RISK MANAGEMENT!
What is at the core of RISK MANAGEMENT? That of MANAGING THE UNKNOWN.
The fact of the matter is nobody on the planet knows what is going to happen, if they do they sure as heck aren't going to be talking about it I'll tell you that. But, you don't need to know either. All you need to do is install fail safes like I do BEFORE one takes a trade via the above to combat when you get days like today. Today's gap down is an event over which you have no control over because you never know when they are coming hence the unknown.
Over the weekend I said:
When we look at the indexes here I can easily build a case for a quick one two punch to take a look at trading range support which is where we want to be buyers at.
See those small red POL's? In the short term they are bearish patterns. I've talked about patterns within patterns and when you look at the whole pattern within the pink lines its one big wide loose pullback off highs long side pattern brewing. But within that pattern is that small POL and that's a bearish pattern. Its really a matter of it actually being in play. We'll find out next week.
Below are the charts from yesterday.
Now lets look at what they look like today. Make note of the blue lines above because as you'll see they and Fibonacci retracement zones are alive and well and in play too.
Over the weekend I said:
If the markets do move lower and take a look at trading range support zones in so doing it would mean in flight turbulence on the way to support for the small amount of long exposure we currently have but it also means opportunity on the long side should a tag of that support occur so don't forget that part of the equation either.
Going into today we were long 20% and cash at 80%. Due to trade size risk management let me show you why you really never have much to fear but your fear of fear.
On a 5% position did you know that if you woke up one morning and that position due to a news driven event over which you had not control over anyway (sound familiar?) gapped down say 10% that the total impact to ones overall portfolio would be a whopping 1/2 of 1%? A 20% drop would have an impact of 1% to the overall portfolio.
Think about it. With regards to our 4 positions going into today (from an illustrative standpoint) if all 4 dropped 10% know what the total impact to our overall portfolio would be? A whopping down 2% that's what that is why trade size risk management is so important. That is why when I built all about trends I instilled that tool right from the start.If they all dropped 20%? It would mean down 4%. But remember its also about that time that markets get washed out and are sitting on some sort of support zone too you know.Folks 2-4% fluctuations to the overall total value of ones portfolio isn't really all that big of a deal in the markets these days.Over the last few years we've seen 5-10% drops be pretty common in the markets, a lot of 4% drops thats for sure.Now if you have a problem with a portfolio fluctuation 2-4 or even 7% at moments in time subject to the next moment in time? You probably have no business being in the markets and CD's are the place to be. But wait? They don't pay anything you may say and your right they don't. That's the return for no risk these days. Bottom line is this, no risk, no reward and a longer time horizon to reach your goals when operating in the world of CD's.
It all comes down to being willing to take the risk knowing full well the end result could be a loss. If you are unwilling to take the risk, the risk of the unknown I might add you are never going to see any form of reward. But as you've all just seen I've framed that risk of the unknown the best I can given the sign of the times.
As for the holdings we have already as we came into today? We are going to hang tight with them for now. Lets not forget as we've seen when these markets rally they rip of short sellers faces really fast not to mention leave Nervous Nelly in the dust.
With regards to the 3 new positions we took today? If we don't stabilize here? If we head to the 61.8% Fib zones? Then we'd consider adding the other half batches we didn't yet.
On the short side? Forget about it as today's gap down destroyed any low risk alternative entry points that were building. Bummer.
We are now 27.5% invested with the rest in cash. The other thing I need you to do is put a star next to this mid day update when it hits your inbox as its that important for future reference. That or download it off the paying subscriber side for future reference, future centering reference that is.That is how important today's conversation on risk management is.
Harlan Pyan
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