The following is a question from a All About Trends subscriber in reaction to this morning’s sell-off.
What are your moves for DDD, SSYS, INVN? Everything seems to be tanking?
Take a look at the index charts in today’s newsletter, the yellow brick road is intact. Right now all we are doing is puling back to trend channel support. Sure it’s not a fun ride on the long-side , but the market is a three way street- up, down and sideways.
Given that we are near TREND CHANNEL SUPPORT, should we throw all our positions out the door when we are near a support level? Should we throw all our positions out the door because they are down and doing so right here is AFTER the damage has been done?
This is why we stress TRADE SIZE RISK MANAGEMENT.
For example, if we have lets say a 5% position in ABC stock and the stock tanks 10% what is the total impact to the overall portfolio?
Lets use 100,000 as a talking point to drive it home. A 5% position on a 100K portfolio is 5000. Lets say that position is down 10% (500) what is the total impact to the portfolio? 1/2 of 1% , now lets say that a position is down 20%, the impact is 1% to the overall portfolio.
So compliments of trade size risk management, you can see the markets can have a bad few days yet one doesn’t get blown out of the water because of that fail safe.
Now about the same time one is about ready to stop out keep in mind a funny thing occurs and that’s called support. With every position we try to lay out where support is and for good reason so when the market gets a bad few days we know where they can come down to in advance and that allows us to stay centered vs emotional because we are just looking at the surface of being down X% in an issue. One has to look deeper than that an get past the fear/emotional side of thing to do so.
Do you see where I’m going with this? Its all about being objective and operating within a framework that allows one to stay centered and focused vs reactionary not that you are being reactionary mind you as I get that you are just in need of a little hand holding (as we all are at times), in that case I hope this email finds you well.
Just relax, let the market polish off this pullback to trend channel support and lets see what bounce does.
Harlan David And Jeff
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