Rebel Traders 081 : Hitting The Hard Reset

See that big red button saying “Don’t Press Me”… Are you going to press it? What happens if you do? Let’s find out…

There comes a time in a traders career when it’s time to hit the hard reset. What I call “Clean Slate Protocol”. When one of the best things you can do is close all your positions in your portfolio and either take all your profits off the table or take all the losses on the chin and start again.

In this week's show, we look at what would drive a decision to do that or when you SHOULD actually consider doing that. It’s a drastic move but over the last few weeks, we’ve seen a lot of traders do just that. So, we’ll look at why traders do that and as the question of when should you consider doing the same and what are the ramifications?

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Sean Donahoe: See that big red button saying don't press me, you gonna press it? What happens if you do? Find out.
Automated: Rebel Traders takes you inside the world of two underground master traders who've taken entertaining and contrarian looks at the markets to cut through the noise of Wall Street, and help you navigate the trading mine field. Together, Sean Donahoe and Phil Newton are on a mission to give you the unfair advantage of a Rebel Trader. And now, here are your hosts, Sean Donahoe and Mr. Phil Newton.
Sean Donahoe: Hey, hey, hey, this is Sean Donahoe and welcome to the Rebel Traders Podcast. We're gonna have an absolute blast here. It is me, myself, and Mr. Phil Newton, how you doing, sir?
Phil Newton: As long as it wasn't me, myself and Irene, we were okay. Who is this extra person? I mean, we've already got the crazy people in the house, we don't need any uninvited guests along.
Sean Donahoe: Well, Irene is just your weekend name when you're in drag and everything else. We know how it goes.
Phil Newton: Yes. I've got a thing for that shoe shop on High Street.
Sean Donahoe: Absolutely. And we won't go any further with that because-
Phil Newton: We won't go there.
Sean Donahoe: Yeah, we won't go there. We won't go there. But yes, today's show we are ... Basically, there comes a time in a trader's career when it's time to hit, or maybe hit a hard reset. What I call the clean slate protocol to borrow that from Robert Downey Jr. and Ironman. When basically, one of the best things or possible things you can do is close all of your positions in your portfolio and either take all your profits off the table or take the losses on the chin and start again.
So, in this week's show we're gonna dive into that decision-making process, when or when you should not consider actually doing it. It's a drastic, hard move, but over the last few weeks I've seen a lot of traders actually been doing this. And we're talking the institutional traders, as well as some retail traders as well. So, we look at why traders do that. Basically, we ask the question of when you should consider doing the same and what are the ramifications.
Phil Newton: Yeah. And there's positive and negative reasons why you might do that, which makes it quite an interesting topic for discussion for this week's show. We've also got coming up later on is our now, old, favorite section of the trade, fade, or evade. It's a little look over our shoulder where we try and pick a few stocks that highlights the production line process that we use to find, filter, and source opportunities. And basically, it just determines whether we would not trade, fade, or evade a random selection of stocks.
Sean Donahoe: Absolutely. Okay, let's see. Where do we wanna start? I'm thinking we should start with a quick overview of what's going on with the markets and everything else. Now, this time last week we were talking about, "Okay, are we at a point of where we're gonna be selling the rally or are we gonna be breaking back in? We were cautiously bearish. I mean, the bear costume was out of the closet, the moth balls were removed. It went through the laundry, and we were getting ready to put it on. But again, I can't help but being just an-
Phil Newton: The difference a week makes.
Sean Donahoe: ... edge off the bull. I still am bullish. Like I was saying last week, it's a sentiment shift. The fundamental's still strong, we had incredible jobs numbers last Friday. And again, Jay Pal coming out with comments though it was saying, "We're gonna hold rates right now, probably, maybe by the end of the year we'll have one more rate hike," so they're adjusting their viewpoint.
Again, sentiment shifted just a little more positive. We had a big, big one-day rally. And again, lots of different things going on. Friday, was a huge, huge rally, so we have now a high/low, which is one thing we were talking about. It's like, "Okay, we see that." And we have a break back into previous range above 2500 on the S&P 500 and stuff like that, that okay, that would be interesting.
Phil Newton: It's a little bit high I think, maybe. I know we're just ball parking it. I think we're close ... 'cause right now we're at that juncture of will it or won't it? Is it gonna be turning the bear move continues or is it that break back in territory? Which, to be fair, when we spoke about this last week it was a secondary scenario. Now, it's primary scenario because that's where we are right now.
We did talk about that speculatively. There's a little bit of wiggle room to the up side if there is gonna be some bullish movements. But, it would still be a bearish buyer, so that bullish movement, 'cause it's sell the rally up to this point. And we're actually, at that point where, okay, decision time. Is it gonna be move higher, break back in territory or is it gonna be reversal?
I think the only thing that has me thinking the bear side is, if you look on the lower time frame, and let's be fair, to a certain extent, even the daily's, the high-low range and the movements up to this level have been slow, sluggish, meandering. So, we've got that slow move up compared to the fast route. I mean, just a way to look at this movement, is just look at the high-low range of the time frame bars or candles that you're looking at.
When you've got those big, wide-ranging bars, that's momentum. That's usually what the momentum indicators are measuring, distance between the open and the closed. And as they get wider and wider, that's usually a sign that momentum's increasing. Now, you don't need to look up those indicators on your chart, which is the benefits of knowing that. But when you look at those open and closed range or the high-low ranges, however you wanna measure it, that that distance, the gap gets shorter and shorter.
It's that, kind of a slow, lazy, sluggish move up to this point versus the fast move down that we saw as it went through it. So, it's still, for me, says that the momentum is still with the bear side even though we have that big rally off the lows, and on Friday as you just mentioned. They're the two biggest moves of the last two weeks. And really, it's really slow, very lazy, very sluggish type of movements. So, it would be interesting to see what happens at here.
