I’m sitting here at my Lake Tahoe lakefront mansion watching the Dow Average meander and go nowhere.
It is one of those perfect, picture postcard days, with a blue sky and cobalt lake. The fields outside are covered with snow crystals sparkling in the sunshine.
After the close, I’m going to have to shovel off my outside decks to keep the weight of the ice from collapsing them.
Those (TLT) puts are looking pretty good this morning, and are approaching the maximum profit point with only a few weeks to expiration.
In these tedious trading conditions it is more important for me to teach you how to avoid doing the wrong thing than pursuing the right thing.
I am therefore going to fill you in on my 13 Rules for Trading in 2018. Tape them to the top of your computer monitor, commit them to memory, and maintain iron discipline.
They will save your wealth, if not your health. Here they are:
1) Dump all hubris, pretentions, and stubbornness. It will only cost you money.
2) The market is always right, even if all the prices appear wrong.
3) Only buy the puke outs and sell the euphoria. Do anything in the middle, and you will get whipsawed.
4) With option implied volatilities so low, outright calls and puts are offering a far better risk/reward right now than vertical bull and bear vertical call and put spreads. It is also better to buy stocks and ETF’s outright with a tight stop loss. This won’t last forever.
5) If you do trade spreads, you can no longer run them into expiration the collect the last few pennies. If you have a nice profit take it, don’t hang on to the last 30 basis points, even if it means paying more commission. The world could end three times, and then recover three times, before the monthly expiration date rolls around.
6) Tighten up your stop loss limits. Not losing money is the key to winning in this market. There is nothing worse than having to dig yourself out of a hole. Don’t run hemorrhaging losses, like the (VXX) from $55 down to $25. It will get easy again someday.
7) Buy every foreign crisis and sell every recovery. It really makes no difference to assets here in the US.
8) Several asset classes are becoming untradeable for long periods (retail, the ags). Stay away and stick to the asset classes that are working (technology stocks and short bonds). This is not the time to get greedy and bet the ranch.
10) Turn off the TV and just look at your screens and data. Public entertainers have no idea what the market is going to do, especially if their last job was sports reporting. Their job is to get you to watch the ads for General Motors and TD Ameritrade.
11) As the bull market in stocks enters its ninth year, too many traders, analysts, and strategists have become complacent. You are going to have to work for your crust of bread this year. This is an earnings, technology, and cash flow driven bull, not a QE or tax cut driven one.
12) It is clear that more money was allocated to high frequency traders this year. That is driving the new, breakneck volatility, increasing stop outs.
13) Ignore Washington at all costs. The market doesn’t give a fig what’s going on there, to quote The Queen.
The hackers are getting better. Better change your password too, from 12345 to DKFGGIDKFOKBJGELXPEVJBKDLKFBBJFCJCKVLBKGTY69!, and hope that the 69 doesn’t give you away.
Only The Real Gunslingers are Prospering in This Market