Good Day, All! Or is it? A lot of folks are scrambling right now and probably have a pretty hefty case of the trader’s heartburn. You see as I write this the markets have put in three rather large red candles and some of the big stalwarts in the markets have had a 4% haircut in the last three days. This has a lot of folks on edge and worried about what comes next. We never really know what comes next but we can prepare ourselves for what does happen and that is the focus of this week’s blog. So this week we have five tips for being ready with whatever the market gives us.

Tip #1 – Make peace with the market’s neurotic behavior. The market is always going volatile and as one market wizard once said… the market is designed to find as many victims as possible. Now, the second part of this statement is not even remotely true but it certainly does feel that way when things are not going our way. If you get to a place in your psychology where you expect the market to be crazy and you plan your trading around that fact then it will make the times when the market hits you easy to take, it won’t be pleasant but it will be easier to handle psychologically.

Tip#2 – Be like water! Bruce Lee famously once said “be like water” He was referencing the ability to go with the flow. His actual quote was… You must be shapeless, formless, like water. When you pour water in a cup, it becomes the cup. When you pour water in a bottle, it becomes the bottle. When you pour water in a teapot, it becomes the teapot. Water can drip and it can crash. Become like water my friend. He was talking about being fluid and that is a skill one requires in trading as well. You need to be willing to change if necessary and not hold to an idea or the thought of being right so tightly that it doesn’t allow you to be fluid.

Tip#3 – This tip comes from as part of Tip#2. The question that is generated from Tip#2 is how do I become fluid? Very easy to say but much more difficult in practice and that is where Tip#3 comes in. One needs to be ready at all times to change and to do this one needs to plan for change. Planning for change is Tip#3. From the outset of any action in the markets, one needs to plan how to execute any change that may be required. This means knowing at which point change is necessary and what action is required to complete the change. This must be written in stone! Or at least written down so that when the change becomes necessary we are clear of mind and can focus on the task at hand.

Tip#4 – Give more love to the markets. Does anyone feel this latest rundown came out of left field? I hear folks say that all the time, wow that changed quickly! The reality is the markets always leave clues and the ones that pay the most attention are typically rewarded. For example, the S&P 500 index (SPY) had only 10 days since the start of 2020 that closed lower than they opened. That is 10 days out of 50 plus that showed a green candle. This was a very aggressive start to the year. This pushed a multitude of indicators into overbought territory. Do you think if one had been watching these indicators on a regular basis that perhaps one could have a heads-up to a possible change? Just glancing at these once in a while is most likely not going to get the familiarity needed to be effective at using these tools that would be needed to be ready for market movements, indeed it does require more love to the markets to be intimately in touch with these kinds of things. The market leaves other clues as well. At the end of last week, the market fell aggressively through a support level and this was a sign that the sellers were in charge but one needs to be paying attention to these signs to have them be of use.

Tip#5 – Remember the game. One must remember the game they are playing. Trading is a game of skill like any other. It requires patience, attention, and work. Events like we just had can show whether or not one is truly ready for this game. There are a few things to remember when trading. First, remember what your plan is and how you expect it to turn out. This will help you understand that an equity curve is seldom a straight line up as most would wish it to be. Instead, it is a series of advances and declines to reach a certain place. You must understand that in this game we must stay the course, first, we must plot our course, not get panicked if there are some bumps in the road on the way to our destination. The most successful people in life are the ones that take adversity and turn it into a lesson that propels them onto further successes. I have heard the term “fail faster” before and I think what it means is that even if you get knocked down, the faster you get up and learn the lesson the quicker the road to success.

This week has been tough for some in the trading game but it really is an opportunity to be better for the next go around and hopefully, these tips will help you on your trading journey. Next week we will get back into our systems discussion.

Trade Well and Be Well,

Coach Holmes