Section 2 Introduction — From Plans to Proof

You’ve built the core: diversification that actually diversifies, trades constructed with tempo and steps, and a portfolio sized and balanced to survive. Section 2 turns that structure outward to weather (hedging during known shocks) and inward to behavior (execution hygiene and discipline). We finish by measuring the system—so you stop guessing and start knowing.

Lesson 4 — Simple Hedges: Cheap Shields Against Big Blows

Ava checks your calendar before she checks the chart.

“Weather is on schedule,” she says, tapping tomorrow’s macro print. “We don’t hedge moods. We hedge windows.”

Same canvas: $10,000 account, ETH long from the plan, $100 max risk, −8% invalidation, +8% / +20% targets. You want to hold the idea. You also want a brain that still works if the floor shifts.

“Most traders choose between shrug or shrink,” Ava says. “There’s a smarter third: a small, dated umbrella.”

You keep the core position—0.4167 ETH (~$1,250 notional at $3,000)—and price out a put. One week, $2,900 strike, $35/ETH premium. On your size, the umbrella costs $14.60—one-tenth of one percent of the account. You don’t love paying it. You love what it buys: permission to think.

“Set the window,” Ava says. You anchor the hedge from two hours before the print to the following daily close. The plan stays the plan: your stop is still the thesis breaker, your targets are still where realized truth gets banked. The hedge doesn’t replace exits; it softens the randomness between them.

The release hits. You feel the room bend: bid depth collapses, the spread jumps, prints cascade. ETH knifes ten percent—$3,000 → $2,700—faster than your pulse can catch it. Your spot sleeve is −$125 on 0.4167 ETH. The put wakes up: intrinsic value about $200 minus the $35 you paid → $165/ETH; on your size, roughly +$68.80. Net, you’re down ~$56, not $125. It still stings. It doesn’t scramble you. You can read again.

“Umbrellas don’t make sun,” Ava says, watching the book re-fill. “They keep you from drowning when it doesn’t.”

You run the other branch in your head: no drop, a clean rip instead. The put expires worthless; the cost was $14.60—tuition for a quiet mind during a known storm. Small, dated, boring. Exactly right.

If your venue doesn’t have options, the tool is different and the principle identical. You short 0.2083 ETH—half your spot notional—on a liquid perp only for the event window. A ten-percent drop earns ~$62.50 on the hedge against ~$125 on spot; you walk away with roughly half the bruise. You close the short when the window closes or the reason disappears. You never let the hedge flip you net short by accident; the umbrella is for rain, not for sailing backwards.

You glance at the pipe map from Chapter 1. “What if correlation spikes?” you ask. Ava nods. “Then you hedge the pipe, not your favorite sticker. If majors and your L2 sleeve panic together, use the liquid instrument that actually absorbs pressure. Precision is less important than function.”

Price stabilizes. The book looks human again. Your original stop and targets are still your truth. The umbrella disappears on schedule. The trade remains the trade.

Ava closes your calendar. “Hedge dates and data, not nerves. Keep it small, keep it timed, remove it when it’s done. Protection is a tool, not a personality.”

You exhale and realize you never once considered “doubling to get it back.” That was the umbrella’s real work.

Pocket anchors

• Hedge defined windows (prints, unlocks, upgrades), not feelings.
• Keep it small and timed; think premiums in the 1–5% annual budget range.
• Use liquid instruments (majors/options/perps) to hedge the pipe, not just a pet ticker.
• The hedge softens randomness; your stop/targets still run the trade.

Field drill (2 min • calendar + order ticket)
Open your calendar and mark the next real event for your largest sleeve. Write the exact hedge (e.g., 1-week $2,900 put or 50% notional perp short), the max spend in dollars, and the start/stop time you’ll carry it. Stage the order now; cancel only if the trade’s thesis is invalidated before the window begins.