I would like to see a fast move away from this level and whichever way that fast move happens, I think that's gonna be the telling sign of fresh, buying or selling. 'Cause again, as we regard this, we don't know which way it's gone or going for the moment. But I wanna say, a fast, accelerating a move away from this location. Again, up or down, I don't care one way or the other, we're just trading the moves. That's the great thing about what we do, whichever way it goes, we'll make money.
Sean Donahoe: Well, that's exactly it. Now, if you wanna follow along at home ladies and gentlemen, also flick over to the Russell 2000 Futures. That's one of the ones because again, we're looking at the fast-moving boats. Now, again, the Russell 2000, I'm looking at the E-minis. Again, they have had a lot more momentum and faster in the shorter period, but way away from that breaking back in right now because they also have a lot of whips sort of effecting the game. We use the reference of a speed boat unless it's an ocean liner. But, still quite a way away from breaking back into those ranges even despite all the recent bullish.
Phil Newton: The only one that has very definitively pushed beyond what was the low for most of last year is ... It's weird saying that. But the low for most of last year, 2018, is the NASDAQ. It's several days above the same levels we were talking about when it comes to the S&P or the DOW or the ... We're right at that low where it might act as resistance, whereas the NASDAQ, we're above that. So, supports become resistance, resistance becomes support, and that's usually how these things flip over and there's only one of those.
But I think, yeah, I mean the Russell, I mean, as a percentage point of view, it seems to have the larger movements at the moment. It does seem to be leading the way, the charge, one way or the other. So yeah, that could be the telling charts to keep an eye on, whichever way the Russell goes the rest will ultimately follow.
Sean Donahoe: Yeah, the one thing that you mentioned there was something that is, as we were talking about a lot in the last year, I know I was saying this a lot is, for any sort of recovery I'm gonna be looking at tech to be the first to bounce back because they were the ones that took the biggest hit in the end of Q3 and into Q4 last year. And again, that's what I was looking at, is tech to lead the way.
We're seeing that right now, like you said at the break back in. And it is the one that's holding its ground so to speak, and has the momentum through. So, I think, again, I'm cautiously bullish. I am leaning towards, again, the fundamentals leading the way. And that sentiment, again, just like a wildebeest with the turn of a lion, again, they're gonna switch either way very quickly from the sentiment perspective, but I'm still in the fundamental.
So, I think the fundamentals ... I think, certainly in 2018, a lot of this was sentiments, news-driven, and hype-driven. That's why we were mostly sideways last year and a lot of volatility, but I think that was purely sentimental-driven. But, looking at the fundamentals, I think 2019 is where fundamentals are gonna take back over and a little more rationale, a little more common sense is gonna come in. So, I'm still-
Phil Newton: I think more people are probably gonna focus on the fundamentals because the technicals are ... they literally changed multiple times in a single day at the moment. And it's difficult to get a gauge on what's gonna happen next. I mean, literally, from week-to-week the viewpoint is changing quite dramatically. And we'll look at the daily charts, and that shouldn't happen. It should be buyers one way or the other for more than a week or two. And it's just, those viewpoints literally are changing. And again, that, from a charting point of view, that's uncertainty.
So, yeah, maybe, I can see ... I mean, I'm not a big follower immensely on purely chart-driven, but I can see the logic behind following a more fundamental guidance to provide that stability with, okay, nothing's changing, which, the philosophy that we keep following, "As long as nothing changes then same thing's probably gonna continue." So, from a fundamental viewpoint, that's gonna, maybe, provide the bedrock and the confidence to create some buying or selling opportunities, depending on what we're looking at charting.
Sean Donahoe: One thing I also want to flip over to just, again, just to get a pulse on the markets is the VIX. Look at the VIX futures as well. And again, nice, solid decline from the peaks on the VIX. And again, it's settling back down into what I would call its previous cycle of behavior as well. I mean, it's coming.
Phil Newton: I think we're cutting out a new range.
Sean Donahoe: That's what I was looking at. Yeah, it is.
Phil Newton: I mean, volatility is still a little bit elevated and we've not really seen it come down to the exceptionally low levels, the 11, 12 levels. We're floating with 20, 22 range. So, maybe it's a new volatility range.
Sean Donahoe: That's what I'm looking at as well. I'm thinking that is the way we're going. But it has settled down quite consistently. You wanna flip over as well ... Well actually, we'll be touching on some of these a little more detail in trade, fade or evade. But let's have a look at gold as well. Notice that gold futures, again, what people usually allude to as being the flight-to-safety, and I put that in after because ...
Phil Newton: Makes me sigh when I ... Every time I hear that phrase it makes me absolutely gag.
Sean Donahoe: Yeah, but it looks like it's peaking out right now at around 1286-ish, right around that level.
Phil Newton: Just put the weekly charts on, Sean. And this is the argument against flight-to-safety.
Sean Donahoe: Okay, I'm flipping it over. Actually, I'm on the weekly's right now apparently, so ...
Phil Newton: Yeah, it's not changed since 2013, it's in a range. If you're parking your cash there as a flight-to-safety but it's not increasing, then that argument, it's not decreasing in value as well, you might as well hold cash and get whatever minuscule percentage interest that it offers. Cash is the flight-to-safety at the moment because the traditional flight-to-safety, it hasn't been there for a long time. The idea of investments is that you want to put your money in an appreciating insurance or commodity.
Sean Donahoe: Absolutely.
Phil Newton: So, if stocks owns an increasing commodity for want of a better description or in assets, then people would do that flight-to-safety and again, put it in gold, but it's not going anywhere. It's not, for the moment, an appreciating ... I mean, don't get me wrong, a long, long, long, long, long term, 30 years amortized, it's an appreciating asset. But right now, it's not a flight-to-safety and hasn't been a flight-to-safety for a long time.
Sean Donahoe: Absolutely.
