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Dynamic Hedge

The constant drone of controversy you hear in the background on active vs passive management and rules-based vs discretionary and how you “outsmart” other investors obscures the fact that there are only three ways to make money in the market: Accept the equity risk premium, provide liquidity, and uncover superior information. All three are actually in service of the market.…

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It seems the market is in a downtrend, but trends can be notoriously difficult to identify in their early stages. Trend fakeouts are just of the many factors that make trend following so difficult in practice. So, how can we qualify price action to gain a more detailed view of what’s going on under the hood — and how and…

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Pattern recognition is an incredible skill that we mostly do without even noticing. Pattern recognition is not the same as pattern matching. Pattern matching dictates that what we are looking for is either here or not. Pattern recognition has the flexibility to recognize that what has happened before may happen again in a similar way. The magic happens when the…

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seasons-of-the-market A sunny and bullish trending market showering your portfolio with gains feels incredible. During the market summer, bearish sentiment quickly turns cautiously optimistic and the tape transitions from oversold to overbought — and stays overbought for weeks. These moves happen despite the fact that most people still remember the winter so vividly. It’s confounding and magical at the same time.…

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We all know that volatility tends to expand when in a downtrending bear market. Less frequently, volatility expands when price is trending higher. One of the things I look for when trying to anticipate the end of a bull market is “upside volatility expansion”. Volatility expansion while price is trending higher is a sign of unusually intense disagreement among market…

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The biggest debate in markets over the past two months is whether the late August drop would lead to a deeper decline and potential recession or whether it’s a buying opportunity. Let’s look at the patterns which have conditioned investor perception of risk over the bull market cycle. Below is a chart of every time the S&P lost more than…

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The market has lost momentum, prices are trending down, and sentiment is terrible. Lots of people are writing about the many warning signs. Depending on your time horizon and strategy it might make sense to be tactically defensive from the beginning of September. That said, I want to revisit the macro data points I find most useful to provide a …

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One year ago, I had a profound experience that completely changed the way I look at psychology, decision making, and personal development. The accident A good friend of mine has a congenital heart condition that went undetected his entire life. He’s in his 30s and otherwise healthy. One day while dirt biking in the mountains, his heart arrested and stopped.…

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A couple of months ago I wrote a post about the behavioral principals behind the momentum effect in the markets. In that post, I highlighted some reasons why momentum persists and how to internalize the process. I wanted to create a visual reference to help understand just how these winning and losing streaks manifest over time. Below is a table…

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Why are financial decisions so difficult? Not just the ones related to investing and trading but the ones that spill over into every day life. Obviously, the stakes are high because money is involved. We’ve heard ad nauseum about how behaviorally we’re not wired to make great financial choices. Paradox of choice, and all that. So what do we do…

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spy-200-day-ma   The market briefly closed below the 200-day moving average this week so let’s look at some recent history market behavior around the 200-day moving average. If you took every trade (on the next open) after the $SPY closed below the 200-day moving average and held for a month, you would have a decent win ratio of 7 out of…

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duck-dive   I want to touch on a couple reasons why momentum works and why I see it as one of the few durable edges in the market. With markets becoming more efficient every year, and edges coming and going faster than ever it’s important to understand principles. Momentum is a principle that can be used as a pillar of strategy…

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