How Should You Trade This Market

Markets in Turmoil, Black Monday, Stock Market Crash!

We have heard all of these expressions and more today. What we saw this morning and the panic selling that took place followed by a rally that probably hasn’t never been matched or equaled in any of our life times has everyone scratching their heads right now. 

Do I go long?

Take advantage of some value plays?

Go short? 

Sit on my hands? 

None of the above – what you should be doing right now, is managing risk. if you can’t identify where the risk is at or can’t get it within your parameters to justify a trade of any kind, then don’t. I was stopped out on Thursday in the early going and I refused to add any new swing-trades to my portfolio. I added one trade today just as a swing trade and got stopped out of it.

But in all, I have managed to avoid so much of the carnage that so many other traders got themselves caught up in. Once the market started breaking down on Tuesday, there wasn’t a clear break down in the market just yet, but there was some concerns. I was 50% long and 50% cash. But Thursday I was 100% cash all together and haven’t added a single swing-trade to the portfolio since, and will go into tonight’s firework show 100% cash still. 

You see, I use hard stop-losses and I follow them religiously. When my stops are hit, the trade setup is no longer valid and it is time to either move on to the next trade or to do nothing at all. For the past 6 trading sessions I have chosen to sit on my hands and do nothing. 

Don’t get caught up in the stock picks or which stocks are running higher or which ones are dropping. Concern yourself with one thing thing and one thing only and that is controlling risk across every stock, option, futures contract, and ETF that you own. 

I trade stocks in such a way and  with such diligence that I know that days like we have seen in the past week can come at a moment’s notice… just like this one! There was no heads up, no advance notice. Nothing. Instead we closed last Monday at 2102 and today we find ourselves trading as low as the 1867 today. 

If the risk cannot be managed adequately – if there isn’t a clear “get out” price on your trade, you shouldn’t be making that trade at all. Otherwise, you will find yourself holding on to stocks that you are trapped in and you don’t want that to happen to you. 

For me, a swing trade at this juncture is utter foolishness. Sure play with the day-trades, if you can, even that isn’t easy to do. You have  over 80% of the daily move happening overnight while the overseas markets are open and the US markets are all closed and its traders fast asleep. The weekly action has been down, up, down, up for seven straight weeks, and as a result, determining what the market is going to do tomorrow has worse odds connected to it than heading off to Vegas and playing craps. 

Identify the risk, know what your loss could be, and if it becomes a reality – take it. No matter what!

Like I’ve already said, I have managed to avoid the sudden downturn in this market because I am managing risk appropriately. That’s my calling card and that is what I emphasize to those who subscribe to the SharePlanner Splash Zone. It isn’t about the stock, it is about the risk because when this market’s insane volatility calms down, I won’t be trading from a deficit, instead I will be looking to add to my current profits for the year. So don’t go digging a hole for yourself, and instead to go long/short in somewhat more calmer and more predictable markets.