 In today's episode of Amir Approved, I'm joined by Tom Basso. Tom Basso bought his first mutual fund at 12 from funds received from delivering newspapers. From those early days, covering over 50 plus years, Tom has extensively traded stocks, bonds, options, commodities, futures, and forex. Tom's engineering background with the knowledge of math and computers helped him leverage his time and talents in managing portfolios over his 28 years career. Tom was one of several traders featured in Jack Schweger's new market wizard dubbed Mr. Serenity by Jack. His website, EnjoyTheRide.world provides books, seminars, computer tools, and videos to help traders develop their own successful trading strategies. In today's episode, we dive into Tom's strategy, his background, and how he views today's current climate. So please sit back and enjoy today's episode of Amir Approved with Tom Basso. Tom, welcome to the show, brother. How are you doing? I'm doing great. I just looked over there a second ago and my account was hitting all-time highs, so life is good lately. So before with this call, I was telling you, I spent, oh God, I think I was on your site three hours going down the rabbit hole of content. Because for me, I'm not per se a trader. It's not my psychological makeup. I'm more leaving, forget it, and I'll see you later in four or five years. I'm the lazy investor. Like a super lazy investor. That is a strategy, Amir. It may not be the easiest one at times like these, but it is a strategy. Well, you brought up times like these. So that's one of the reasons like, all right, let me go against my nature and dive into all these different strategies. Going to charting and talking about the Elliott waves and all these different band curves and just really understanding it. And I read about you a little bit more and diving into it, and you're very systematic. It's not more or less going by the gut feeling. It's like, oh, I got this insider information or I understand it's more like there's heuristics and their systems. We need to follow the process within these rules, no different than any computer software. There are outlier circumstances where you have to kind of go against the rules. But for the most part, if you're following these rules, you should be good. Yeah. I think when you look at, especially if you look at a day chart and a day trading type chart, five minute bars or something getting way down into the data, you see, and I'm a chemist way back when. So I look at it like that on, you know, in your air conditioning system, you've got air, you know, the temperature is going to get up to a point. The thermostat's going to say, okay, wait a second, that's not getting too far. That's no longer just noise that I'm supposed to ignore. Because you don't want the air conditioning turning on and off like every second. So you have a delay. And at some point, it says, now it's getting outside the rain to take action. So turn on the air conditioning or on the other side of it, turn it off. So think of that temperature variation that normally your air conditioner goes through or your thermostat goes through as the noise. And that's just like the market's noise, where you have the high side be the buy and the low side would be the sell. That's the information, the buy and sell, the inside stuff you want to ignore. And so many people get, I don't know, they get hung up in all that noise. And I just think they lose sight of the forest for the trees, so to speak. What I try to do is just mathematically different with different indicators, try to ignore the noise and keep the meaningful information. And when meaningful information comes through, the other problem you got is you've got to have the mental fortitude and the discipline and all those things that go along with trading to actually take action and do what your plan said that you should do. There, I can't tell you how many people on social media have said, oh, I'm just stepping back. I'm going to go to cash. I'm going to wait until this is over. Well, how are you going to know when it's over? I mean, is there going to be a bell rung or a light come on some place? Or like in Japanese case, two decades. Exactly. So yeah, people might get bored by then. I don't know, I sure would. So you got to have a plan that understands that times like these could happen so that when you go through it, I didn't have to make one change to my plan. I had everything ready to go. I knew that something like this, I've lived through health. 45 years of trading, the bear markets, the class of 87, the 2008, the tech bubble burst in 2001 and so not exactly new to me. It always happens differently. This one's been a bit fast. It's been kind of amazing to watch it. What's your read on the current market? What do you think? Current market, I'm starting to get some short term. Just this morning, actually, the time of this was the 31st, I'm getting the short term models are starting to kick over to the buy side. The long term ones are the stop buys are coming down to meet the market. The market's trying to come up. The buy orders are starting to come down and sooner or later they'll meet and they'll be long again. So far, the long term indicators haven't gone over. So I think the bottoming process is going to take a while. It's not a big deal. We did a lot of damage here in the last month. So it's going to take a little while to heal, but it's on its way to healing. You just have to have a plan for getting back in and understanding what that plan is and just execute it. So talking about the plan from your background with trend stats and all the systems that you have and what's happened in current, has anything changed