Phil Newton: It's not going to and it hasn't done anything for the last five years.
Sean Donahoe: No, absolutely. When you consider 2000-
Phil Newton: It's perspective again. It not perspective, is it?
Sean Donahoe: It really is. I mean, if you take from, say, beginning of 2000, when it was $300, that's a reasonable level then it peaking up to $1800. Yeah, that's an appreciating asset or of a ... like you do September, 2011-
Phil Newton: I'm actually just going back to the ... I've actually got to put it on the monthly's just to get long, long-term.
Sean Donahoe: That's why I'm breaking out .
Phil Newton: Yeah. I mean, if you think about it sort of from, yeah, 2009. If you've just done flight-to-safety, and yeah, sure, it did increase in value but then, so did the stock market. So there's no real benefit of putting cash from one ... transferring it from one asset to another. But the reality is, from the beginning of 2000 ... or the end of 2009 or the middle of 2009-ish, it's right about the same level.
So, if you've seen the stock market crash and you say, "You know what? We're gonna put it in flight-to-safety." Nonsense, I'm gonna put it in gold, traditionally, historically, long ... I mean, you've got this long-term, and we think of 10 years, long-term. And this is no change, if you've on them, just put it in a bank account and collect at a half percent interest.
Sean Donahoe: Yeah, pretty much. Pretty much. And it's a lot of, like you say, "Nonsense." You also look at the bottom markets in the same way, but it's an interesting little perspective. Now, in the short-term, yes, there has been a wee pop from the lows and nothing-
Phil Newton: Wiggles here and wiggles there. But yeah, I mean, this is the thing, I mean, if you open your eyes and look, and say, "Okay, where really is the opportunity?" If you're gonna park your cash somewhere because you're worried about the stock market uncertainty, the volatility, the yo-yos back and forth, well, coming to that 10-year mark now, 10-year bull market's gonna be over soon, do I wanna start investing now or trading now? You're waiting for ... Whatever the reason is, gold wouldn't be my first choice to park it somewhere. Literally, cash is a flight-to-safety and as crazy as that may be, I think that is the new-
Sean Donahoe: Well, it certainly-
Phil Newton: ... safety zone.
Sean Donahoe: ... was what I was doing the end of last year-
Phil Newton: It's bizarre.
Sean Donahoe: Yeah, I mean, when I closed out a lot of my investments, that was exactly my voice. I wasn't gonna put it elsewhere. Cash is nice.
Phil Newton: Cash is perfectly acceptable. Yeah. I mean, here's the thing, we've got multiple business interests between us. We can use that money somewhere else. It doesn't have to be in the stock market. Cash is a perfectly viable solution for waiting and seeing. We refer to it as a cash reserve, it's better to have that there, like the sub-team on a sport's bench.
We're using sports analogies again, Sean, and we know we're not really big sports fans. But you've got this reserve team on the bench, and that's what cash reserve is. It's ready-poised, ready for you when you see the opportunity, wherever that may be, you can go and do it. If you were to do that with gold, most people do that flight safety, and they buy physical gold. And all right, long-term, why you doing ... Really, why you doing it? Is it just for the ego thing at the most?
You've got a boat-load of Krugerrands stashed under the porch somewhere. Get over it. We're capitalists in a true sense. Where is the opportunity? It's not in gold. I think we've banged this drum, Sean. We've found Bill's button at the moment and we pressed it. It's not flight-to-safety, just get over it. Put your money somewhere sensible. At the moment, stuffing it in the mattress and holding cash is probably the best value, and claiming whatever percentage interest rate from the bank that they will offer you, that's probably the best flight-to-safety you can have at the moment.
Sean Donahoe: No, I absolutely agree. Absolutely agree.
Phil Newton: Who would have thought that that was the best ... If you're not sure where to invest, who would have thought that would be the best place to put it?
Sean Donahoe: Absolutely. Absolutely. I mean, we call it opportunity cost. That is really what it is, is, okay, what is the opportunity cost? Is it liquid enough that I can invest in ... Instead of stock market or what have you, is there real estate? I mean, I deal with and everything else. And it's that opportunity cost right there is you put it in an IRA and put some aside. Well, what are you gonna do? Where is it best held right now for whatever tax advantage or just whenever you don't wanna have the risk?
But, we are talking about the hard resets. So, these are situations and scenarios taking money off of the table. I mean, this is oddly enough, what we're talking about. Is it time or when is the right time for a hard reset? So, let's have a look at some scenarios. Is it a defensive or an aggressive move, first of all? Why would you just shut down your portfolio and just say, "You know what? Bugger it. We're gonna go and start again." What are you feeling?
Phil Newton: My bizarre viewpoint, Sean, is probably not traditional. There's lots of reasons why you might go to cash and opinions from my perspective, on one of them. And my overall viewpoint is, if you've got a strategy, whether it's long-term, short-term, day trading, it's investing, whatever the thing is, if you've got a robust strategy, there is no reason for you to override that with opinion-based decisions.
Sean Donahoe: No, I absolutely agree.
Phil Newton: The trade sets up, the trade goes on. Now, if your strategy is robust enough, it's gonna say, no trades today, Phil. It's gonna say, no trades this month. It's dependent on what your time horizon is. It's gonna say, no trades today or no trades this week or whatever. And that is the strategy telling you, nothing new to do, nothing to manage, nothing to do, and hold on cash. And sits on cash. And that's perfectly acceptable. And to be fair, for me, that's usually how December goes.
The way that our strategy unfolds is that trade sets up typically, on a regular basis. Usually we can find something to trade every single day. And that's what we're doing right up till December. And usually about two weeks in, just before that Christmas week, the strategy's gonna stop setting trades up because there's nothing moving, because we're looking for certain conditions. And if your strategy looks for certain conditions and parameters to be present in a market, they're usually present because it is a moving instrument. It's an appreciating asset or a depreciating asset if you wanna get short on an instrument.
