Thank you to my investors that mentioned Payoff Matrix.
On 1/30/2018 at 9:34pm, I sent my investors a memo and charts for the next day. My investors are aware of how I qualify the market. When I sent the charts that night for trade date 1/31/2018, my investors were aware that the market at that point had flipped to a negative skew. They know how I qualify the market and what changed to give the market a negative skew. That negative skew remained intact for the next three days and my investors were made aware of that.
The night of the Super Bowl, I sent another memo to investors at 5:50pm before the futures opened that Sunday night. The negative skew remained. I sent a chart for Monday that night. They are aware by looking at the chart if the market has a negative skew. In the memo itself, here’s part of what I wrote that Sunday night for the next day Monday (the crash day). It’s not the entire memo but it’s part of the expectation: I wrote this about the ES.
“selling strength is a better choice” and “The market may go into trend mode. If it does don’t get in it’s way” and "negative bias ". Those are some of what was included in the memo Sunday Night for trade date Monday 2/05/2018.
Yesterday a little over 10 minutes before the close, I informed investors of $3 billion dollars that needed to be sold in equities. One of my investors thanked me for that as he got out of longs he had yesterday. I’m sure he’s very happy today.
Last week I informed investors that pension funds needed to reallocate and sell $12 billion in U.S. equities and buy $24 billion in fixed income.
I also informed investors of a note that funds would need to reallocate and sell $70 billion worth of equities if the S&P 500 closed below 2700.
I’m keeping an eye out on the bond auction and we had a market move down that was dollar driven the other day (after Monday) that was due to the results of the bond auction. Investors were made aware of what was causing it.
The day of the crash I sent investors a memo at 9:59am on Monday 2/05/2018. Here’s part of it:
“ES is controlled by day traders right now. volume high and the book very thin.” and mentioned it’s still weak. I also included “NEWS: White House monitoring market sell off. White House concerned about market fall but confident about economy. just crossed wires.”
That day the DOW opened down almost 300 points. It rallied all the way to even from down 300. This is the time everyone was buying the market. If I had not sent that note, my investors may have been buying also. But I informed them that the market was still weak. It rallied all the way to even and crashed.
All that above isn’t luck that I stayed out of the market on 2/05/2018.
I also posted this below in another post. Here’s the quote:
In addition to that quote, I’ll add that I don’t focus on my “wins”. I focus on the quality of my decisions. I’m not afraid to take a loss and that’s why I use stops and have such strict risk management. To me, I don’t want the loss to linger. I want to move away from it as fast as possible and move on to the next trade. I look at facts always and always stay objective. I’ve never once said “I think”. The market doesn’t care what I think. Once you stay objective, you’re head is clear and you ONLY look at facts.
Sorry to post all this in your thread. But it’s important. Trading isn’t only looking at a chart and trying to guess the next move. You need to bring a 360 approach to trading. I don’t have a fear of missing out so I haven’t taken trades the last few days. The book in ES was so thin it was trading like the DAX and that’s unusual.
I almost had a trade yesterday in ES and/or CL. For oil I needed to wait for the inventory report to come out. Traders were caught off guard because they were positioned long due to the API report the night before. I also sent Investors a memo that they halted production at the Forties Pipeline. When the EIA report came out it was complete opposite and traders immediately had to liquidate. That’s why I don’t trade the news and make sure news is out before I take the trade. For ES I couldn’t get the risk/reward to work on 3 contracts. Even 1 contract the risk was too high and I skipped the trade.
My risk is 1% to 2% on average with an absolute 5% max risk of my capital. In dollar terms that means I risk on average $500 to $1000. That risk is the risk on the entire position not per contract. A stop is attached to every single order with no excuses why. Some of these guys that crashed and lost $50,000 or whatever crazy amount is insane to me. And it wasn’t all XIV guys. So for a guy to be in equity futures and lose that much is insane. Here’s some of the excuses they used about a stop before the crash:
“I’m an expert market timer”
“There’s really a stop but it’s on a server ready to kick in”
“I hedge”
“I’ll give you the stop tomorrow”
There’s no monkey business with Payoff Matrix. Every single order has a stop and it’s attached with the pending order. I send out a memo to investors informing them we have a pending order and the risk in dollar amount. My stops are only moved to protect profits. That means only in our favor. Once the initial stop is set, it never moves the other way. Investors know the risk UPFRONT of every single trade.
For me, my biggest fear isn’t getting stopped out. My biggest fear is not following my trading plan. That’s why I’m so focused on the risk because my trading plan is based entirely around risk management.
Thank you and sorry for the long post.
