Good Day Rookie Bloggers!
I trust you enjoyed the recent blog posts on all things Interactive Brokers. We did a good dive into the platform and I am hopeful that you found some pearls of wisdom in those writings and videos. I know learning new platforms can be a bit of work but once you master the use of the tools your trading will be much easier and it will be worth the effort. As traders, we need to get as comfortable at clicking the buttons as we do understanding and executing the strategies. I have found that IB is not the easier platform to use but the costs to trade do make it somewhat attractive. An interesting addendum to this current series of blog posts is the fact that some major brokers have just cut their commissions to zero, we will see how this plays out as this will be a very big hit to the bottom line of some of these companies. We will also see where this puts firms like IB in the pecking order.
Now, that we have finished the IB series, although with these new developments there may be cause to revive it in the near future, we need to get back to our series on market conditions and the specific types of trades that go along with each different market type. If you have been reading this blog for a while you may remember that we went through the trades for the first two phases of the market and they were number one, consolidation and number two was a breakout to the trend. This leaves us with the final phase of any market and that is the blow-off phase. We will tackle this final phase next week as I wanted to delve into a question that was sent to me from one of our community members who happens to be an avid Rookie blog reader.
The question is as follows… how do you prepare for trading if you are going to be away from the markets for any length of time? Such as a vacation or perhaps your day job is going to prevent you from giving the markets and your portfolio the individual attention that it requires? This question is quite common from newer traders and it usually comes in after one has already experienced some adverse effects from trading. You see many folks believe that if you just build the right portfolio that you can just let it ride and make a boatload of cash. This couldn’t be further from the truth. This is what the mainstream financial world is trying to sell you. Just put your money with a money manager and watch it grow without doing anything to facilitate it? Does that seem logical to you? If you had a job and you just stood around all day and did nothing to provide value for your employer then really how long do you think you would be employed? I think it would be very short-lived and one of my mentors taught me that there is no such thing as a free lunch and this is especially true in trading. I suspect that if you’re reading this blog then you already know that what the mainstream is selling is not good for your bottom line.
The reality is that in life and trading we need to work to create value both in our lives and in our portfolios. This philosophy takes us back to our original question of what do we need to do if we can’t give the proper attention to our trading and therefore if we know we can’t achieve that for a certain period of time then we must realize that we have to make some decisions about what we need to do to be prepared. In addition to this, we must be prepared to accept whatever the market throws at us if we don’t adequately prepare ourselves and our portfolios.
Before I go into the ins and outs of preparing ourselves, I want to tell you a little story about myself in my early trading days and about how I thought I was very well prepared for some time away and how it turned out that I was very wrong about my overall level of preparation. A number of years ago back when I was quite new to trading I was having some pretty good success with a particular cashflow strategy and I was running some pretty heavy position sizing. I thought because I was having so much success that I could divert my attention away from the markets and still have the same level of success. My comeuppance came to me very swiftly as I was on the 15th hole of my third day in the row on a golf course. I had some credit spreads on a major ETF with about five times the size that I felt comfortable with and sure enough the markets an about-face and since I was out enjoying the sunshine I hadn’t bothered to check the phone in a couple of hours. Needless to say, my adverse position put me in quite a hole. I figured since I had my phone that I could close the position on my phone and minimize the damage. As Murphy’s law would have it my cell signal cut in and out and then the app on the phone would not take my closing order. A long story short by the end of the trading day I was sitting on max loss and was very much overleveraged.
The moral of this tale is that even though I thought I was prepared to veer my attention from the market and my portfolio the reality I was very underprepared for the events that transpired. I believed I could walk away and everything would be fine. I also believed that if I needed to adjust a position on the fly that I could accomplish that task and due to unforeseen circumstances I failed to do that as well. So the following is a list of things that can or should be done if you are stepping away from trading for any length of time.
- If your new to trading it is wise to get out of the markets altogether if you are going to be away for any real length of time. This means: don’t have any swing trades or position trades that will require your attention if you are not 100% sure that you can access the market should it be necessary.
- For longer-term portfolio positions, be sure that you either one, hedge your portfolio with some longer-term protection or two accept that those positions may take a beat down if the market tanks.
- Delta Hedging your portfolio can help on a short term basis as you can beta weight your portfolio but this comes with its own issues as even if you bring your portfolio to a neutral stance, as the market moves you’re over delta will also change.
- Be sure that you have a strategic plan to watch your portfolio while you are away, meaning that you have access and perhaps a back-up plan to access your accounts should you choose monitor your portfolio whilst you are away.
Ultimately, the answer to the question that was posed is the same answer that always comes with success in trading, have a plan for what you do so that you don’t run into surprises while you are shanking your 5-iron on the 15th hole!
Happy Trading All,
Coach Holmes
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