So, those set ups and signs and signals will present themselves. So, because of that, your strategy will tell you when to, in this case, hit the reset button, so holds or not to look for new trading opportunities or to manage existing opportunities. Again, this is just a cyclical, seasonal example. But what I'm trying to highlight more than anything is that there's really no reason to not follow the strategy. And for me, that's not good ... or just having an opinion that you don't wanna put the next trade on or that you wanna hold cash, it's not a good enough reason to not put the trade on. Am I articulating that in a sufficient enough way, Sean?
Sean Donahoe: I believe so, yeah.
Phil Newton: That's good.
Sean Donahoe: And the one thing for me is that there are some scenarios, I've done it once that I can think of. Actually, you can say borderline twice. The only times I've done it is with my investment portfolio because of where the markets were turning and we weren't sure if this was gonna be rollover. I had a lot of long positions. In fact, most of my long-term investments are long positions.
So what I did do, 'cause I've got a lot of money in the tech sector where I know most, I decided, "You know what? I'm gonna take a lot of that off the table, put it in cash until your whatever is happening evolves. Do I switch to short position? Do I take it out of long-term positions and move it to shorter positions?" So, in that case, that was a scenario where the environment changed based on what I had in the markets long-term where I was taking advantage of this 10-year bull run while it's emerging.
Phil Newton: See, I would still call that a strategy decision as opposed to, "Oh, bugger. Something's happening and ..."
Sean Donahoe: Yeah, that's exactly it. I would -
Phil Newton: So, I think that's an ... Yeah. I mean, that's an okay reason to move to cash or to reduce your position exposure. And that's fine. But I think, what I'm against is that knee-jerk spasmodic reaction to hit the reset button. So, I suppose that begs the point then, when would Phil hit the reset button? It's gonna be an external factor. It's gonna be something non-trading related. It's gonna be a life event that is causing me serious stress and anxiety. And we've had those, where you just think, " do it." There's more to life and trading and I need to hit a life reset as opposed to trading resets.
Sean Donahoe: Yeah. I died down a lot of my trading the end of 2018. We also had a family emergency where I was ... if you're following the show you know I was in California for about two months with a family emergency. We had a member of the family who was dealing with stage four cancer. And thankfully, that entire situation has resolved itself. He's in full remission. Fantastic.
Phil Newton: Fantastic.
Sean Donahoe: And it's been good news. But during that time, again, thankfully, I could still trade through it and there was a lot of things going on. But my head wasn't, let's say, in the game.
Phil Newton: But, I would imagine it was minimal trading activity, yeah.
Sean Donahoe: Yeah. It was a lot less active than I usually am but I mean, even that wasn't a hard reset. But even if that situation was, I was in hospital or something really critical where it's I just know I've got to stop trading for a bit, that would be the point where I would take all the chips off the table. And then, once everything settled down, come back to it. But it would be an extreme external for that.
One thing I would also flip on that one though, is that there's also a time when ... The actual time I did basically shut down my portfolio which was trading-related, was taking my win. And this was one thing that I had a situation with a company called . I was short on that position and a few days later the company went bankrupt. I was using it to cover and balance a portfolio and balance position.
So, I took a short position on it. Had no idea the company was under scrutiny or about to go bankrupt, but it became a massive windfall for my portfolio. And in that situation, with that massive windfall, I mean, Jesus Christ, a hedge fund company would be ... they would be screaming from the top of their lungs, "Hallelujah," with a position like that. And that really, for my year, it made my year. That was the point where I was like, "You know what? I'm gonna take all my chips off the table, all my positions, I have had a massive windfall, -
Phil Newton: Take anomaly of events. Yeah.
Sean Donahoe: ... truly an anomaly.
Phil Newton: An anomaly of events. Yeah.
Sean Donahoe: But then, that allowed me to reset my capital-
Phil Newton: Again, I think-
Sean Donahoe: ... and form my new positions because of that windfall and can start again with much bigger nut.
Phil Newton: Yeah. Now, I think, what we're talking about is external events that we're not in control of that's not necessarily strategy related where something unusual happens, whether it's in the markets, which is what you were just talking about or whether it's in life. Something unusual that doesn't normally happen. It means that you've not got the attention span, whether you want to or not. When something shitty happens in your life you probably don't wanna focus on things that aren't really that important. So suddenly, your perspective on life takes a different perspective.
I think that's okay just to ... 'cause I've done that a few times myself where something weird's happened in my life, "Let's just close everything and I can hit the reset button because other things require my attention even though I have this strategy that only allows me to do very minimal time." In what we do it takes about 30 minutes. You just go purely into maintenance mode. It takes about 30 to 60 minutes a day. Even if that's too much, then hit the reset button. Close positions, don't look for new positions if you just wanna maintain the portfolio that you've already got and then, close your positions because of that external factor.
So I think, perhaps, we should also explore when would it be good to happen that is market-related that is strategy-related. When would you hit the reset button outside of those anomalies? I think for me, the advice I usually give to people when it comes to when you should take a break is when you have a strategy catastrophe. You have a bad run of trading activity. And that can usually be pinpointed down to the fact that somewhere along the way, you started to deviate away from your usual base strategy.
Does that make sense? Because it might happen a little bit at first, you start bringing an opinion in ... This is why we have a production line process. Has this happened? Yes. Bolt it on to the next step. Step two, do this. Step three, do that. It's a production line and that doesn't change. And that's how we teach it. That's how we explain it. That's how we do it ourselves. So it then becomes easy to say, "Okay, where do I deviate from the plan?"
When we're going through this with our students, and they will inevitably think that they're clever than a strategy, their strategy, our strategy, someone else's strategy, but it's that same production line process. Has this condition happened, yes or no? And they might still override the decision and move on to the next stage. And then, they start making allowances and be flexible using the thing again. And they end up putting the trade on that they probably should never have put on in the first place.
