1. Trading Journal: signals and the long trade IAU mid-winter bikini (3 safe option trades) 2. Short squeeze is here: now what 3. Tip of the day:Trading Journal and Signals I apologise for the radio silence. I was in Syracusa, Sicily. This is the birthcity of Archimedes. How nice of coincidence to be there during a short squeeze. Here is a week worth of signals. Position sizes are calculated using -0.10% of risk. This is a simple multiplier. I do not give investment advice except one: do not go above -1% risk. Maths are simple: 10 losses will draw your equity by more than 10%. You will be a different person with 10% of your net worth evaporated (Kahneman Tversky on loss aversion) The 50% off is a simple risk/size reduction exercise. There is no way of telling how strong and how long a short squeeze will be, So, when in doubt reduce risk by half or break even to cost. So, all the positions where it says 50% Off are active positions. As for the Long positions, all of them were stopped out before. I was Long Long REZ (residential REIT). They got stopped out but the regime remains Bullish.You may want to lower risk on those positions. The IAU Long trade: Long ETF and OTM April Call Some people insist on buying bikinis in the middle of winter. Some people want to find stuff to buy Long in a bear market. So here is one. Suggested risk: -0.38%, or max risk suggested Risk traded: -0.28% Stop Loss: 10 Limit or Better: 10.71 Cost: 10.57 Not only did I Long the ETF, but I also bought some OTM 12 April Call. This is definitely not a classic option trade. There are three ways to trade options with limited risk: Risk reversal: Long underlying, short put and long call. That would be a classic bullish trade. I should have done that Call spread Long, put spread short: that caps the risk nicely. That is an easy trade that allows for a lot of leverage. I should have done that Long underlying and short 105 call: this limits upside, but allows for bigger inital position thanks to the premium collected. I should have done that Now what i did was different. Here is the sequence of events. I bought the underlying. I realised that the position was was way under my risk budget. So, how could i maximise the bang for the buck with a budget of 0.03% of equity ? Options. I rapidly went through the first three scenari and realised it would take more than the budget. Yet, there is one trade that has a lot of torque: long OTM with a lot of Theta (time value). Don't try this at home as they say, it is stupid. Well, I have never been accused of being intelligent, so that could be a perfectly good bad idea. The reasons are simple: Inverse correlation and exposure management: the ETF for GOLD IAU printed a Buy signal when everything else was sold "en masse". This is a clear unmistakable inverse correlation. There are very few Long ideas these days, so if this one works, it will expand quickly. This will increase the Long Book, which will allow more shorts and therefore increase leverage. Awesome trade i thought Risk freeish trade: at 0.03% of equity and given the scale-out trading style, it takes an extra 1% on the underlying to cover the trade. Awesome free trade i thought TIP of the dayWhen deciding the weight of your position, always size them as if they were to be stopped out. There are several affective neurosciences precepts behnd this aphorism (that we will study in a later post, Kahneman Tversky, Hershfield, Pearson Marr)), but suffice to say there are old traders and bold traders, but no old bold tradersShort squeeze: now what ? First, how can You tell if it is a legitimate squeeze ? Correlation. During downturns, correlation between markets increases and goes to 1 during heavy sell off So, the entire world went to Babylon (except for IAU and SGG (sugar)). Then on Wednesday, JNK junk bonds rallied intraday. The markets followed suit. The entire world rallied. BTW, this is a personal belief, but junk bonds seem to call market inflections these days, at least much more than the press darling oil. Here is a proven strategy that i have traded for years: two certainties in life: death and short squeezes. There is no way to tell how long and how strong a squeeze will be. So, cover partially as the squeeze starts (half or break even to cost). If You are Long and your Longs underperformed during the sell-off, now is the time to lighten the positionWait for the squeeze to pass: the good news about squeezes is that they flush amateur short sellers. Borrow is cheap and plenty available again.Once the squeeze has rolled over and we go down again: place another tranche. Reset stop loss to the latest position: isometric staircase stop loss (I always have to say it, it makes me look intelligent for a change Here is the strategy in a nutshell