Post by FD1000 on Apr 10, 2022 12:36:39 GMT
I have used my own proprietary system for going to cash. If you are a buy and hold or young or don't care about risk/volatility, no need to read. I used to be in that camp when I was younger.
I use several indicators that show real time risk/volatility. An easy choice is the VIX, after all, it's called volatility index. I watch for the increase of speed and if it's over 30. I won't mention others. On the other hand, I disregard indicators that don't have high correlation to the market, see (link). The idea is to concentrate only on what matters and tune out the noise. It's also easier
Easy example: Fear & Greed index. High correlation? I look at its history and the answer is no. I'm done. I will never check it again.
The big picture: this is a fluid subject, and the ability to observe if the current situation is unique enough to reduce risk with your portfolio:
The Fed is the most important force. Always pay attention to what they say by just reading their statement. Make it a habit, but talk is cheap, only actions matters. SPEED is very important. Always watch bonds, the bond market is smarter than the stock market. Check different categories treasuries, Munis, MBS, HY, Bank loans. Are most act closely down?
Q1/2018: The Fed raised rates too fast in 2018 = unique + VIX + others = high risk = I'm out = lost less than 1%. The Fed changed course, market calm down
02/2020: global pandemic = unique = easy call. I was out + only trading ST. The Fed supported the market big time, market calm down.
2021: Inflation is higher? Disregard. Most bond categories act closely down? no, treasuries don't do well but Munis do well = disregard.
The Fed still supported market = disregard.
2022: Q1 was the worse quarter for most bond categories in the last 40 years, for treasuries a lot longer? Is it unique? Yes it is, bingo.
The Fed announcedinflation "market kill operation" by raising rates + selling bonds.
The Fed raised rates by 0.25? Unique? No. This is real action. But, the Fed changed course and will raise 0.5% 2-3 times + a total of 2+%? Unique? Yes it is.
War in Europe affected the world? Unique? Yes, think oil + grain shortage + possible nukes. No need to look further, don't clobber your brain with too many details. The answer is simple, yes.
War in other places affected the world? No, disregard.
In my case, I go to cash. It means I'm only allowed guerilla ST trading when success is very high. But, the Fed operation is pretty unique and fast, time will tell. Bonds (except bank loans) continue to loss big time.
On the other hand, VIX is lower + Stocks rebounded = better. Is the big picture changed? Still no.
The above could be completely bogus, it's not the first time, all the times I was "wrong", I came back within days. The times I was right, I was in cash about 3 weeks (ST trades allowed). It's the first time I'm in guerilla ST trading longer than that.
I use several indicators that show real time risk/volatility. An easy choice is the VIX, after all, it's called volatility index. I watch for the increase of speed and if it's over 30. I won't mention others. On the other hand, I disregard indicators that don't have high correlation to the market, see (link). The idea is to concentrate only on what matters and tune out the noise. It's also easier
Easy example: Fear & Greed index. High correlation? I look at its history and the answer is no. I'm done. I will never check it again.
The big picture: this is a fluid subject, and the ability to observe if the current situation is unique enough to reduce risk with your portfolio:
The Fed is the most important force. Always pay attention to what they say by just reading their statement. Make it a habit, but talk is cheap, only actions matters. SPEED is very important. Always watch bonds, the bond market is smarter than the stock market. Check different categories treasuries, Munis, MBS, HY, Bank loans. Are most act closely down?
Q1/2018: The Fed raised rates too fast in 2018 = unique + VIX + others = high risk = I'm out = lost less than 1%. The Fed changed course, market calm down
02/2020: global pandemic = unique = easy call. I was out + only trading ST. The Fed supported the market big time, market calm down.
2021: Inflation is higher? Disregard. Most bond categories act closely down? no, treasuries don't do well but Munis do well = disregard.
The Fed still supported market = disregard.
2022: Q1 was the worse quarter for most bond categories in the last 40 years, for treasuries a lot longer? Is it unique? Yes it is, bingo.
The Fed announced
The Fed raised rates by 0.25? Unique? No. This is real action. But, the Fed changed course and will raise 0.5% 2-3 times + a total of 2+%? Unique? Yes it is.
War in Europe affected the world? Unique? Yes, think oil + grain shortage + possible nukes. No need to look further, don't clobber your brain with too many details. The answer is simple, yes.
War in other places affected the world? No, disregard.
In my case, I go to cash. It means I'm only allowed guerilla ST trading when success is very high. But, the Fed operation is pretty unique and fast, time will tell. Bonds (except bank loans) continue to loss big time.
On the other hand, VIX is lower + Stocks rebounded = better. Is the big picture changed? Still no.
The above could be completely bogus, it's not the first time, all the times I was "wrong", I came back within days. The times I was right, I was in cash about 3 weeks (ST trades allowed). It's the first time I'm in guerilla ST trading longer than that.