That's what I mean by they deviated away from the strategy. And then because of that, they start, essentially, shooting from the hip and putting trade here, trade there, trade everywhere. And it's great while it works, but at the same time, when it doesn't work, the big pile of brown smelling stuff suddenly hits the fast revolving fan. And it is a mess everywhere. And it's horrible to see people go through.
And I've coached many traders through this where they do something that they wouldn't ordinarily do. Maybe, it's they get greedy and they increase position size but stay with the strategy, so they're not following strict money management routines. So when they have just a few monetary losses, again, they probably still followed the strategy and they should have put the trade on but they can't weather the storm of when the strategy under-performs because all strategies experience that. But because they've over-leveraged their position on this, then that caused that catastrophe events that means that their stress levels, their anxiety levels go up exponentially and they can't make logical decisions to be able to put the next trade on.
That, for me, is a situation where they should hit the reset position. They should close positions, get back to basics, take a few days, get their collective shit together, and then, get back to basics, the production line, trade small, trade frequently. Follow the strategy to the absolute letter. Because they've deviated away somewhere, it causes exponential problems later on that they might not experience initially because of just literally, a very small cost shift that compounds as they go through that production line process that we always talk about.
Sean Donahoe: Yeah, the one thing that I'm also seeing is ... completely agree. I mean, if the confidence in the markets, or current trends, or moves, or your strategy, if everything is going absolutely crazy and you need a mental odd reset as well, then yeah, maybe it's time to take a break, walk away for a bit. And that would be the extreme of, "Yeah, you know what? I need to reset."
Phil Newton: I actually had that happen to me just prior to the financial crunch. I had two back-to-back extremes happen to me. Again, practice what I preach, trade small, trade frequently, even back then. And it was back-to-back losses. I remember one day trading the euro, I took 13 ... again, bear in mind, I was day trading, so this all happened in a very short space of time. It was 13 trades in one day on one instruments. Trade sets up trade goes on, always been my rule. Trade sets up trade goes on, stock down. Trade sets up trade goes on, stocks down. Trade sets up trade goes on it gets stocks down. And this happens 13 times back-to-back. And this is on top of previous days before and after.
But, that's just one day that I remember. The worst day in a bad storm as it were, and that happened. And that was the straw that broke the camel's back. And I had to do that. It was just multiple days, then weeks, and then, we're coming into months. And eventually, even trading small, it all adds up. And it really did get me down. Now, looking back on it with hindsight, we know what happened. But I had to take a week off and that's what I did. I took a week off, got my stuff together, evaluated what I was doing, "Is it the market conditions? Is it me? Was it the strategy?"
And just regained the confidence to say, "Okay. Well, back to basics and trade small, carry on and do it." And I went probably, from the worst trading experience of my life just before the financial crash, even the weeks before, to then what happens to be some of the opposite extreme. With exactly the same strategy, exactly the same methodology, exactly the same process, to then, the best trading experience of my entire life. It was just too bizarre.
But I don't think I would have been able to handle what happened next if I hadn't taken that break and done that reset because emotionally, as you just said there, Sean, emotionally, I wasn't about to break, I had broken it. It was a very, very tough experience. And that's the only time that that emotional side has actually got to me because the way that we trade is always to trade small. So, even trading small, that was a horrible experience, well, to experience.
So yeah, that's certainly a time where you need to hit the reset button. When your anxiety levels are going up, when you're having, maybe a bad trade run, maybe you just ... You just need to take a break, a couple days, a couple of weeks, a couple of months, however long it may be for you to get yourself back in the game. And to be fair, everyone experiences it in every walk of life, whether it's trading, whether it's business. Often, you see it with sports as well because to operate at peak performance consistently over time it takes a certain mental fortitude and if you have a bad run then that takes its toll on you as well.
Sean Donahoe: Absolutely. And one thing we've seen, again, usually at the end of the year, you also see a lot of institutional traders hitting a hard reset to lock in their gains for the year or -
Phil Newton: For different reasons. Yeah.
Sean Donahoe: ... reasons. It's more to protect, okay, what have they got for bonuses or if they've got their gains, okay, come up the new year with a new-
Phil Newton: Look, my gains broke.
Sean Donahoe: Indeed.
Phil Newton: No, but it's true, but for different reasons. They don't want to lose the end of year bonuses or the end of quarter bonuses, so you actually see that at the end of the months, the end of the quarter, the last trading day of the month, the quarter, the year. You'll actually see it's very typically a quiet market last Friday of the month, the last day of the month it's often very quiet for that reason. And it's small.
But again, it's magnified in December and historically, that's why it's a quiet month. There's less people trading. The people who are trading don't really want to push the boat out. And you see if they can hit home runs. They're just literally going through the motions. They wanna lock in those practices for their bonuses in this case, institutional traders, statistical evidence-
Sean Donahoe: Yeah, I mean, in that respect-
Phil Newton: driven decisions-
Sean Donahoe: ... that's really my-
Phil Newton: ... it's statistical-based analysis. Why would you want to override that with your viewpoint or your opinion? And that is what people ... that's often how people get themselves into a mess. So what I'm trying to highlight more than anything is how to avoid the hard reset for the reasons we mentioned, because the only time that you need a hard reset is when the shit hits the fan. But how to avoid it from decisions you make is, follow your plan. Trade small, trade frequently, follow a positive expectancy strategy.
And money is a by-product. Success is a by-product of that attitude to trading. Don't try and be smarter than your strategy, than the numbers-driven decisions that you can make with your strategy. And this is why we have the attitude of when the trades up the trade goes on. I'm not smarter than my research. Yes, I created the system and you created your system. We're the inventors and traders of our own methodology, but at that same time, we're not smarter than the evidence-driven decisions that we make.
