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During Last Week's Trading Massacre, I Told You To Buy - Now, You Should Start Trimming Positions

Mar. 03, 2020 4:40 PM ETAMZN, MSFT54 Comments


  • This is a good time to reinforce trading discipline. I concentrate on "cash management."
  • By focusing on generating cash I remove myself from emotion about taking profits or losses.
  • Keep trading in a separate account. Don't mix trading with investment. Investment is thinking like an owner. This is a very different behavior than trading.
  • We are close to the bottom of this sell off. That doesn't mean the volatility is over. It's in times like these that having a strong trading discipline will help you generate alpha.

What I'm NOT saying is to sell right now

I started writing this note when the market was up. It has been chopping around all day, and I want to get this advice out there in preparation for the next upmarket move. That could easily be as soon as tomorrow as I suggest later in this article. If you are trading equities I believe that you should take a “cash management” approach in trading equities. I have talked about this in the past but I think that now would be a good time to review.

A Word About A Cash Management Discipline

If you are trading equities your raw material is cash. Without cash, you can’t initiate positions to create “inventory.” Cash is the least risky and cheapest hedge. There's a reason why people say “cash is king” because with cash available you have the room to maneuver when times are tough. I also turn to a cash management discipline as a way to manage my emotions in taking profits and losses. In my experience, if you don’t have a set of rules for these actions then trading can be a chaotic and emotional process. Trading is a performance skill, in other words, it’s akin to high-pressure sports, so as to quote Yogi Berra: "Baseball is ninety percent mental. The other half is physical." For me, trading is 90% mental and 90% fundamental and 90% market mechanics. If you can eliminate emotions in taking profits and especially taking losses you have removed a big impediment on seeing the markets, your stocks and your positions most clearly. I don’t want to make this “discipline” into a big deal, all you have to do is grow your cash when the market is rising and participants seem complacent. Then you deploy that cash during the inevitable sell-off. The goal is to focus on growing your cash and not selling the stock. We do this by “trimming”, sell 2 to 5 shares at a time for

This article was written by

David H. Lerner profile picture

David H. Lerner is an analyst with a decade of experience utilizing his professional background in software consulting and technology to identify market trends and provide long and short trade ideas. David employs a combination of technical analysis and market psychology to capitalize on narratives for outsized returns. He also utilizes “Cash Management Discipline,” a simple trading style to hedge against the volatility of today’s market climate.

He leads the investing group Group Mind Investing where he uncovers actionable trading and investing ideas nearly every day. Other features include: long and short swing trade alerts, daily macro analysis, weekly articles, and chat for community interaction and questions. Learn More.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am long Shopify (SHOP), The Trade Desk (TTD), Alphabet (GOOGL) via CALL spreads, I am also short the VIX via puts, with a 20 strike and an April 1 Expiry. I want to get long AMZN and MSFT if conditions are right.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (54)

Taylor Dart profile picture
You said to buy at 3250 before we plunged 10%, now you’ve suggested to trim at sub 3100. How is this helpful?

Apparently the new mantra is buy high and early, enjoy a healthy drawdown, and then sell at a loss.
I never met a rich technician. Don’t trade and ignore advice above.
Steelhead15 profile picture
Double V is also the well known W. I look for Ws all the time while charting. I do have to go to line charting instead of candles. I really like the accelerating W.
NONSENSE! Protect your egg nest and buy TESLA !
papita profile picture
most people can not time the market successfully. buying and then selling days later is left to the algos, not the average investor/trader. buy quality, don't overpay and wait for the stocks you love come to you. and then hold on.
when you say you're short VIX by way of puts, I assume you're shorting an ETF. If so, would it be alright to ask which one?
Anyone shorting VIX deserves to be punished.
Don't worry, they've certainly gotten punished
Interesting approach to shave positions, both winners and losers... I’m usually at 25% cash but might use this tactic to move closer to 50. I’ve been dumping my winners as they rise then kicking myself as they rise higher.
Investing is thinking like a rube who wants to lose money. Unless you are a millionaire you aren't an owner.
Trade In Mexico profile picture
Articles suggesting you trim and raise cash AFTER a 3500 point drop are not too helpful. I do agree that this "pandemic" (mostly of fear) will peter out...
Great article by the author. You hardly see good article like this on SA.
Buddha1010 profile picture
JPM put out a Buy on TSLA with a target north of $1K. That rings a bell for me to consider shorting it. It takes chutzpah to do that in a market that is in the early stages of fear. JPM must have lots of customers who want to distribute at higher prices and they had that chance in early trading. (Actually the research leak occurred after hours yesterday as witnessed by the large gain.)

