Trade Like You're Surfing the Deadliest Wave in the World
Taking on the Banzai Pipeline... Preparing for a beating... Why you should trade like you're facing a deadly wave... Minimize risk and have a plan... A few recent examples... Try DailyWealth Trader risk-free for 30 days...
Editor's note: Today, I (Corey McLaughlin) want to share a special guest essay from our friend and colleague Chris Igou, the editor of DailyWealth Trader. Chris is an avid surfer and, as he explains today, he recently used his frequent trading advice about "minimizing your risk" as he prepared to take on the "deadliest wave in the world" in Hawaii.
In this essay, adapted from yesterday's issue of DailyWealth Trader sent to existing subscribers and Stansberry Alliance members, Chris gives all the details about his trip and what it has to do with trading. Then he shares a unique offer to follow his service if you don't already.
'Pipeline' is the deadliest wave in the world...
Professional surfer Jamie O'Brien broke his leg surfing this wave – twice... Lifeguards had to bring another pro, Kalani Chapman, back to life after he fell unconscious at the same spot.
And these are two of the best to ever surf this wave in history.
The Banzai Pipeline is off the coast of O'ahu's North Shore in Hawaii. It's the deadliest place to surf in the world for a reason...
Waves get as high as 20 feet, and a shallow reef below the water makes surfing even more dangerous. A plaque at the entrance to the beach there honors those who have died. Since 1987, Pipeline has taken at least seven lives.
Surfing this wave is not to be taken lightly. But I (Chris Igou) wanted to test myself in a wave of consequence that has an iconic history.
I've been surfing for more than 20 years. I've surfed in Costa Rica, Indonesia, Nicaragua, California, and more. But I had never surfed in Hawaii. And when I decided I was going to surf Pipeline earlier this year, I knew it would be a different beast...
I knew I needed to prepare.
So, I thought about the most important factors for surfing there. The approach is very similar to investing in the markets and what I share with subscribers of DailyWealth Trader. I want to minimize risk while giving myself the most upside potential.
Surfing Pipeline is no different... I needed to know the biggest risks up front. Minimizing them would be how I stay safe. If I couldn't minimize those risks, I knew I shouldn't surf it.
This wave has three main factors to consider...
The crowd, the reef below, and how "heavy" the wave gets.
Let's start with the crowd. People flood Hawaii in the winter to try and get the best waves of their life. The Hawaiian surf season is between November and April, with December through February being the peak when waves can reach 20 feet or bigger.
The famous Pipe Masters surfing competition takes place in January or February to ensure a good chance of waves.
The largest crowds happen between November and February. It's when locals, pro surfers, and amateurs fill the lineup... with a crowded day having 150 to 200 people out.
I wanted no part of the zoo for my first time out. So I went at the start of March. That's when the surf tour leaves, along with many other tourists. Yet, you are still in season for big swells.
The second factor I had to prepare for was the reef. The wave breaks on a reef that has holes in certain places.
If you get stuck in one of those holes, you could be in big trouble pretty quick. And it's a shallow reef. The wave breaks in just about 4 feet of water.
So to prepare, I did two things. One, I took a surfing helmet to protect my head. This hasn't been a common practice among big-wave surfers until recently. But guys like Jamie O'Brien are wearing helmets these days.
Two, I swam the reef on a flat day before the swell arrived. Snorkeling gave me the chance to spot the holes in the reef, know where they will be relative to the wave, and know where the most dangerous parts are.
The last thing I needed to do was prepare for how "heavy" the wave was going to be.
The force of the waves would be strong. It could hold me underwater for minutes if I had a serious hold down (the time underwater after a wipeout). And having the stamina to take those beatings is important.
I spent more than two months training. I did breathing exercises and worked out five days a week.
I took control of everything I could to prepare. I avoided the crowd. I gained knowledge about the reef and wore a helmet. I physically and mentally prepared for surfing bigger waves.
I did everything to minimize my risk and increase my chances at having success.
Then I went in...
Here's one wave from my trip...
While I was there, the waves didn't get as big as the iconic Pipeline is known for. But I still got to push myself in one of the scariest waves on the planet.
The crowd wasn't bad, with a couple dozen people out. I spent time watching how the wave breaks... and finding where I should sit to get a good wave.
I caught a handful of waves and only took one big beating...
A wave broke on my head, sending me down to the reef. My back bounced off the reef and I was tumbled underwater like clothes in a washing machine.
I focused on my preparation to stay calm, focusing on my breath. I knew I had enough air in the tank. But the wave was so strong that it took me all the way in near the shore.
I was so excited when I made it to the surface. Not because I didn't think I would make it... but because I just took one of the biggest waves I'd ever seen on the head – and I was OK.
I spent three hours out that morning and had a blast. I came away humbled, excited, and wanting more.
I wouldn't have been able to do that if I hadn't minimized the risk ahead of time. And by breaking my approach down into three factors, I was able to execute my plan.
The markets are the same way...
Folks can lose everything if they don't prepare.
This is why before every trade you make and that I recommend in DailyWealth Trader, I suggest thinking through the investing equivalent of riding one of the scariest waves in the world...
Practically, in DailyWealth Trader, this means using trailing stops to cut our losses, avoiding the crowd, and broadly making sure we always have a plan in place before making a trade.
Trailing stops limit your downside risk so you can't wipe yourself out. A general rule is to use a 25% stop. If the stock you own falls 25% from its recent high, sell immediately – no questions asked.