between what you've been doing in the past versus what's going on today? I literally, if you go back two months ago and you look at what I'm doing then and what I'm doing today, it's the same exact process every day. I spend about 20 to 30 minutes tops on a tough day, just updating all the indicators, updating my orders. I trade 20 different futures markets, about 23 ETFs. I got a hedging program that's outlined in the website that you probably saw, the hedge page that describes exactly what I do there to the tee. I also trade odds and ends of a few stocks. Occasionally, if I'm going to be here at the desk all day, I'll do a little day trading of e-mini futures. I have a short-term NASDAQ composite futures trading strategy that I use and run that. That's over a nine-day period. For me, that's short-term. Let me ask you this. You mentioned futures, you mentioned indexes and some forex stuff there. How do you determine which industry within those that you pick? Well, they sort of sort themselves out. Again, if you go back to what I was talking about the thermostat, if you had, let's say for an example purpose, an ETF that was about precious metals, for instance. That's sitting over here. It's doing its own thing with its noise and its directions and everything. Over on this other side, you've got oil industry or say pick just industrial stocks. These two precisely move with their noise and with their breakouts and stuff at the same time. I let each one, I kind of pre-select a whole bunch of different sectors that seemed like they'd be different than other sectors like precious metals shouldn't move exactly like the stocks. You're looking for the uncorrelated type of stocks. Exactly. I'm looking and I'm doing it with common sense. Why should tech stocks have anything to do with gold? They may during one day or another but over the long run, they should have their own day in the sun, day in the doghouse, go their own way. If you set up indicators then on each of those ETFs, each one is going to give its own bi-signal, cell signal and you'll either be, all of them are going to start going over in a big bull market. You'll have 23 positions in ETFs and it may not go over the same day. One might go today. The next one might go two weeks from now but each one takes its own turn. That's kind of how I select a point where I don't have enough cash. I'll just say I'm fully invested and the late signals that are taking their time coming over and becoming a buy, we'll just get ignored and I'll just wait for them on the next cycle. Maybe they'd be the one I'd be in next time around. A follow-up question to that. In today's kind of choppy environment and unforeseen, so we have a couple of things. It's investor psychology. People don't really know where the bottom's going to be in. We don't know how long it's going to take. There's a lot of other black swan stuff. The Fed is printing money on autopilot. We're on MMT. Pretty scary. The deficit went for like 4 trillion to 27 trillion, some ridiculous amount. You mentioned hedging. You have a huge section on your website for hedging. What's the hedging strategies that you're doing today? What I do with the hedging is you take your long exposure and then you set up a downside only strategy. In that case, I use three different indicators, kelpners, bollingers, and dungeon channels. You can look them up on Investopedia to get the formulas. I'll spare you the math. You basically have lines on top and bottom of all this noise. When it goes through the bottom side, that's when you go ahead and put the hedge in place. There's a couple different ways to do hedges in my mind. Against my ETFs, which are fairly broadly based, if you look at all the sectors I trade and if you look at some of the stocks I own, which are more small cap, special situation type stocks, I just use the SPY, which is a Standard Ports 500 index. If it's in the taxable account or world, I can short that, which because it trades a couple hundred billion or a couple hundred million shares a day and billions and billions of dollars worth, I can easily borrow that and hedge my small relative to the market account. That takes care of that hedge. I'm volatile how much I put on to just about exactly equal what I have long. I liken it to if I put my hands into the camera this way. If this is my portfolio and I lose money when the market goes down and I put a hedge in place and notice that my palm is facing downward, so that I make money this way and lose money that way, then they kind of equal each other, they fight each other. What percentage are you looking at, like 5% and give or take? No, the actual hedge, I measure the movement of my portfolio. I take the SPYs and I look at the movement of the SPYs and I match them so that they hopefully move almost identical to each other. They'd never move exactly like each other, but I try to get them into the ballpark. That's what I do for the taxable. On a non-taxable like IRAs, excuse, which is the Standard Ports 500 inverse triple leveraged ETF. I buy some of that, again trying to balance it as best I can against whatever I'm holding in the IRAs. I'm basically out of the market, kind of. Not really, because I get two positions that both could do their own thing, but since you got the S&P 500, it can't just go crazy one direction and my stuff go crazy in another direction. They're all going to be tied together to some extent. You mentioned you went through a couple of previous, a bunch. I came out of college in 74. That was a 50% bear market. Let's see, there was in the 80s, we had some stuff in the 80s. We had 87, certainly. Then we had the tech bubble and we had the real estate crash. Then we