You’re tuning in to a Coaches Show and you hear me and my pals talking about how the market is at resistance. Maybe a bearish reversal candle just formed. Someone mentions how it might not be a bad idea to grab some insurance.

You leave, troubled. If mister-smartypants-been-trading-longer-than-me commentator says buy insurance, then I guess I better. You promptly buy some OTM puts. The market falls one day, then rips higher for five, continuing the overall uptrend. Do you keep the insurance on or do you bail? Did your portfolio even need insurance? Heaven forbid if you bought puts on a portfolio that was already bearish.

Lesson #1: Context matters. Not everything you hear applies to your situation. If a comment about buying puts piques your interest, then consider that your catalyst to begin researching how to do it properly. What kind of portfolios need it and what kind don’t.

Here’s another.

You jump into trading with both feet. One trade becomes two, two becomes three. Pretty soon, you have a hodge-podge of holdings, a potpourri of positions. Sometimes you’re leaning bullish and sometimes bearish. But there’s no rhyme or reason as to which way you sway. Weeks go by and you discover your results are all over the map.

Lesson #2: You need a plan, man. If you want to swing trade and enter discretionary positions week to week, then be my guest. But I don’t advise throwing your whole portfolio into it until you’ve proven you make money over time with the system. And, if you’re going to do this, then I suggest having a process for determining if you’re leaning bullish or bearish.

Here’s another.

You learn how to measure overall portfolio exposure. Great! The coronavirus and 39 million jobless have you jittery. So you lean bearish, your SPY beta weighted delta is negative. The market rises, pauses, and rises some more. Do you turn bullish? But the economy still stinks. Uncertainty still looms. You wait. The market pushes even higher. At some point, you hit your pain threshold and capitulate, seemingly at random.

Lesson #3: If you allow news, economic data, and your feelings to drive your portfolio bias then good luck. News and data are backward-looking. Your feelings are fickle. The market often does the opposite of what you’d expect given the news. Develop a process that keeps you on the right side of the overall trend. In my experience, news and feelings won’t do it consistently enough.

I use the trend of the SPY to help dictate which way my portfolio should lean. It’s far from perfect. To borrow a Churchill quote about democracy, technical analysis is the worst form of analysis, except for all those others that have been tried. Now, to be fair, I own stocks so I’m always leaning bullish. It’s just a matter of degrees. When the trend is lower, I pull in the horns. Sell calls, buy some puts, add individual bear trades, and the like. When the trend is up, I do the opposite.

I don’t care if I my process works every time (it doesn’t). I care that it works over time. That’s what gives me the confidence to stick with it when rug pulls like March happen.

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