On the other hand, with the market over-extended, I decided to open a new short, which is OLN. Neither FDX nor OLN is a broken stock, but they sure have negative EV patterns.
With three long positions and two short positions, the portfolio is in a neutral situation for now.
A small statistical study that I will publish in the daily comments shows that after a monthly gain higher than 6% (actually more than 7%,) the next ten trading days should be range bound.
In such a situation, strong stocks will continue to act well, while weak stocks should underperform.
I believe that a portfolio that is only slightly long could do well in a range bound market.
You can see below that the statistical risk to the portfolio is about 0.7%, while the maximum drawdown is close to 4%. This maximum drawdown would occur if all the stops on the five positions are hit, which is very unlikely. Once again I want to stress that trading the markets is mainly risk management.
