There is no shame in losing money on a trade, but to hold on to a loss and let it get bigger and bigger, or even worse, to add more is amateurish and self destructive.

Good things are coming, just keep moving forward.

 

 

AARK - bear market rally will be fun.......... and good for the nimble traders.

                                      

 

"Markets"

Unemployment is plumbing new lows at a mere 3.6%, right up against the pre-pandemic 50-year low achieved in Feb-2020 of 3.5%. History shows that such drops which may fall even lower always precede spikes in unemployment due to recessions. Such spikes can occur within a few months of unemployment lows. While deep supply chain disruptions remain due to container ships stuck in transit, there is also a massive supply problem in labor because 1.6 million fewer people are working compared to pre-C19 in February 2020. We are witnessing a return to at least 1970s style stagflation. It's going to take more than several rate hikes, perhaps at least a 4-5% increase in the fed funds rate, to dent inflation in the housing market and other major sources. And stock markets will not stand for it which will force the Fed's hand to adopting dovish policies once again.

The CPI number Y/Y came in 0.1% above expectations at 8.5%, though core came in 0.1% below expectations at 6.5%, suggesting to some that inflation may have peaked. The PPI came in higher than expectations across the board. The problem is inflation has notoriously long tails of typically at least 2 years, so even if inflation does not increase from here, it can stay at the current levels for the next couple of years which would be disastrous to the economy and to savers.

Further, while many commentators with huge followings keep saying stock and crypto markets can now rally because everything is priced in, they have been putting up this prayer since the start of this year, yet here we are, still in a long term downtrend, due to the tightening of rates, as stock and crypto markets which bounced hard from oversold conditions are starting to roll over again.

The CME Fed Futures has priced in a 50 bps rate hike for their next two meetings, May 4 and June 15. This would bring the fed funds rate up to 125 to 150 bps from its current 25 to 50 bps. Will the U.S. stock market be able to stay above its -20% peak-to-trough threshold which has historically since 2009 been the point where the Fed Chair cries "UNCLE!". Thus expect inflation overall to continue to accelerate over time if hundreds of years of history are any guide along with markets trending lower until Powell reverses his hawkish position.

Trading is a matter of making trade-offs. Use wider stops – and increase the win rate in exchange for larger drawdowns. Name the tactical change to a trading program and there will be trade-offs. My trading regime is filled with trade-offs. A high Gain-to-Pain ratio and Profit Factor are my goals. I give up absolute profitability as a trade-off. Aggressively I protect trading capital. I cut losses very quickly – this protects capital with the tradeoff of being stopped out of a lot of trades that subsequently become winners.

Trade-offs. There are always trade-offs. There is NO way to optimize for all the outcomes you want.  The wrinkle in playing the trade-off game is that there are always unintended consequences. Sometimes the unintended consequences are good news, more often they are unwelcome. Then, in the process of addressing the unintended consequences, new trade-offs occur.

"FYI"

Since the Fed minutes delivered on Apr 6, the CME Fed Fund Futures is now pricing in 9 more 25 bps rate hikes this year with a 77% chance of a 50 bps hike at their next meeting in May. The Fed indicated it plans to run off $60 billion in Treasurys and $35 billion in mortgage backed securities each month, above estimates of $70-90 billion in total, but could work its way up to its target "over a period of 3 months or modestly longer if market conditions warrant." All of the above suggest the Fed will not be reversing their hawkish stance anytime soon, so if you are exposed to the long side of stocks or cryptocurrencies, keep your stops tight.

Markets are always the same, they always change.

The only constant when it comes to markets is change. Quantitative easing, or QE, was one of a number of material changes introduced to the markets which destroyed a number of variables that had once carried predictive value. Thus being able to pivot in a timely manner has always been critical to the few successful investors who have remained successful.  If we analyze a century worth of data, we will see that all crises were followed by major averages bottoming then moving higher which brought major buying opportunities.

Note: While markets have always recovered, it can take many years, sometimes decades, to breakeven if you bought at a peak.