«Use them during tumultuous times.»
The market did not like that CPI print. Yesterday’s stock drop was among the past decade’s ten worst S&P 500 daily returns. It was a reminder that volatility hasn’t gone away and will be with us for a while.
Consider this your nudge if you haven’t already adjusted your trading tactics to adapt to the heightened volatility.
Here are 8 best practices I’ve found helpful during these tumultuous times:
- If in doubt, stay out. Downtrends are harder to trade because of the higher volatility and prevalence of gaps.
- Defense wins championships. Focus on minimizing losses and keeping exposure appropriate, so you don’t lose too much. Better conditions will return.
- There are many ways to reduce exposure: Sell calls against your stock positions or buy puts. Reduce your number of bull trades while entering new bears.
- Beware of oversold bounces. Rallies in downtrends can be vicious and take back hard-won profits in your bear trades.
- Take partial profits. This can help with regret minimization and, perhaps less intuitively, maximizing gains.
- Correlations run to one, and most stocks move together. Trading ETFs can be a more efficient way to play.
- Implied volatility balloons during bearish conditions bringing bigger paydays to option sellers. Learn how to capitalize using strategies like naked puts and credit spreads.
- Play the long game. Don’t get caught up in the daily drama. Markets are cyclical, and bulls always follow bears. Every trader suffers setbacks. The unsuccessful ones quit. The successful ones learn lessons, improve, and return to trade the next correction better than the last.
Video Of The Day- Bear Market Survival Guide Example: How to limit and control risk
Watch this tutorial from Coach Tyler on how he uses put options when appropriate to limit and control risk on long-term investments.
Chart of the Day: What Happens after Every Stock in the Nasdaq-100 Drops?
Every member of the Nasdaq-100 declined yesterday. Such widespread carnage doesn’t happen often. This chart shows future market performance after each signal over the past 25 years. The takeaway: It’s not all that bearish.
Today’s line up
Traders Lounge 11 AM EST
Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.
The Coaches Show Replay
If you missed last night’s episode where Coaches Frank & Gino discuss How to play a volatile market or would like to watch it again, check it out here.
Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day, and fun in a way that only Matt and Tim can deliver.
Cash Flow Condors 8:00 PM EST
In each Cash Flow Condors Mastermind Group session we will be reviewing our Iron Condor trades as well as analyzing the market setup for the upcoming month. Prepare to discover why these monthly meetings are indispensable.
Trade Masters 7:00 PM EST
Every Wednesday at 7 PM EST join us on the Trade Masters where two Coaches go head-to-head to see who can find the best trading setup.
Trading Justice 493: CPI
In this episode, Mark and Matt break down the recent price action surrounding the release of the CPI report that showed Inflation slightly jumped MoM but the market bears pounced on the data.
Listen to the episode in the player below.
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