I have been meaning to write this missive for a while, inspired by some of the posts I have seen online.
It appears to me that too many folks are trading from a defensive position. They enter a trade, it goes against them, then they stand on their heels in half prayer and half hope, waiting for the market to rescue them. This to me, is trading like a sheep. In all fairy tales, nothing good happens to sheep.
You may notice that I post a lot of jokes. Both when the market rises, and when it falls. It is not because I am insensitive to market moves. It is because I welcome them all as challenges. How do you get in, when the market keeps bulldozing higher every day? When do you trim? What about when the market pukes? Do you cut and run? Every single day is a super fun challenge to try to outfox the FOX, and look at our friend MAX PAIN in the eyes and say: ”alright, alright, alright”.
Earlier this year I wrote a missive on having a positive attitude when trading. But I realize now, that that missive missed another key component.
BEING AGGRESSIVE.
People seem to follow me into a trade, and regardless of if it goes up or goes down, will promptly follow it up with “What do I do now?”.
You may have noticed how often when I make a Macro Call or Trade I say “I don’t care what happens next, I am well positioned to take advantage of it”. Let me explain where that comes from.
I have been into the practice of Martial Arts for decades. Started off in Tae Kwon Do, then switched to Jeet Kune Do, and more specifically Jun Fan Gung Fu, which is based on Yip Man’s teachings of Wing Chun Kung Fu. The essence of Wing Chun (which was created by a woman) is that there are no defenses. Only attacks. If someone strikes at you, you strike back while blocking the attack. This is counter to Karate and Tae Kwon Do that teach you to block, then strike. The idea behind Wing Chun (meant for a smaller practitioner) is that you may not be able to withstand the blow of a larger opponent even if you block, but if you strike that opponent while they strike you, you will nullify the power of the attack.
I have brought that philosophy into my trading for years.
I don’t ever block, then defend. I am always on the attack and defend at the same time.
When I enter the trade, I consider the market maker (a faceless opponent) as my opponent. That person will try to convince my buddy MAX PAIN to extract the most amount of losses from me as he can. When I place the trade, I already have a profit goal in mind. If/When I reach that goal, I exit. Those who follow my trades know that I often sell too soon (STS), but I have come to live with that, and tend to compensate by getting more of those winning trades. The reason I sell too early is that I planned on selling at that target before I got in. I then stick to my plan unless major news changes in the meantime.
But what happens if my opponent strikes and my trade does not go as planned?
I already had a plan for that. I look at downside support, I look at Options selling, I look at my cash levels, and I look at other trades that I initially liked less to have a sense of what my counter attack will be. As soon as RED starts filling the tape, I don’t hope or pray, or wonder, I engage a counter-attack. That could be selling a stock for a loss (I refer to those trades a my “Poop Bin”). It could be adding to the stock because the stock is down in unison with the market and is now on sale. It could be selling the stock and immediately putting that money to work in a better idea. It could be selling Calls (if they are expensive) and buying time for the stock to recover. My point is, you have so many options for when Mr. Market manages to break your defense and get a punch in. You don’t stand and wait to see if he punches you again, you move, and counter strike and you do so with a huge grin on your face while your eyes say “bring it on f$%k face!”.
Let’s talk some concrete examples. I will use Crypto since the sector represents the large majority of my trading starting in 2024.
This past summer we entered the LULL. BTC chopped sideways for months. Many said we would be breaking down to $30K. I went into Auto-Pilot Mode, just constantly buying every dip to the Bottom-of-the-Box. No emotion. Just a grin and a pre-determined plan.
Then the Japan Carry Trade collapses and the market wooshes lower. An unexpected liver shot. BTC dropped over $10,000 in minutes down to $50K. This was clearly not my plan. My plan was to buy the bottom of the box and wait it out. But the Market had struck a blow, and I did not wait to respond. Why? Because I planned for it. My plan was, if the Market strikes and breaks the bottom of the box, and lands on my support line at $50K. I am doubling my bet. This was not a decision I made in the heat of battle. I had already freed up Treasuries for this play, just in case. That morning, someone asked me when it hit $50K “Are you cutting losses?” My answer was immediately “I just bought a very large block at $50K.” I did not block, I just counter-attacked.
