Tackle Today: Bear Market Playbook
December 21, 2021
≈ When prices break the 50-day. ≈
Traders,
Stocks slipped on a banana peel to start the week, and all major indexes are now below the 50-day moving average. How long the nastiness lasts remains to be seen, but in my experience, it pays to play defense when prices sit on the south side of the 50-day. It’s when I trot out my trusty playbook for bearish conditions. Here are a few of my top ideas:
1) If in doubt, stay out
If in doubt, stay out. Downtrends boast high volatility and gappy behavior, making it a more challenging environment for directional trades. If you find these conditions challenging, park it on the sidelines until an uptrend returns.
2) Reduce your position size
Reduce your position size. If you intend to play but want to dial back the exposure, consider cutting your risk per trade in half. You may not make a mint, but you won’t get destroyed either.
3) Scale-in
Scale-in. Split your trade into multiple smaller trades. For example, instead of buying 100 shares all at once, buy 50 shares twice. This allows you to use the volatility to your advantage.
4) Scale-out
Scale-out. Because market movements are erratic, consider taking partial profits when you have them. That way, if prices quickly reverse, you won’t give back all your gains.
5) Embrace the higher probability of option selling
Embrace the higher probability of option selling strategies like credit spreads and naked puts. The wider profit range allows you to sit back and relax while short-term directional players get bashed about.
Over the next week, I’ll dive into each tactic in greater detail. For now, keep your wits about you.
#TeamTackle
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Video of the Day: Portfolio Design for Beginners: How to Design your Trading & Investing Portfolio
Watch this Trading For Beginners webinar on the basics of Portfolio Design and Delta Weighting for traders and investors alike.
In this webinar, you will learn:
✅ Portfolio Design Basics
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Contrary to popular belief, uptrends are not where you make your money. Downtrends are. Anyone can make money when the market’s roaring higher. Click a button, get exposure, wait a few days, ring the register. Easy.
Making money is one thing. Holding onto it is quite another.
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