Sean Donahoe: Absolutely. Absolutely 100%. So, with that being said, let's move on trade, fade, or evade. And what I wanted to do here is just look at the broad markets with basically, that fade, trade, or evade mindset. So, let's start with the ETFs and we'll kick it off to start with, with SPY. What are you seeing there? Trade, fade, or evade?
Phil Newton: Well, we normally look at the futures, but let's look at the ETFs.
Sean Donahoe: Yeah. I'm looking at that -
Phil Newton: It's the ETF or the ... I like to refer to, everyone goes or you put ... How do you say, all ETFs are folks, it's a stock version of the index. And for all intensive purposes, it is a stock. It's just a funds based around the index, so that's how I like to treat them. So SPY is the stock equivalence or the ETF, the Exchange Trade Fund of the S&P 5, that's it. And again, same thing, say if we've got a bit consolidation, this for me ... again, I've got no trend line, no announced stocks, I usually do it all on the futures and this for me is sell the rally.
Sean Donahoe: Now, flipping over to the weekly's.
Phil Newton: You like flipping me over, Sean, I know that. You wanna get into that. Again, now it's buying a dip. We've had this so many times before. See, this is arguably why we always advocate one time for this, because with multiple time frame analysis, you're gonna have different viewpoints and different opinions. So, again, looking at the weekly's, it's really hard not to ignore a 10-year bull market. It's buy the dip. But yeah, when you're going back to the dailies, it's gotta be sell the rally after a breakout. And the breakout, the range, was from most of last year.
This is why new traders get tripped over or trip over themselves, because a lot of textbooks, a lot of analysis instruct and say, "Use this multiple time frame as strategy." You start with, say, a weekly, a daily, and a 60-minutes or a daily, a 60 and a 50 ... whatever the thing is, it's usually three time frame analyses. And this is why people get tripped over because one time frame's gonna say bullish, one time frame's gonna say bearish, another time frame is gonna say maybe, neutral range bands, step aside.
And it's like, "All right. Well, now what do I do, because they're all in conflict with each other." Just pick one with enough data to make a decision. And we usually say look at 12 to 15 months on the time frame. So, that's about 250, 300 bars if you're looking at day charts. And just look at enough dates so you can say, "Hey, this chart's going up." Or, "This chart's in a range." Or, "This chart's going down." Look down on the side, there's only three things.
But when you can clearly see what is going on on that time frame, on one time frame, then it's easy to make a decision. And this is what we're trying to highlight with the trade, fade, or evade. Don't get bogged down with the multiple ... I'm going off on a little bit of Mr. Ransy pants here, Sean. It's a bug bear of mine as you can probably gather.
Well, it's just pick one time frame and stick with it. Don't mind the multiple time frame analysis. All you're doing is creating problems for yourself, especially when you're a new or less experienced trader. You're gonna create that uncertainty that we were literally just talking about moments ago. We want absolute confidence in what we're gonna do. Don't chart to sell a rally. The daily charts are to sell a rally. If you're trading a weekly charts it buying the dip.
Don't worry about one or the other being right or wrong, 'cause they're both right and that's the trick of it. So, pick one, stick with it and time will prove you right or wrong. And to be fair, with the way we do it, 65% of the time on average, we're making correct decisions, so data-driven decisions. And the proof is in the pudding as the saying goes.
Sean Donahoe: Absolutely.
Phil Newton: I think I can step down from my soap box there Sean.
Sean Donahoe: Don't put it away just yet. Put it over to the monthly's.
Phil Newton: All right. Let me just push the sleeves up. You want me to go to the monthly's? Well, it's kind of the same as the weekly's. To be fair, if I was looking at the monthly's I'd be looking at maybe an inside bar. Big spike, big body as well on last month's, that was December. I would think we're gonna be seeing a narrow ranging month. I wrote in the 9th of January's, so I would probably be thinking side waves in the very, very short-term. But long-term, looking at whole charts since 2000, it's five.
Sean Donahoe: .
Phil Newton: Actually, I'm just counting the waves. I see one way, two way, three. Any wave, the Elliot Wave theorists are gonna be having an orgasm on the monthly charts.
Sean Donahoe: That's exactly where I was coming from. Actually, I was gonna give you this chart. You've gotta see it.
Phil Newton: I can see them having a little orgasm. You've got five waves up, but you just count the big pushes basically. You've got three waves, two correction waves, it depends on where you start the counts. But you've got mostly, a nice little five-wave push.
Sean Donahoe: That's part of-
Phil Newton: This might be a correction. We're in correction territory from Elliot Wave.
Sean Donahoe: ... that's kind of what I was looking at.
Phil Newton: They're gonna have little chart gasms.
Sean Donahoe: Funny stuff. Funny stuff. Okay, so quite likely the same kind of picture. Let's look at DIA. And let's just stick with the daily's, just for reference 'cause that's where we tend to be.
Phil Newton: Yeah, because it's gonna be similar comments sell the rally, we've got a range in the last year. And we're coming up ... to be fair, it's probably a little bit clearer that we've got a short-term range that we went through from October to the end of last year where we've got a small range within the larger range and that could act as a barrier point.
We've spoken about last year's low. And most of the indexes and certainly, some of the instruments are above last year's low or certainly flirting with it. But we could be looking at that range low from October to the end of the year as a potential barrier point which might make some people think about the break in being valid because it's above last year's low, but that could act as the barrier point and the resistance point for the next leg down. It's still in sell the rally territory as far as I'm concerned. Again, probably not that surprising.
Sean Donahoe: Now, if you look where we are currently right now in the pricing, if you look into end of January, if you look at March, and the lows of April, and everything else, I mean, we are breaking in above those points on the ETF. Not on the futures, but on the ETF, which is kind of interesting.
