I have taken more chips off the table

The current crisis is putting my trading system to a test just like the pandemic did two years ago. Of course, we are all worried about the happenings in the world, but when it comes to investing or trading in the markets, we can’t let emotions influence the activity, otherwise it wouldn’t make sense to participate at all. I need to run my trading system with the idea that it doesn’t know what is going on in the world, it doesn’t know about the war, inflation or pandemic. It only looks at price action to make a decision.

Markets change

Money flows in and out of stocks. Some sectors become more in favor while others are left aside, but then it all rotates, again and again. Stocks that were in favor before are sold, and new leaders rise with a new uptrend. It’s a constant cycle in the financial markets and this is why I have taken the approach to actively manage my stock portfolio. I don’t believe in buying and holding stocks for several years or decades based on the current situation, because the world is in a constant change and we need to adapt to it. That’s why I manage my portfolio based on the ongoing changes. Whenever I buy a stock, I will always know ahead when to sell it, either for a profit or a loss. I never hope for any outcome from the market.

Stocks go in and out of favor

My goal is to hold a stock until it’s going up even though I need to wait for a confirmation to sell, so I never nail the top – it’s not part of the plan. But I never want to hold or buy a stock that is trending down. It means the stock is getting cheaper and I’d be losing money.

The charts below speak for themselves. These are some of the stocks I bought in 2020 with an exit plan. The green arrow marks my buy, and the red arrow marks my selling point. I don’t always get it right, but I protect my capital to stay in the game.

CHWY - Chewy Inc

FSLY - Fastly Inc

OLLI - Ollies Bargain Outlet HoldingsLess upside potential with higher downside risk

When the market starts going against me, I gradually reduce risk and cut back in market exposure. When things start to work again, I slowly increase my exposure in stocks. At the end of January, I wrote in the blog that I was 50% invested in US stocks and had a high level of cash in my portfolio. Right now, the level of cash is even higher. I’m less than 20% invested in US stocks and have around 10% in gold ETC. I’m short equities around 5% of my account’s value. I’ve been out of crypto since the start of this year. I still run short-term swing strategies when I have a signal. I also allocate a bit to my latest automated intraday strategy that doesn’t hold stocks overnight, but that’s a topic for another post.

I don’t know how low the market can go, and I don’t know if the uptrend resumes next week, next month or by next year. Nobody knows. And I don’t actually care about it, because I will see from price action once it happens, and there will be new leaders pushing the market up that I will have exposure in. Until it happens, I keep protecting my capital and don’t want to participate in a higher risk environment too much. Something else may work for you. It’s not so much about the style or strategy, but to have a plan, manage risk and most importantly – stick to it.

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