Exposure

Thursday, Oct.25.

My last Blog was in reference to my much-anticipated Elk Hunting Trip to Colorado which is now over. The trip was fun and awe-inspiring as it has always been but did not result in stocking the freezer. I declined the invitation to write a Blog while on my trip as this was my “break” from market watching and I was intent on having some fun and just enjoying the “great outdoors”. BUT----in truth, a topic was formed in my head on the opening day of the season and it may have relevance to some.                                                                                

Upon arriving in Colorado, we were met with very mild temperatures ranging from the mid 30’s at night to daytime temps of nearly 60 degrees. Everyone hoped for colder temps and SNOW (enables hunters to track the Elk). We camped at 9800 ft. elevation where the weather can change in a matter of minutes. We arrived early for scouting purposes and had only “slight” hopes for the weather to change. However, the evening before Opening Day, clouds rolled in and the chances for precipitation improved considerably.                                                                                                

I awoke opening day well before daylight and was pleasantly surprised to see a lite dusting of snow on the ground and more falling from the cloud filled sky above. Change of Plans !!!---insulated pants, waterproof boots, a medium-weight coat, and a broadbrimmed hat were donned----don’t forget your gloves, backpack, snacks, and GPS---and, of course, your gun !! WOW, this turn of climatological events was encouraging!                                                                                    

After a short truck ride and a slippery pre-daylight hike to a mountain meadow, I settled down in a predetermined spot behind a rather large lodgepole pine just inside the treeline surrounding the meadow. I had great confidence in being able to see anything that might enter the meadow and now just had to WAIT.                                                                                        

Here it comes!!-----Noooo, Not an elk----another Change in the weather. The WIND started to blow (Hard) right out of the North (probably 30 plus mph and considerably Colder). The SNOW became pelletized and took on the form of miniature missiles propelled by the intense wind and increased in volume. Visibility declined from the volume of snow but also from the full-frontal assault against my glasses. Brrrr—the snow pellets were now raining down my collar---the broad brimmed hat did little to stop the horizontal snow; the Wind was biting my face; the intensified Cold was driving through my insulated pants and medium-weight coat; my hands were freezing;----and I KNEW that the inevitable Body Chill was on its way. EXPOSURE was my predicament now and must be dealt with !!!          

After 35 years or so of visiting mountainous areas, one learns to prepare for the unexpected and hopefully realizes the danger of being exposed to the elements. Dozens of people die each year going into these areas unprepared and unknowing. For example, one should never wear cotton undergarments and insulation in cold mountain climates----cotton absorbs moisture from your body and the elements and when temperature drops, it robs heat from your body’s core. You can much more readily die from Hypothermia having fabric made of cotton instead of wool or the new synthetic materials.                                                                                                        

With the sudden change for the worse in the weather and my Exposure dilemma, I knew I had some changes to make. First, get to a bigger tree that would offer more wind blockage and with lots of green foliage to keep me dryer. Then, into my backpack !! Ahhhh---a wool scarf for my neck !---gloves for my hands !---AND—a full head, face, and neck covering knit cap ! These items immediately increased my comfort level tremendously and enabled me to stay with the hunt over the meadow for the next six hours. It also helped that I was able to heat some body-warming and nutritional soup on a light weight alcohol stove that I had seen on the internet and built for this trip and packed away in my backpack. All of these things allowed me to stay in the game and OFFSET my Exposure problem.                              

Now for the relevance of my hunt to Trading. Most of us have experienced the fickle nature of the markets---much like weather can be. Any one day can be Totally different from the last or it can be astonishingly similar. We witness Price creep along or consolidate for periods of time, or move rhythmically with earnings declarations and Hedge Funds entries and exits, or with just “normal” supply and demand. We see Fundamental News sometimes “spike “ Price in either direction, Political incidents causing glitches in normal patterns, and been affected by Crowd Mentality suddenly manipulating Price movement. Sometimes NOTHING AT ALL (that we know of) boosts Volatility and Price reacts !  But Price and its movement is what we have to work with---and that movement has a REWARD (Profit) potential and it has a RISK (Loss) potential.      

Since our Goal as traders is to make money and NOT to lose it, we should do EVERYTHING WE CAN to Limit our EXPOSURE to the Risk side of the equation (we should also do all we can to increase the Reward side but will address that at another time). Note that ANY decrease in your overall Losses is an AUTOMATIC Increase in your NET !!                                                                            

Limiting our Exposure to Risk can basically be done for the most part in One Major Step and almost all at once. The Trading Plan that assigns a certain Methodology with set rules to a particular Commodity is the most useful tool. Within that plan is the Market, hopeful gains, sustainable losses, when to enter, automatic exits for both profit and loss through bracket orders, and reliable visual accounting of where you stand. One should choose to trade something that has Volume (# of contracts) and a decent amount of Volatility (Price range) but also has a proven trading strategy. One should also educate himself about the Commodity he wants to trade so that you are familiar with $ values as to tick increments, daily Price range levels, what kind of news affects that market, and the best times of day to trade it.  

               

 Another IMPORTANT tool is Michael’s use of Aggressive Risk Management---that is the movement of the Stop-Loss Order to a lesser amount or to break-even once the Trade is underway. Or, if conditions merit, just EXITING the Trade before a full bracket loss occurs.                                  

The CFRN Team Leaders are willing at any time to discuss the Markets and each individuals’ own Trading Plan to reduce your Risk----don’t wait for Exposure to happen, then “dig in your backpack” of knowledge for a remedy----dress up your PLAN now for the EXPOSURE that is Sure to Come !!!                                                                                                                                                                                

Good Trading,                                                                                            

Powderhorn