Brexit Aftermath

I don't try to predict what markets will do. I live in the world of risk/reward paradigm.

I follow markets and place bets when I see favorable situations. To me, a favorable situation is one where I can bet a little and make a lot.   

It's not really the market ‘set-ups’ that make me money. The main driver is the respect for risk--which, in the long run, creates a market edge when applied to the ‘set-ups.’

Regardless of what direction I’m betting on, my market positions will reflect an aversion for large losses and an optimistic outlook on large returns.   

In my observation, the main stock market indices(DJIA, S&P500, NASDAQ) are moving to the downside.

From a technical view, there is essentially nothing stopping the DJIA from revisiting the August and January lows. There is a potential price vacuum from DJIA 17,000 to 16,000--I believe it's the path of least resistance.

And this 1000-point move can happen in short order.  

This is the main opportunity--DJIA 1000 points to the downside.

But this opportunity alone is useless if I can’t get a good ‘set-up’ and a good deal playing it.

If I’m wrong, and the DJIA shoots right back to 18,000, I don't want to lose much.   

I don’t like to bet directly on the indices.

I like to use the them as a weathervane. Once I have a general idea of the direction I want to bet on, I identify sectors that I believe are headed lower. Within the sectors, I’ll select the individual stocks that present the very best opportunity.

In this situation, I want to exploit a market downside by buying out-of-the-money puts. Namely on stocks that are currently moving in a downward direction, have trading volume of 1,000,000+(liquidity), and provide a disproportionately favorable risk/reward paradigm(cheap contract prices relative to a stock’s potential price discovery).

I will likely be wrong on most of my trades. But I want the potential to get 10X, 20X, and 30X my money on some of my trades. Simultaneously, I want to keep my exposure to the market small relative to my assets in my portfolio.   

The options market is tough. It took me a few years to really get the basics. You can only learn by doing--no amount of explanation will truly prepare you.  

There is opportunity for those who know where to look and how to respect risk. 30-to-1 payouts exist in markets. These payouts go to those who are prepared for them. If you do not believe that you can capture wins of this magnitude, your market decision will reflect that belief, and the right habits will never develop. In this sense, we all create our own destiny in markets.   

Trading in markets is a personal journey. But once the foundation is formed, you can take ideas from everywhere and process them through your system.