Phil Newton: Yes. And that's what I was suggesting. The smaller range from the end of October, what looks like a break in might be, not necessarily confusing people but just might lull people into a false sense of security that would ... Well actually, we're bullish. We're above last year's low. Everything's looking great, but we've still got an overhead barrier in the form of the October to the end of the year range that we spoke about in some previous shows. It's got to go above that to really solidify the move back in.
Sean Donahoe: Yeah. Okay, so-
Phil Newton: Again, it's one of those things, time will tell. Play the scenarios.
Sean Donahoe: ... trade, fade, or evade?
Phil Newton: Sell the rally. So, fade in the context of what we're doing. The QQQ's next, isn't it?
Sean Donahoe: Yeah. I'm fading as well right now. Yeah, QQQ, which is the NASDAQ ETF. Same.
Phil Newton: Interesting, that we're at that October to the end of the year range low so again, it's sell the rally. It's fading-
Sean Donahoe: You're looking-
Phil Newton: ... you've got to sell the rally in the downstream.
Sean Donahoe: ... you're looking at this. This is one of the things that's very interesting is look at the actual momentum and the high/low range of the days. I mean, they're very, very hesitant all the way through as we're reaching this point.
Phil Newton: It's a good illustration of what we spoke about earlier. I mean, I was referencing the futures charts when we're looking at this spot. It's very evidence what we were talking about. Again, if you just look at the big red candles versus the small green candles just to talk to the inner child in me. The big red candles are bigger than the small green candles. Now, the momentum's with the bear side at the moment.
Sean Donahoe: We'll give him his big box of crayons later on to play with as well. Yeah, so let's have a look at IWM, that's the speed of -
Phil Newton: IWN.
Sean Donahoe: ... of the head.
Phil Newton: IWM. Yeah. Their market is sell the rally.
Sean Donahoe: All of these still bearish territory.
Phil Newton: Sell the rally. THere's a bit more wiggle room to the upside I think just looking at the IWM. I think, $145 is gonna be the barrier point here. It's very clear barrier points. It was 2017 highs. It was the lows for 2018 for most of the ... Again, just eye-balling this up, $145 here is the place to be bearish. There's a bit more awkward movement, wiggle room as we've described it in the past. There's a bit more awkward wiggle room. You're gonna be all over that like a rash-
Sean Donahoe: Well, I'm a man of negotiable options.
Phil Newton: Well, that's not this. Woman of promiscuous nature.
Sean Donahoe: There you go. Okay, so let's have a look at the DXY. The Dixie Chicks here. What are you thinking? What are you seeing?
Phil Newton: A DXY, just for reference is the dollar index. It's how the US dollar fares against the world. It's a currency essentially, or an index that perhaps is representative of a basket. It's in a slightly upward pointing range. It's looking a little bit spiky, a little bit choppy. I think I would avoid it to be honest. It's not really giving any clear indication. It's just bobbing back and forth, oscillating.
Sean Donahoe: Yeah. I'm right now-
Phil Newton: It's not getting me excited.
Sean Donahoe: ... I would avoid this as well. What we're doing here guys is we're looking at the general markets, the ones that we use as measuring sticks to see what's going on with the-
Phil Newton: Kind of like weather gauges, aren't they?
Sean Donahoe: That's a good way to describe it.
Phil Newton: Which way's the wind blowing on the index is what we're doing today.
Sean Donahoe: So, let's also then flip around. Let's look at USO, the United States Oil Fund.
Phil Newton: USO.
Sean Donahoe: Again, oil is at the likelihood futures are upping off of a longer term drop, so USO is following.
Phil Newton: Well, it's interesting. You called the break on me 'cause for most of 2017, 2018 we were in a very clearly defined upward trend/channel. And when we spoke about it, when it was certainly around $14, we were talking about the break. I had a long strand along that time. You were-
Sean Donahoe: I was bearish.
Phil Newton: ... I remember that now, you were actually bearish on it. You were actually bearish on this. I mean, I just thought, ", I'm not gonna pick a direction." I just did a long strangle. And who would have thought that that would have happened next. I mean, yeah, maybe a slow, lazy movement. Who would have thought it would effectively collapse? Anyway, you probably gather the previous uptrend is broken. We've got a very clear downward movements. I would be looking to sell the rally if I'm gonna do anything.
Sean Donahoe: Yeah, that's what I'm doing right now.
Phil Newton: Yeah, sell the rally. Fade it.
Sean Donahoe: Absolutely. All right. In unison there. And then, let's go to gold, GLD which is again ETF.
Phil Newton: Oh, GLD.
Sean Donahoe: It's the SPDR Gold Trust. And again, same ... earlier we were talking about all futures.
Phil Newton: It's in a range as we mentioned previously. Again, I can't get the picture of the weekly and the monthly charts out of my head. But looking purely at the daily's, and again, it's in a range 130 highs and around about 110 as the lows. It's in the middle of the range, which means that I would evade it. It's not absolutely location.
Sean Donahoe: Absolutely. I would avoid this one as well.
Phil Newton: Well, it's interesting, it's volume is picking up.
Sean Donahoe: It is. You asked one thing I was gonna highlight is the volume has picked up.
Phil Newton: Consistently picking up. Not just a little spike here and a little spike there. I mean, there's certainly lots of spiky days, but it's just the average is certainly hitting an uptick. It might just push above their 10 million shares on the ETF.
Sean Donahoe: Yeah. It's interesting 'cause you can ... A lot of money has moved into gold in the last few weeks just as rather than taking it as cash, they're looking at it there, you can't-
Phil Newton: Yeah, it's those idiots doing the flying safety nonsense. I think we've spoken about that increasing volume from the futures perspective as well. I mean, yeah, there is stuff going on with gold, but I think the traditional flight-to-safety I think was better. Again, consider why people use it. There's better places to park your money and cash would be a better alternative 'cause it's not necessarily an appreciating asset at the moment because of this multi-year basing range that we've seen on gold. So it's not, at the moment, a good place to park cash in. That's really my objection against it. I think we've got that. I think we've underscored that a few times.