had this one. Yeah, this is, I don't know, probably four or five at least that I've lived. My question is, as going through all these different ups and downs, do you see this market correction? Is there anything different than what you've experienced before? Yes. The one thing I've observed, and I'm very proud of all of the computer jocks out there, is that the New York Stock Exchange, what about a week ago, decided for the first time in its history to close down the floor and just do it by computer. As you can tell today and other days, nobody noticed it. Been able to handle just unbelievable volume with no breakdowns. There's been no crisis. They've had to do the circuit breakers, but that's an outside edict put on the markets. If you left the markets open and didn't have the circuit breakers, the computers kept up with it. What I've noticed in this most recent swing, I liken it to the 73-74 bearer of the difference. 73-74, the market was down about 50% and it took two years to do that. Now why? At the end of 74, there was 10 million shares a day traded on the New York Stock Exchange. People were using pieces of paper, phone calls. They didn't even have Quotron machines yet at that point. Many computers started coming in, or microcomputers started coming in around 1980. I bought my first IBM PC and I started programming and doing things. Fast forward to now. Instead of 10 million shares on the whole New York Stock Exchange, SBYs do a couple hundred million all by themselves. Over a billion shares are traded on the New York Stock Exchange. What you can do is do a two-year bear market in kind of a month and a half. It's kind of the same effect psychologically. It pierces what panics people. Isn't that what a bear market is supposed to do? That's what it did back in 74. People got bored. They eventually said, I've lost so much money. I'm never getting back in stocks. Then you started the 75 bull market. It's kind of the same concept psychologically, I think, and it just happens quicker. Yeah. I have a couple of thoughts for this. There are some differences. Obviously, the virus is one. We haven't experienced that. This is kind of like the first in the modern world after the Spanish flu. And then we have the oil wars happening with Saudi Arabia, Russia, and obviously Canada, the United States. Where was it? It was in Canada, Western Canada. Bear oil hit $5 yesterday. Yeah. Well, they're running out of storage. They want to pour it on the ground and create an environmental disaster. So they either got to shut down the darn wells or they got to pay people to hold the stuff because there's just no storage left. It's always funny when people say, we're running out of oil. I'm like, what are you talking about? They can't build storage fast enough. We have way too much. And we're filling up the petroleum reserves on top of that at cheap prices. Yeah. It's funny because I'm in the crypto space and a lot of the miners are always hunting down and Canada has become a very good source for very cheap electricity. Yeah. Well, you've always had less expense of electricity. You're blessed with a lot of ice and snow and that turns into lake. Generate around there and all of a sudden you got electricity. That's right. Gravity helps. People are doing interest because weed is federally legal in Canada. And so there's miners out there because you get a lot of heat from machines. They're like, what do we do with this heat? Well, why don't we just put it over to a greenhouse? And so they're getting two for one. They're getting cheap electricity. The A6 miners are generating heat. They're sucking out the heat because they have to. The room has to stay cold and they're putting that heat into a greenhouse to grow weed and sell it as well. There you go. Yeah. Two for one bargain. The box thinking. Yeah. Yeah. Totally. I love it. So based on like TA state currently, you mentioned like precious metals. Do you have any like insights or pulse of what's happening with the precious metal? Like obviously let's talk about like gold and silver. From a long position to a short position, not that that means anything whatsoever. Just that's what the indicator said to do. So I did it. Silver is in a down slide still. It hasn't recovered enough to the long platinum and palladium. How long that? Yeah. So I don't try to do a lot of predicting it to me. One of my famous sayings is the market will do what the market say. The markets will do what the markets will do. All of those markets are going to get a nice run. Golds had a nice run up. Palladiums had a nice run up. So that's been good. But sooner or later that'll run out of steam and go the other way. As a trader, you just have to be sort of agnostic. You just have to say, look, it'll do whatever it wants to. My job is to sit here and have stops in and ready to go. So talking about those stops, right? So let's get back to that. So position length. I'm assuming you have, depending on what you have, whether it's futures or hedging or whether it's indexes, what's your general rule of thumb? Do you have like three baskets where you have short-term, medium-term, and long-term? Yeah. I would probably call it a little bit more. Well, if we made short-term say day trading or once every other day or something like that, I would probably be intermediate-term and long-term. My short stuff is probably nine days unless I happen to be doing a day trading thing that day because I happen to be in the office or something. And I could almost be doing it to hedge my positions or something. But for the most part, nine days is the lowest I go. And then most of my indicators are geared around 21 days, which is approximately a business month. 