2/22/25 10 Rules To Survival

I’m going to make this post public so share it with whoever you want, but with the market getting dicey again, I wanted to discuss some of my market philosophies if you’re going to survive and thrive in the market.

1. #1 at the top is understanding when you’re in an uptrend. My most rudimentary rule of thumb is the 21 ema on the daily. That is your short term barometer of where the market is. Above it we’re in an uptrend, below it, we aren’t. Simple enough? You will notice yesterday’s wreckage involved us losing the 21 ema (light blue line) and that means now the market is below its 1 month moving average. When stocks are in an uptrend, you can stay in short term positions, when that 21 ema breaks, you need to not be a hero and forget about short term long trades if you want to survive. Will individual names have different setups, sure, but you would have trade those individual charts. When you look at the overall market because it is so heavily tech weighted, when it breaks down like this, most tech names are probably also breaking down which is what you’re seeing now.

   

2. Understand that “they” will always save stocks. We always save stocks like humanity depends on it, because it does. Without equities constantly rising, the house of cards economy we live in would crumble. Without people feeling richer on paper they don’t splurge on trips or cars and our government understands the wealth effect more than ever post GFC so we always save equities first. Remember the covid era? We provided liquidity to bounce stocks after a 3 week crash before figuring out what to do with covid. So fear not, whatever happens short term, your long term positions are fine.

3. Accept reality. In the 2/12 recap here I closed up my AMZN position after over a year and a half. That yellow arrow is the day I closed it right under 230. Yesterday it hit 214.74 at the low. Why did I close it? Yes the long term AMZN story is the same today as it was 7 sessions ago BUT the 8 ema was crossing down through the 21 ema and AMZN was sitting right ontop of the 50 day moving going sideways for a few days forming a bear flag. With all of that in mind, the probability of a decline was high and having a 1000 lot call spread like I did, I did not feel like enduring another 7 figure drawdown, so I bailed. Amazon then proceeded to decline another 5% in the next 7 sessions and I avoided all of it. The problem a lot of traders make is they fall in love with stuff, me, I knew I didn’t like where the overall market was heading and I decided the risk/reward wasn’t worth it to me at that juncture.

   

4. Don’t be pigs. Yesterday I posted this META chart that is significantly worse this morning but I had this on my computer so I’m using it here. When I first entered META with that big risk reversal it was the day that massive bullish engulfing candle below formed here in late January and I held that trade for around 2 weeks and sold it here on February 5th. I got all those comments about “why” I sold. While META did continue its march higher from the 716 level I cashed in at all the way up to 740.91, it also died this week falling nearly $60 in 4 sessions to close at 682 yesterday. Do you see where the rsi was on the chart below when I sold in early February? It was off the charts and while it did continue for a few more sessions, it eventually normalizes and names come down to earth. I was happy with what I made, moved on, and the people who ignored reality, are now hating life. Will META go to $1000 by 2027? Probably. Do I care? Not really, I made money and there’s always another trade, hell I may even re-enter META at some point, but the point is, I stuck to my rules and did not hold an overheated stock for too long.

   

5. Placing trades for a credit is a life hack. One thing you will notice with me that as far as I know very few if any on fintwit discusses is the ability to place to trades for a credit. Most traders look for charts breaking out and buy calls a few weeks/months out. That is all fun and games until the market has a session like yesterday and your calls get wiped out. What my approach always is requires more margin on your end, but it lowers your probability of failure dramatically. Every stock is a buy somewhere on a chart, when I suggest the use of put sales to offset the cost of your calls, it is with the notion in mind that on a worst case scenario your calls go to $0, but you still profit on the trade AND you get assigned a good stock at a safe level. When you sell puts, the worst case scenario is you have to buy some stock, so combining the power of short puts to offset the cost of long calls will keep you from panicking when a trade goes against you.

6. Use option flows to guide you. I do what I do because option flow is the truth in the market. When we can see what big money is doing and position ourselves around it, we have an edge. I’ve discussed this before but think of every large trade I post as the aggregate brain power of 1 asset manager and his team. Think of the hours and strategy sessions that went into the thesis behind each trade. To you they’re just 1 line on the chart, but to me, they’re hours of brainstorming to develop a thesis and I get to see that and form my own trade around that. Let the donkeys on twitter who think a 13-f matters discuss a lagging indicator, we get to see where trades are placed in real time. Take that massive CE risk reversal yesterday, that name popped into the bloodbath yesterday right after it was placed. Price action is truth and more often than not, names run directionally AFTER these large option trades are placed.

7. Where you do you sell puts? I always try to aim for key spots like a gap fill, at a volume pocket, or below a key moving average. Why? Because when you sell puts the goal is to not be assigned. In the off chance you are assigned, you want it to be on your terms and where you want. Take a name I really like, WYNN, here is the daily chart and you can see all the recent gaps after earnings. The furthest down gap is just over 78. You want to sell puts below that a few months and see if you can snag WYNN on a gap fill. Again, do not fall in love with stuff, let names come to the prices you set. Think of it like this, my dad was a really tough businessman, he used to own a ton of properties and he was a hard negotiator. He used to put out countless lowball offers and wait. Eventually those who needed to sell would often come down and meet his price. He of course did not get paid to wait, you do when you’re selling puts. When you look at my book everyday and you see how it is structured, you see all these lowball offers I have on the table and I’m waiting for something to fill, on my terms, like my dad used to, but I’m getting compensated for waiting.

   

8. Leverage is fine. This country was built on leverage. Leverage is everywhere, without loans most people couldn’t buy a home, a car, whatever big ticket item you can think of. With stocks though, people fear leverage. Leverage is fine if you understand what you’re doing. You see how much leverage I employ daily, but you also notice how I had it hedged with TLT which saved the day yesterday for my book. If you do use leverage I definitely do not suggest piling in and following what I do, but I do think everyone should dabble in it slowly with trial and error. Worst case scenario you get punched in the mouth, but in life, that is the best way to learn. I’ve been dabbling in markets since I was 15 years old, you think I didn’t get punched in the mouth along the way over the last few decades until I got where I am today? It’s ok to lose money as long as you learn from your mistakes and make adjustments.

9. Stop being paranoid about a market crash. In the history of markets, we have never crashed, without losing a big long term uptrend first. I wrote a long post last year showing all the recent market crashes and how all were visible trend breaks, you can read that here .

10. Lastly, use the community here to help guide you. The community discord is nearing 1,200 people right now. I really do think it is probably the greatest corner of financial discussion anywhere on the internet. If you have an apprehension about a trade, ask a question, nobody in there bites. There are ALOT of sharp people in there, many are professionals in the space. You could never find a better resource than that chat and the reality is with any trade, the more eyes on it, the better. Those people can help you structure the trade, they can help you see the key levels, and you will learn a lot from just watching how all those people operate especially the the tab where they all show their trades. You can use the trade discussion tab to ask the how and why. The strategy tab is another great area to discuss various approaches because every trader has their own unique style. You have this community at your disposal 24/7, don’t let it go to waste.

    Have a great Saturday and I will see you tomorrow with a weekend best idea.