Sean Donahoe: We have. But here's an interesting one. And this is the next one. Look at SLV, which is silver. Now, a lot of the guys I know are institutional traders, one of the things they were doing was because of the uncertainty rather than putting their money in gold, they were putting it in silver. And you can see from November to where we are right now, a lot of people are-
Phil Newton: Sell the rally.
Sean Donahoe: ... it is sell the rally, but they were putting it in silver, letting it roll through the month of December because of the uncertainties, because they expected a bigger pop in silver because of people's move to safety. So they were moving it in advance of an expectation of everyone else putting some money there. And now that it's leveling out beginning of the year because people are taking their money back out and putting it back into their new clean slate portfolio. Which is what prompted show a little bit here. Well, what's your thoughts on that?
Phil Newton: Similar thing. I was just gonna say, similar. Ironically, Sean, I'm gonna do the drop down analysis that I've avoided people to do here. I've gone to the weekly's of ... I've gone to Silver Futures because I like to see that full picture. It's the same picture. You've got that same multi-year range that we spoke about on gold. It's going back to the daily's for most of 2018 and the end of 2017. There's a very clearly defined consolidation which isn't present on gold, which then broke out middle of 2018. And right now, we're seeing a rally back to that previous base points. That's why I'm thinking sell a rally, because it's a very definitive consolidation and we're seeing a rally after the breakout of that.
Again, I've got to follow my own methodology, just looking at the daily charts in the last sort of 15 to 18 months, very clear range, breakouts, and we're looking currently at the pull back after that breakout of the range. I think if it was gonna do soon, I liked it around 16 and a half dollars and I'm back to the ... Sorry, I'm on the future sale, let me just go back to SLV. So, it's the same thing. So, we're looking at around 15 and a half dollars on the ETF. Again, it's gonna be around the same on the futures. That would be the great location if I could pick a perfect point to sell a rally that would be where it would be for me.
Sean Donahoe: Perfect. All right, last one then. And that will be TLT. And again, very much range bound from 2017 to this point looking on the daily's.
Phil Newton: I'm gonna say something that should articulate my thoughts on this. You ready? You know what? It's a bit of a mess. I'm resisting the urge to go look at the futures 'cause that's exactly what we're gonna do right now. I would rather look at the ... Again, I'm just gonna look at the 10-year and the 30-year futures.
Sean Donahoe: Now, I deliberately didn't use the futures today just because I wanted-
Phil Newton: I know. I would just like to get a fuller picture. I guess the reason why is the futures are almost 24-hour markets. The ETFs, because they're essentially a stock version that only open for stock market hours. You only get six and a half hours of regular trading, so they look a little bit gappy and a little bit jumpy by comparison. And that's why I keep looking at the futures. Plus, I've also got some analysis that I've previously done on it.
Going back to the TLT. Similar to for most of last year, it did a very well-defined range. And we saw an attempted break back in October. Interestingly, you've seen it break back into the range and then, move to the other side of the range. And right now, we're back inside of that well-defined range for most of last year.
I would have to assume that it's trying to breakout one side, then the other. And it's now back inside that zone of consolidation that we saw for most of 2018. That's probably gonna continue to happen. Nothing new has happened, although it's attempted to develop something new twice, and that's not been sustained. So, I would imagine that price is gonna continue to oscillate between $122 and $116. And on TLT, ETF, and then, yeah, it's gonna range ... I'll probably evade this. It's just oscillating back and forth.
Sean Donahoe: I'm actually fading this right now at the top of the range.
Phil Newton: Yeah, I can see reasons for it. I would just prefer not to do ... There's better looking charts out there, which is why I would evade it.
Sean Donahoe: Absolutely. Actually, just because of some of the stuff I'm doing right now in one my other strategies it kind of tipped the trigger so to speak. So, I'm actually fading this right now. But it's not part of our usual standard strategy. This is one of my other side strategies that I use, so I'm kind of like, "Okay." Taking with what we're seeing in the other markets and everything else this is tripping that trigger, so interesting.
Okay, so that is it for this week's show. And again, part of a detailed look at what is going on in the main markets and why you may want to or not reset and do the clean slate protocol. That is it for this week. Thank you for listening to the show. Please remember, this show is not free. It will cost you to post our review because, hey, it helps us get this out to more people just like you.
And do make sure you hit that subscribe button wherever you are listening to the show so that you can stay up-to-date with whatever we are doing. And these shows will come straight into your ears and straight into your brain and you can get all the insights into what we are doing. Make sure you also go to and you can also listen to the show right on the main site as well.
Phil Newton: Perfect. If you wanna connect with us, we've got a very active Facebook group. You can find us at the same link, The link to the Facebook group is there or you can search directly in Facebook and search for ... I think if you just search Rebel Traders it will turn up as the top-
Sean Donahoe: Absolutely.
Phil Newton: ... results for that. Yeah, so if you want to join us on social medias, by all means-
Sean Donahoe: Absolutely.
Phil Newton: ... feel free to join us. What have we got coming up in next week's show, Sean?
Sean Donahoe: Well, going deeper into something we've skimmed around and touched on today, which is the time frame Fandango.
Phil Newton: Ooh, do I have to get my out?
Sean Donahoe: If that's what you wanna call them, I mean, I guess that ... But yes, we will be doing the time frame Fandango where we'll be looking at why you should stick to one time frame or another, or how to use time frames to get and confirm a particular outlook and insight. So, with that being said, we'll do this again, same bat time, same bat channel. Take care for now.
Phil Newton: Bye, for now.
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3 Key Takeaways From This Show

  • If you have a positive expectancy strategy don't reset.
  • External factors or "Taking a Break" makes sense to "Clean Slate"
  • If the trade set's up, the trade goes on

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