21 trading days is approximately one month worth of trading days. And that's kind of all my Keltners and my Bollingers and my Donch and Channels and those types of things. I use 21 on all of them. That just seems to be about the right time frame for a retired guy that doesn't want to sit in front of the computer all day. And you mentioned earlier you're not looking at the percentage per trade, but you're looking at the total percentage of overall portfolio. Yeah, everything is portfolio to me. When you start to single trade, if I look back, I don't know, a month ago, a palladium trade I did to the upside, blew my mind how much that thing was going up and hitting new highs. And I was wondering, this is going to run out of steam sooner or later. And it's going up screaming, exponential, parabolic. And I'm trying to move my stops up and trail it. And my stops are way the heck down there. I'm like, whoa, I've got a lot of risk in this position. And I was able to ride it out and eventually got the stops up close, went short, made a bunch of money there, and then turned around and went long again, we've made a bunch of money there. So, palladiums were very good to me this year. But when you focus in on one thing like that, if I didn't have the 45 years of seasoning that I've got, the mental of us is, it's really simple to say, oh my gosh, I just made whatever, $60,000, $100,000 in palladium, I should take my profits now. I don't want to let that slip away because my stop loss is too far away. And it's kind of hard to sit there and just say, you know, just leave it alone, let it go. It'll tell you when it's ready to go the other way. And I, frankly, there was a couple of days where I was thinking, even to myself, I was thinking, man, this is a little insane. I probably should do something about it, but I can't figure out what I should do. So, I just kind of... Or it's like the crazy people were buying on the top worth it. I guess. And so, I let it ride and I got my stop moved up eventually and was able to reverse and make some money that way. But, you know, a lot of that is just seasoning because you just, you see how many times you've been wrong guessing and predicting. And you finally just get tired of it. You say, don't stress yourself out. Just, you know, just go with the flow and do what you're supposed to be doing every day and the stress goes away. You can become Mr. Serenity that, you know, Jack Schwager called me in the new market wizards. It's just not that stressful if you're just, you know, looking at the data and making your decisions. You've already thought out exactly what you're going to do and you're just executing. Yeah. Well, I think today is a little bit different because I don't know if you were paying attention, but who was it? I think it was Forbes or something, but because of like apps like Robinhood, you have hundreds of thousands of like millennials and young people that have no experience putting options, putting puts, taking massive amounts of leverage. One of them, and they made a highlight piece on them is a subreddit called Wall Street Bets. Yeah. It's hilarious. Like it's the most insane stories ever. Yeah. And one of the reasons why Tesla did the run up up to like 900 and something was because of this group of people. Sure. And so now you have all this. Yeah. Instead of like back in the days you mentioned, I got to call my broker. I got to do this. I got to do the paperwork. You have simple stuff. It's even simpler than going like literally an app click put by as opposed to me logging into like Questrade or something and then going through a process. I can just load up my app like Facebook, click buy here, leverage done. So you have all these hundreds of thousands of people right now who are just emotionally driven. Like I'm looking at them like, holy shit. Yeah. And they have no plan. I think I incited the video series creating your own personalized successful trading strategy or something like that. And 16 detailed videos that end up going into all these different topics. And I look at these millennials out there with their phones. They don't even use computers. I can't, I'm an old guy. I mean, this is an iPhone. It's, I've had it about four days now and it's the biggest one they make. And I still think it's too small to do anything meaningful. I'd much rather be on my extreme wide screens here. It's so much easier on my eyes at 67 years old. And so I, I kind of look at that as they're predicting, they're guessing, they're gambling. A lot of them are certifiable for gamblers anonymous. Probably if you went through the, what is it, 20 criteria that gamblers anonymous gives you to decide whether you should be going to a group therapy. You know, they just, they have no plan. They just think, oh, I think it's going to go up today. I watched the social media comments. That's been fascinating too. This time around, I'm much more connected to the world than I used to be because I have the time and seeing some of the comments about, I think Monday is going to be the bottom. I'm going to go in. All right. Well, yeah, that might be the bottom of it. What's your plan? If it's not the bottom, do you have risk controls? Do you have stops in? Do you, you know, have you thought this through and they're just making up the decisions day after day, one day at a time. And I don't think that's trading. That's just having fun. And sometimes it isn't so much fun. What advice would you have? So let's say somebody, you're, oh, we'll talk about a scenario. You have somebody who goes on your site, wants to learn trading. Maybe they're psychologically, that's their makeup. They're really good at that. Okay. Like I said