At the beginning of this week, I posted a missive called “Of Tops and Bottoms”. Explaining that my price targets for December BTC was $110K, $120K and $150K. With the lower being the most expected, though I started leaning towards the middle. We hit $108K on Monday and I said it was very close to full target number 1, and that we could be on our way now down to $68K, which is currently the rising Median Support Line. Someone asked me this morning what defensive action I took based on a 65% chance we have seen the top this year, and 35% chance we had not.
I sold a small amount of my IBIT and BITB (10%) and covered another 20% with Calls dated February. In hindsight, not aggressive enough considering the pullback, but that does not bother me one bit. Why? My plan was to get more aggressive on the selling and covering if we hit $120K this year. We did not do that. What that means, is that there is a greater amount of risk in exiting and covering the trade (getting called away) than there otherwise would be. That is why I kept my planned counter-attack small.
As I look at the landscape, I ask myself this question. Do I feel better being fully invested in BTC, or would I feel better as a no-coiner? The minute I ponder the second I get chills up my spine. Imagine having no coins with BTC over $100K and the entire world pondering acquiring one of only 21M coins? Thailand, Brazil, Argentina… these are real countries about to custody Coins, and we are entering the PIVOT, where BTC and Crypto rails will be central to everything. There has never been a more de-risked time in the history of BTC, and I have been in it since 2014, with all the battle scars to show for it. Down 80%-90% was simply called a Tuesday back then.
In short, there is a bigger risk of trying to maximize your profits, and getting locked out of major gains by trying to counter react to everything, than there is to simply stick with your plan, and raise your gloves up, and move straight into your opponent with confidence. This was my plan if we did not make it to $120K, and that is how I had pre-determined to execute it if the market decided to strike.
MSTR/MSTX is another beast entirely. This is a SUPER VOL product on a SUPER VOL product. Not for the faint of heart. For me, the appeal was scalping Gamma weekly off this monkey. I went in week after week, scalping huge gains. When I went in, I knew there was a risk the market (which was over-heated, would turn). This is why when asked which PUTS I was selling, I kept mentioning the total cost of ownership of the shares. Meaning, I was only selling Calls against underlying common, and I was only selling PUTS at a large premium, such that I would want to own more common if assigned. More common, would then give me more Calls Selling ability. That was the trade from the beginning. It has not changed. The Market swerved, and decided to sink everything yesterday, on no new news. An expected rate cut, an expected aggressive Dot Plot. OK. Sure. Why not? MAX PAIN was delighted. I don’t really care. All I care is that the market dropped, and I have to counter-attack.
I feel rather confident (or I would not have bought the Common) that this stock will double from here in 2025. Just imagine this. BTC goes to $68K, Michael Saylor adds a huge block. Then later this summer 2025, BTC hits $200K. This would take MSTR to a valuation of $1 Trillion when it is finally added to the S&P500. Does MSTR really just trade at $400? Really? Not in my math book, even with the stock at a discount to NAV BTC in treasury. This is what makes me want to get assigned, and then sell expensive Calls while I wait for the boom to take place.
That said, if BTC goes down to $68K, one should expect MSTR to trade down and even trade at a deep discount to NAV, which would mean a HEAVY drop in price such that selling Calls would get tricky trying to maximize revenues and at the same time avoid getting called away. Then again, if it goes down to $68K can you imagine the amount of offsides people that will pile in and want to buy? A tough call.
As you can see lots to consider, and that is what I am doing today and tomorrow. Not hoping, not praying, not looking to the stars. But counter attacking. I will be looking at charts, and trying to see if this is really it. If this weakness is meant to last, or if this is a setup to an amazing Santa Rally next week. I will land on decision and strike. Once I do, I will not second guess that move, instead, I will wait for Mr. Market to parry and hit me back to see if I made the right move, or if I need to counterstrike again. Either way, I will be skipping rope, doing push ups, and yelling “Giddy Up!” as things get moving.
Trade like a Wolf, not a sheep. Bad things happen to sheep.