Good Day Rookie Bloggers, In the blog last week we talked about an increase in volatility or another way to put it would be an increase in turmoil, market turmoil. This turmoil can do a couple of things to traders it can make this salivate or it can make them cringe. Whatever side you reside on depends largely on how you may be positioned in the marketplace or perhaps how experienced you are. Regardless of where you are on that scale of excited or terrified, there are several things to remember and that is the focus of this week’s blog.
There are three things that every trader should know when the turmoil comes and then practicing these things so that when it comes it doesn’t take you to a place in your psychology that can put your trading accounts in peril. The three things that come to mind are as follows, first thing is to check your emotions and don’t panic. The second thing is that all things change in time and that means that turmoil will end at some point just as it began. Lastly is to realize that there are opportunities everywhere and it is those who remain vigilant that will find these opportunities and have the potential to prosper from them.
Let’s look at these three things in deeper detail to see if we can make some sense of them and put them in perspective which can give us a chance to make gains from them.
First, we need to understand that the market is just a series of increases and decreases of volatility or turmoil. If one is to look at the chart below and notice the red and purple lines and how they expand and contract over and over again this is a graphic representation of the increases and decreases of volatility. This is a normal condition and therefore if we expect it to happen then we can be ready both emotionally and from a trading perspective so that we don’t let either fear or excitement cloud our judgments. Also because this is a natural occurrence then we can refrain from panicking and making poor decisions about entering or exiting positions.
The second thing is closely related to the first and gives us another reason not to get emotionally out of control as we know the turmoil will end just as it began. We may not know exactly when these things will end or begin but if spend some time becoming students of the markets then we will learn that the markets leave clues and if we follow them then we can sometimes get a heads up when things are about to change from largely volatile to less so. These clues can also give us time to protect our positions before things get out of hand.
Lastly, when the turmoil comes most folks can tighten up, and their vision can become compromised, and then finding trades or opportunities to profit from can be problematic. There is something to remember that may help restore that vision. There are over 24000 stocks that are traded in the US markets, now a lot of these stocks are untradable from a liquidity standpoint but this large number should give a trader the perspective that there are always opportunities in the market, and then when the market breadth changes it may take a little more effort to find those trades but they are definitely out there for the taking.
If we examine these three things and put them in perspective then perhaps it can help us ease through these times of turmoil and ensure that we don’t make any rash decisions that may cause our portfolios to suffer.
Trade Well,
Coach “Old Money” Holmes
