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    Volatility Reports Quantifiable Risk

    August 2, 2021

August 2, 2021

Volatility Reports Quantifiable Risk

Playing defense is key to Alpha, in other words, risk management.

It’s simple math if your investment or portfolio experiences a drawdown of 33% for it to get back to even the investment needs an 50% advance, full stop. So why take a risk for an average of a  below-average return?

Way too many players use the trailing P&L as an indicator for on/off risk. In reality, the market does not care, and it puts the advisor/manager/trader below the standard 200-day MA with their exits, following their fear into forced or panic selling.

The featured charts in this issue show how risk is seen today, August 2, 2022, and my experience calling peaks since 1987; the downside expectation has been understated. Today my methods have advanced since 1987 with Fibonacci retracements and EWT wave relationships where used. The volatility model I have developed – TEM- speaks loudly about the emotions or rationale behind the market.

Procuring shares for no underlying reason except the motivation of great, of profit. All of the US indices in the five chart windows shown here peaked on “poor buying,” as the old-timers call it. Today it’s called FOMO or irrational buying.

For that reason, it’s a fact that if bought on an emotional basis, it will be sold on the same. Hence when the shares go underwater and hit the trader’s pain threshold, they will dump the shares and stop listening to the perma-bull tunes promoted in the media.

In the charts, the “Red” shaded areas show where panic buying began and where it ends. CT measures risk to the price level where the panic buying started. The percent risk projected is annotated on the charts. I also highlight in blue the annual support zone for this year as the max level thus far. The market has many more stories to tell before 2022.

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