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7 Ways to Survive This Market

July 8, 2008

It was not too long ago when I mentioned that once June is gone, we may see pull back in commodities. And guess what, it’s been only a few days and DBC is hammered badly. Is it only a temporary set-back or long term, let’s see?

Markets have been pretty tough and remaining on sidelines with cash & gold is as good as it gets. But for how long? We are challenged day in day out. How do we survive such a market scenario? let me being this by sharing that these are extra ordinary times and extra ordinary times require something “extra”.

What are the extras-

  1. Stay “Extra” close to your trades. It’s not one of those times that you can leave a trade and forget about it. Even if it is as boring a trade as Iron Condor. This month is a pretty good example. Markets have moved over a 1std deviation on the downside.
  2. Develop “Extra” perspective of the situation. A lot is going on. I covered some of those here. In order to benefit, one needs to develop his or her own perspective of the current market environment. Don’t rely only on Technical Analysis or fundamental analysis alone. Don’t rely on gurus to tell ya what’s going to happen. Listen to them carefully but develop your own hypothesis and find data to support that. You may want to prepare a list of what’s working in the current environment and what’s not.
  3. Develop “Extra” scenarios/steps for the trading plan. Yes, I am open on this. No matter if you have subscribed to OPNewsletter or any other newsletter service. If you are relying totally on “service provider” to share the plan, it may be late or you may be late to execute the trades or may execute the trades that you are not convinced of. Huge intraday ups and downs seem to be the norm these days. I suggest running several “what if” scenarios in advance, hopefully everyday (these days), for your trades or portfolio. That way you will be prepared in advance with already identified adjustments so you make right decision during market moves. Bottom line, no one can protect your money as much as you can. Protect it.
  4. Don’t take “Extra” risks, close it. If you feel you are not comfortable with the adjustments, or don’t have full understanding, then book loss and close the trade at pre-identified levels as per your trading plans. One should expect losses in certain months. That’s the cost of running the business (trading business). Preparing in advance will take emotions out of the trading equation.
  5. Stay “Extra” Hedged. Though market have been declining, there is no certainty on what’s going to happen tomorrow and this uncertainty is also reflected in high implied volatility environment. You may want to minimize your profit targets in order to stay hedged. I shall encourage to ensure that you are as close to delta neutral positions as possible (or the bias you have about the direction).
  6. Don’t “Extra” trade: I am tempted everyday by the “opportunities” I see. Almost everyday. Those which I thought were cheap, turned even cheaper either few hours later or a day later (check out charts of my Fantastic Four). Trades where I thought I have my “bulletproof” technical set-up, faltered. Just when you thought things are about to improve, a disaster strikes. I have large portion of my capital in cash and it’s extremely hard to resist the temptation of trading the “opportunities”. I am forcibly taking myself away from the trading monitor and spending time in creating “what if” scenarios.
  7. Compose and “Extra” Discipline yourself:This is a tough market. You may have losses in spite of your wonderful risk management plan. Firstly don’t let the losses become large, 2nd, don’t let it stop you from finding and trading good opportunities. As the old saying goes, “If you ignore the past, you will lose one Eye. Live in the past and you’ll lose both”.

Trade carefully, Trade Profitably, OP

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