As we get into it, a few words of wisdom for traders reading this blog.

Now that things will likely start rolling our way a tiny bit, I have a few things to say in order to make sure we are all thinking straight here.  I feel compelled to mention these things since there is money involved and thus emotions.  Also, when people smell opportunity they often overplay their hand (I have before...) and if the trade goes against them then sour feelings can result.
 
First off, TVIX is leverage that really should not be used by most people.  I spent a good deal of time searching for the absolute most leveraged bearish general market ETF I could find and TVIX (2x short term VIX) is what I landed with.  There are others which are -3x small cap (TZA +3.54% today) and -3x large cap indices such as (SPXS +3.44% today).  Compare that with +21.49% for TVIX today.  To say the leverage is extreme is a gross understatement.  It can in fact be horrifyingly large if you are on the wrong side of a large trade!

In fact, unless you are adept at counting waves and have time to look at the screen I think you should probably stick to one of these simple strategies:

• Don't trade TVIX.  Trade something less volatile such as the ETFs named above.  You are not going to get a 20 bagger with them but you won't get an ulcer or go crazy if you mess up the trade.  In other words, don't over bet your abilities.   All of my general posts and broader market posts still apply to those other ETFs but they won't take all your profits away if you happen to leave to go to the bathroom...
• This next strategy is wise IMO and supported by the data but not supported by our egos and our desire to be controlling and that is to just buy a chunk, not too much that you you have to commit suicide if you lost it all, but a nice chunk on the next big dip.  Maybe that is just $1000 worth.  Maybe it is $5k or $10k.  Choose something that is within your pain threshold should the ETF manager fucking steal our money via the use of bullshit derivatives that he gets stiffed on.  THIS CAN HAPPEN.  You (and his ETF) can be on the right side of this trade and still lose during such a historic crash as I am expecting.  I won't mention this again but don't say you never heard about that possibility.  Assuming (it is a safe assumption for now IMO) that the ETF itself doesn't BK, hold until the major waves have counted out and then go to the sidelines.  
• My view is that if you don't trade this at all, it will still be up 20x from current levels before the crash is over.  There will be volatility galore but if you just ignored it and never traded it at all, the wind is at your back and your progress forward will be swift once we really get moving.  But you will do much better with some few trades taken at the right times.  There should be 5 massive waves to the bottom, whatever that turns out to be (cough cough sub $1000 DJIA cough cough).  When big wave 1 down is done I will most likely be posting my opinion about that.  Just trade to cash then.  So we are talking like 5-6 trades for the entire bear market.  Not once per month.  Perhaps once every 2-3 calendar months.
•  I will not be doing this, I will be trading actively.  But if you just want to make an outsized return on your money without worrying about it a lot then this might be the strategy for you.  Even if you only make 2 trades: buy on the next big dip and then hold until the wave count says the bear is done in 2-3 years, you will likely make 20x.  HOW??  Well look what happened to SVXY which is the 1X short VIX (see chart below).  From late 2011 through mid 2012 it went up 9.3x.  That happened without any trading, any panic any freaking out.  Keep in mind that this represents only about half of the big rally.  SVXY was not around in 2009 so we don't know how it would have done overall with zero trades but probably better than 10X.  And with one well placed round trip (side stepping the B wave during May-Oct of 2011) you would certainly have done much much better than 10x.

As you internalize that, keep in mind that TVIX is 2x as volatile.  So if you have seen me quote "20-40 bagger" before, this is why.  I think you can just throw 5000 bucks at this and come back in a year to find it is 50-100k.  That's how leveraged TVIX is.  But the week to week volatility can give you nightmares if you really don't believe in the wave principle or understand the magnitude of debt that got us here.

So the above simply says don't overtrade and don't overdrive your headlights.  Consider the use of trailing stops once we get on the warning track for end of each of the 5 waves down that will comprise the crash.

OK, next.  The first significant wave down has not played out yet (wave 1 of the new bear).  I have written many times here that the market often cannot believe that the worm has turned and so 2nd waves can be huge, vee style retracements. BEWARE of this.  Just because the wind is at our backs it does not mean you can't be pitch-poled into the waves if you aren't paying attention!  This is TVIX, the most volatile thing I could find.  Long term it will be up big but short term I expect it to buck all over the place like a bronco that just got its strap tightened.

OK, next.  Don't count on me.  I might have to travel, I might get sick or I might just be too busy counting my cash to post.  And this next part is meant to be intentionally pointed so that there are no questions at all on this matter because, again, people get something for free for a long time and they can get used to it,  assume they deserve it, assume it will just keep flowing.  Then they have to go through a mini Kubler-Ross grief cycle if it doesn't happen.

Let's not go there, shall we?  I am not a paid advisor.  I do not give advice.  I have opinions which I share in the name of financial entertainment, no more, no less.  I don't work for anyone here.  I have my own life and own commitments.  I'm not getting paid by anyone so please don't get dependent.  Use the time to begin doing your own wave counting and create your own models based on your understanding of EW before reading my opinions (this is what I do with EWI...).  It is work but you might find it fun and if you ask questions in the comments then I will try to answer them as time permits.  Most importantly, it gives you confidence over time (or teaches you that your confidence level should be measured). But "I thought you said it was going to do XYZ..." that is directed at me after a failed trade goes bad on you will be met with "think harder next time..." or "ever hear of using stops?".  .  I don't want to be rude or uncaring but that is just how we libertarians think.

Again, importantly, look at all of the angles that you can think of.  At first it is difficult to make the mind go there but your cash is at stake so I hope that is motivation.  For example, look at the TVIX chart below.  I can make a good case that we just counted 5 waves down.  There is a falling wedge into 3, and 4 can be counted as a-b-c.  5 came back down into what can be counted as 5 waves which ended center channel.  So, yeah, probably 5 waves down completed.  But was it really the 5th of 5 of 5 of 5?  Are we sure there isn't another wave down of some size in there?

Since the recent bottom, we have what looks curiously like an a-b-c. Yes, it broke out of the channel but it has not yet hit a higher high.  In fact what if the broader indices are very nearly done with a 1st wave down and will retrace a vee wave 2 soon (see bottom model)?  Maybe TVIX will reverse all the way back down to test the top of the channel from above.  It's all good and fine when it is 5% but we are talking 25 or 30% here, maybe more.  Unless you have decided to just let the market do its thing, that can be very upsetting if hope is your strategy.  So don't wait for me to think of all the angles because I don't always have the time to think about them, or more importantly, document them on this blog in an understandable way.  I urge anyone who is trading to get serious about learning EW.

I also want to mention that in my prior experience, if you find yourself getting whipsawed and losing out coming and going, you are trading too often.  Even if TVIX goes down 30% to kiss the line, the odds are very, very high that the next bear wave will kick the DJIA in the ass.  So if you make a mistake and get caught short, consider the bigger picture, smoke a Colorado Kent and have a glass of scotch.  The trade will most likely come back to you on its own now that we have the weather gauge (see Master and Commander: Far Side of the World for reference to that term  ;  )

Possible 2nd wave retracements....

 
Thanks again for your interest in my blog.  As long as we all behave in a libertarian manner (i.e. you get what you deserve, nothing more, nothing less) during this choppy voyage, I'm sure it will be a good deal for all involved.