before this, I'm like, I'm the lazy trader. I like to put my money in, see you later, maybe two, three years. I get like a 20, 20, 30% return I sell onto the next thing. And maybe they have five to 10K that they can play around with. What advice do you have for that? Well, the first thing they ought to do is concentrate on things that you can get some amount of diversification for a small amount of money. So probably the ETF markets would be a good place to focus on. The second thing they ought to do is to figure out at least three different aspects of what they're going to take on. One is going to be, they're going to need a buy-sell engine that triggers a decision and an action. It's got to be completely as much as possible clear and no nebulous nature to it at all. The indicator, the price goes through this line, I'm buying, period. And there's just no decision. The second thing that's even more important, and most people ignore it, is to try to have a systematic way of sizing your position. I think if you went on the website, you probably saw that I just wrote a book last year on position sizing. Why? Because in my mind, the simulations I used to do back at Trendstat, position sizing is far more important than the buy-sell decision. You could almost, I wouldn't recommend it, flip a coin to buy or sell if you properly size your position and maintain your risk really well. You can get away with almost random number because when a market trends and does what it did over the last month, if you had flipped it to buy and then you lost that day and you got stopped out and you flipped it again, sooner or later the coin's going to tell you to sell. Well, when you sell, you're going to get all this money that you would have made on the short side or avoided if you went to cash. Either way, you're on the right side of a lot of this slide, even with a random number generator. Does that make sense? I mean, sooner or later, you're going to get it right with the coin. If you have something even better than that, like an actual buy-sell engine that measures the trends and has the lines and it went through the line and, okay, I'm short or I'm out to cash, you're going to be on the right side of every major market move up or down where you're going to lose is all the little sideways periods where you're going to get faked in, faked out, whipsaws, all that. I would encourage people to size their positions, make sure they understand what that is, and I'd very much say come up with a plan that deals with up markets, down markets, and sideways markets and get your head screwed around what your strategy is going to do in those types of periods so that when something like this comes along, you've already mentally rehearsed it and, okay, that's a big bear market, I know what happens, I go to cash, I get bored, I wait until the opportunity comes to buy back whatever your strategy is, you already know what you got to do before you even see what plays out and it just takes all the stress off and it allows you to go on and, you know, concentrate on your career, on your spouse and your family and other interests in your life and not get so, you know, deeply buried in trading that you can't see the forest for the trees again. You're just gambling, you know, and that's just not productive. Yeah, I tend to agree with that. Yeah. Well, Tom, I just want to thank you so much for coming on and sharing your experience, your wisdom. If people are interested in contacting you and learning more about your trading strategy, what is the best resource? Well, enjoy the ride.world is a website that I call it my retirement website because it's kind of, I was getting six to 12 emails a day from around the world and traders asking me this or that of the next question and I was answering them all. I've answered literally thousands of emails over my 17 years in retirement and I got tired of answering them the same way over and over again. I got a little boring. So I thought why don't I put it on a website and people can go there and sort of find a lot of answers. I still get some emails, but it's improved a little bit. A lot of times I can answer the email like I did this morning with one guy and just say, ah, the answer to your question is on this page of the website and I just give him the link and off he goes. So it saves me a lot of time. The other way you can follow me on, just put Tom Basso into Facebook and there's a page. It's called enjoytheride.world. It's at enjoytheride.world, I think, is the page. That's where I do all my economic pronouncements and interesting studies that I do or things that traders might be interested in. And on Twitter, as you know, I would be at Basso underscore Tom, one underscore. We have somebody out there that keeps trying to put two in there and spoofing me, hacking my account or something or trying to trick people into buying something. I can't remember what the guy was trying to sell, but they've shut him down. So one underscore, Basso underscore Tom. And I'm on Instagram but not real active. The photographic thing doesn't come up for me quite a lot. Maybe in my personal life more than my more trading life. So I don't know that people would be that interested in my Instagram account. But if you want, I'm on Instagram too occasionally. And my email is Tom at trendstat.com like it's been for about 35 years now, I think. So it stayed the same over all the years. And even though the company is no longer and I've been comfortably retired, I still keep the same email address so people can still get ahold of me. Awesome, Tom. Thank you so much for coming on the show. Wish you all the best and I'll talk to you soon. Hey, thanks. Bye. Cheers.