≈ Sometimes truth is stranger than fiction. ≈
The world we live in is a big Twilight Zone. Just as the TV series itself, it’s a strange mix of horror, drama, comedy, and superstition. As if not enough, each episode is concluded with a surprise ending.
When we think we are in total control of things, one single event can change the course of our entire History. We are lived by powers we THINK we understand and the Black Swan is the symbol of these one-offs.
How many times do we read catastrophic forecasts that never occurred? How many times did we witness catastrophic events that were never forecast?
We traders don’t buy companies and their management teams. We don’t participate in corporate cycles. We buy and sell risk. We are Risk Junkies, according to Curtis Faith. For that reason, we are even more exposed to the occurrence of Black Swans than investors are.
So, how do we proceed in this Twilight Zone ruled by Black Swans?
We define our risk with strict rules for position sizing and risk-reward ratio. We watch the position probability of profit and define our exit point beforehand. We carry insurance. We don’t trust the VIX as a synonym for risk: it’s not because the market participants don’t see any risk that it’s not there at all.
Is it going to rain? I don’t know. I’ll take my umbrella with me anyways.
Chart of the Day
Calm like a bomb
The chart above shows the VIX during the period that goes from ≈ 2004 to its peak by the end of 2008, using weekly candlesticks.
Are you sure there wasn’t any risk whatsoever?
In the years before the subprime mortgage crisis, lenders offered more and more loans to higher-risk borrowers. Lending standards deteriorated at an alarming rate between 2004 and 2007.
There was a time-bomb set to explode somewhere in the near future, only market participants couldn’t see it. VIX was calm like a bomb.
Video of the Day
Coaches Mailbag – Covered Call Explanation
Coach Tim answers a student’s question about what it is and how to create a Covered Call.
Today’s Lineup
Women in Trading
Can’t Touch This
Well, my fellow traders, we are entering the last quarter of the year believe it or not and I don’t even know how we got here this fast. I’m having to adjust my daily routine yet again now that my kiddos are back in school and Jessica’s blog on getting some mojo feels like it was written just for me. I am not a big of the fall at ALL! The cloudy skies, foggy mornings and early sunset just make me want to grab my blanket, curl up on the couch and watch football and This Is Us until spring.
Coaches Lounge 11am EST
Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.
The Coaches Show Replay
If you missed last night’s episode where Coach Tyler talked about How to use covered calls to increase your probability of profit or would like to watch it again, check it out here.
Tackle 25 Master Mind Group 8:30PM EST
Join and learn how to better use the Covered Call System with the Tackle 25.
Cash Flow Condors – onboarding 12:30pm EST
If you couldn’t attend the Cash Flow Condor on boarding with Coach Tyler Craig, watch the replay and learn how to navigate the system.
Halftime Report 12:30pm EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.
Market Recap 4:30pm EST
The Market Recap is designed to give you a quick overview of the day that was. While brief, this report is designed to cover all of the major events that drove the markets that day and help you plan for the trading day ahead.