You will take some losses from time to time. But by cutting them short, you live to trade another day. And over time, your big winners will outweigh your losers.
We also dedicate one issue a month to the idea of avoiding the crowd. That's because market crowds get it wrong most of the time. We publish this issue on the second Friday of every month. I also check in on crowds during our "sector" checkups at the start of each month...
For example, I wrote on June 1 about how the recent rallies in Nvidia (NVDA) and Microsoft (MSFT) linked to the buzz around artificial intelligence were disguising a weaker overall market and why the tech sector was due for a breather...
Together, these stocks [NVDA and MSFT] make up 30% of the Technology Select Sector SPDR Fund (XLK). That's a big slice of the tech sector. And it's why we saw technology stocks rise 9.3% in May.
Now, we can't know how long that rally will last. But after such a quick jump, it's likely to stall – or even fall lower.
I shared one of my favorite sentiment indicators as evidence...
XLK is the most overbought it has been in at least a year, based on the relative strength index ("RSI"). And it's starting to turn lower right now...
Notice that XLK hit overbought territory last August, February, and late March. The August signal led to a big drop. And the February and March signals also led to lower prices in the next month.
So don't expect technology stocks to lead the pack higher again in June.
If everyone is "all in" on a stock or asset, that often leads to a reversal in price. And if the crowd is extremely bearish, a new uptrend is likely to arrive.
Nvidia and Microsoft are down slightly since June 1. And while XLK is up 2% over the same period, it isn't keeping up with other sectors...
The consumer discretionary sector is up 7%, and materials are 4% higher. Last month, industrials and materials were among the losers.
You can see that technology stocks are already falling behind their peers.
Lastly, I always suggest writing down your plan before you invest. It doesn't have to be elaborate. You want to write down why you are making the trade. You want to know what your timeline is... Are you investing for years, or is it just a six-month trade? And write down your exit strategy in case it doesn't go your way.
All of these things help minimize risk. And you'll be able to enjoy the ride, and reap the rewards in the long run by doing so...
Here is a recent example from DailyWealth Trader...
Last month, one key technical indicator I follow turned bullish on the benchmark S&P 500 Index. You may have read about this in the May 23 Digest by my colleague Corey McLaughlin...
As our DailyWealth Trader editor Chris Igou showed subscribers yesterday, the S&P 500's long-term trend – as measured by the 200-day moving average (200-DMA) – has ticked up lately...
This behavior – an upward-sloping long-term trend – has caused Chris to turn a bit bullish, as he explained...
We've been in the "false rally" camp so far this year. But with the S&P 500 climbing the wall of worry, and our U.S. system flashing "buy," it's time to put those worries aside.
It's also still early on this trade, but so far, the S&P 500 is up roughly 4% since I made this call... and I still like the setup.
The indicators I've mentioned today aren't the only ones I use. Far from it, in fact. These are just two examples of the type of analysis you can expect each day in DailyWealth Trader...
The great thing about my trading strategy is that it can be applied to any sector or any stock at any given time, giving you limitless opportunities to make money in any market. You can learn much more about the type of trading we do here...
If you're interested in trading and haven't been sure where to start, give DailyWealth Trader a try...
Now is the perfect time. You can get a monthly subscription for just $55, which is nearly 50% off what we usually charge... And we're offering a no-risk 30-day trial.
Last year, with the markets down across the board, subscribers to DailyWealth Trader had the opportunity to make 37 trades, with 24 of them winners. That's a 65% win rate. We made money in last year's down market, beating our benchmark by more than seven percentage points.
That may not seem like a lot, but this kind of outperformance – especially in a bear market – is critical to building long-term wealth.
Most of the trades I recommend last anywhere from one week to one year, with multiple trades going at any given time. And you don't have to take every trade recommended to you. But every day the markets are open, I will send you an e-mail with either a new trade, an update on an existing one, or an analysis of what's going on in the markets.
You'll also be able to check out our DailyWealth Trader "Training Center" for more information and special reports on things we use every day... like trailing stops, allocation guides, and more. Click here for more details and get started today.
And, at the very least, take some free lessons from my experience taking on the world's deadliest wave. Don't get caught up in the crowd. Research and prepare for risks. Have a plan. Then get in the water.
New 52-week highs (as of 6/12/23): Apple (AAPL), ABB (ABBNY), Adobe (ADBE), Aehr Test Systems (AEHR), Applied Materials (AMAT), Cameco (CCJ), D.R. Horton (DHI), iShares MSCI Emerging Markets ex China Fund (EMXC), Comfort Systems USA (FIX), Fluence Energy (FLNC), Gambling.com (GAMB), W.W. Grainger (GWW), inTEST (INTT), Ingersoll Rand (IR), iShares U.S. Home Construction Fund (ITB), MSA Safety (MSA), OMRON (OMRNY), Palo Alto Networks (PANW), Invesco S&P 500 BuyWrite Fund (PBP), PulteGroup (PHM), Pure Storage (PSTG), ProShares Ultra QQQ (QLD), ProShares Ultra Technology (ROM), SoFi Technologies (SOFI), The Trade Desk (TTD), Sprott Physical Uranium Trust (U-UN.TO), VMware (VMW), Vanguard S&P 500 Fund (VOO), and Walmart (WMT).
A quiet mailbag today... What's your take on today's essay? Or have anything else on your mind? As always, send your comments and questions to feedback@stansberryresearch.com.
Good investing,
Chris Igou
Jacksonville, Florida
June 13, 2023