Although people aren't happy with the declines and volatility in the general market, I don't sense there is enough real fear to put in a bottom. A capitulation day could see the market down 1500-2000 points on massive volume. I'd be a buyer into that move.
Finici profile picture
".... These are wise pieces of advice. If you are sitting with $25K in credit card balances you should stop investing or trading in stocks, and use whatever available money you have to pay off those balances. ...'

Now this comment above should go into the "best advice possible" column!!
04 Mar. 2020
Of all the things this guy has said, that’s the only piece of advice worth following.
I don't get the math.
Baseball is ninety % mental. The other half is physical?
The other half = rest would be 10%.
Trading is 90% mental, 90% fundamental and 90% market mechanics?
What are the 10%s missing?
Joseph Webster profile picture
Look up sayings by Yogi Berra. Questioning the math on those statements is missing the point
Many traders had the feeling the market was overbought at the start of the year. Even if you hedged you got taken out to the wood shed and spanked.
If the economy is adversely affected there won't be a magic bell signaling to reenter.
Hind sight being what it is 20/20. I'm just buying fixed income for yield while generating cash buy selling in my trading account at substantial losses
Despite Corona not being as deadly as it is portrayed. I still think we will test December lows. We are in a bear market! Anyone who tells you otherwise is incorrect. Now long term I'm bullish for the year but the market may be bearish for a month. Hell some people are saying until the Summer! who knows. I'm completely out and siding on the sidelines waiting for things to get better. I won't buy until we have an confirmed uptrend. Even if I buy shares with married puts I'll still loose money.
From the UK - worst case:

Up to 80% infected
Up to 20% off work, at any one time

Anyone who trades as if this virus was just another flu outbreak is likely to lose their shirt. These figures may represent a worst case scenario but the same would apply across most of the World.

And watch the USA closely!

Of all the developed nations, the USA is probably the most vulnerable due to the lack of free health care. The latest I've seen from there is that US citizens have been asked to pay for testing and , where positive, pay for their quarantine. Who should be ultimately responsible for footing the bill has not yet been decided.

Come on US... get up to speed!
neuername profile picture

- lack of testing
- lack of trustworthy authorities
- lack of social security for workers who need to get out of home even if they are sick
- voting going on right now

on the upside you have
- low level of public transportation

more aspects that make the US less or more vulnerable than Europe?
Dividend Latitude profile picture
There is no such thing as "free health care". Someone has to pay for it.
thinking.outloud profile picture
The assumption Covid-19 is overblown is likely true. I've been thinking since Dec 31 19 the market would come to a correction.
Buyandhold 2012 profile picture
"...last week I told you to buy, now you should start trimming positions."

Such a busy investor.

Buying one week.

Selling the next.

I know they say that idle hands are the devil's playground, but isn't that carrying things to the extreme?

I haven't sold even one single share of stock in 50 years and I don't plan to start now.

Since the stock market goes up over the long term, I view selling as trying to run down the up escalator.
Dear buyandhold,

Do you have specific shares you’re looking at which could offer good long term gains?

Thank you
Buyandhold 2012 profile picture

So many good stocks.

So little time.

Like being a lucky man in a harem.

There are just a few of the stocks that I like now.

UnitedHealth Care

Northrup Grumman



Franklin Resources


What about Shopify?
“take off a few shares here and there” vs “weak hands” 🤔
Chris Valley profile picture
If you have sweaty palms, try selling the 37.5 MO puts. Those are easy to hold onto.
Chris Valley profile picture
I plotted dots in the vix pattern into the ramp up and plateau event to describe the motion and fragmentation: leading into the sell off VIX was smooth, and meandering with gracefully building momentum. Then a choppy plateau corresponding with the selloffs.

This week- in the dissipation process- There's been 3 higher peaks in the VIX than last week in the build up. The trading out of trouble is more chaotic. Because it is more energetic and multi energetic. It leaps and trades at different quantum levels of energy. Now it is multidirectional.

It is simmering down like a lid evacuated from boiling water.

What you see in the common shares and prices is the upside down version of that rumbling steam process.
SPXS or SPXL profile picture
I'm not following, are you saying there's been more energy to the downside than the rally on Monday? @Chris Valley
The oncoming train has just left the station. Ignore it at your own peril...
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