Make no mistake about it… yesterday was as brutal as it gets for the stock market. In fact, it was the fourth-worst close (-800.49 points) in the +100 year history of the Dow Jones Industrial Average.
And while I consider myself a pretty nimble trader there was very little time to maneuver with stocks gapping down at the open and dumping all day long.
I started off the week hot – up a significant amount – but saw those profits wash away in a matter of hours.
All I can tell you is that the market sentiment is ugly right now.
Can it change?
Of course it can, but it can also get a lot worse.
And despite yesterday being the worst single-day decline the stock market has had all year– the VIX, the market’s fear index, closed at 22.10.
Now, I am not going to give you a lesson on the VIX, but I will say this, the VIX rises when panic and fear dominate market sentiment.
Earlier, I mentioned that yesterday’s close was the fourth worst for the Dow in its +100 year history.
Well prior to that, and now the fifth-worst close, occurred on December 4th, 2018, when it dropped by 799.36 points. Now, I bring it up because, at the time, the VIX closed at 20.74.
However, it didn’t peak until weeks later, where on December 24th it traded above 36, which was also the day the market bottomed.
I’m not implying that history is going to repeat itself. But I am saying things could get worse and you should be prepared.
But first, I’ve put together a list of the top 3 do’s and don’ts— that will not only position you to profit, but potentially save you a lot of money too.
First things first
Make sure you are trading with risk capital.
What does that mean?
It’s money you can afford to lose. As an adult, you should know what that means.
DO: Trade Stocks Not Correlated to Macro News
CNBC had a special last night, “Markets in Turmoil,” and if you look at a lot of the stocks they talk about on their programs– I can see the reason for the special.
(You’d be hard-pressed to find a large-cap stock that was up yesterday)
However, what if you looked elsewhere– like small-cap momentum stocks – what my Jason Bond Picks service specializes in – you’d be amazed at how many stocks move opposite from the overall market.
For example, take a look at the stocks that lead Wall Street yesterday:
(The leaders consisted of small-cap momentum stocks, my bread and butter)
Remember when I mentioned how investor sentiment was even worse last December?
Because I was kicking butt trading small-cap momentum stocks back then:
(I primarily trade momentum stocks using three easy to learn stock patterns, if you’d like to learn what they are then watch this.)
Look, I don’t claim to be an economist who can talk to you about an inverted yield curve, the Chinese yuan, or any of that jazz.
The reason why I’ve been able to hit $400K in trading profits this year is because I keep it simple and stick to my strengths. I can teach you to do the same.
A lot of what is going on right now is sentiment-based. Just a few weeks ago everyone was celebrating a rate cut from the Fed.
Who is to say they don’t do it again given the recent weakness the market has experienced.
Or what if President Trump is able to actually strike a trade deal with Chinese officials– what do you think will happen to stocks then?
They’ll probably shoot back up. Now, I’m not saying that you should expect that, but sentiment can turn around fast, as it’s proven. And because of that, you shouldn’t panic.
If you are uncomfortable with your exposure, then consider lightening some of your positions up. Or even learn strategies that profit when stocks crash, like Jeff Bishop teaches in this video.
They say the market takes the stairs up and the elevator down. Well, if that’s the case, then stocks may experience a violent sell-off, but it will be short-lived if anything.
DO: Stick to Defined Risk Strategies
While my Weekly Windfalls strategy isn’t perfect, I can go to sleep at night knowing exactly how much I can lose on every single trade– right down to the penny.
And the beauty behind the strategy is that it isn’t based on a particular market trend. You can structure bearish and bullish trades and they can be equally as effective and profitable.
Don’t Try To Be A Hero
I don’t know any traders who have made their living by picking tops or bottoms – as romantic as it sounds.
The market clearly isn’t rational, so why try to trade like it is?
Don’t jump out because you think it’s going to get worse and then believe you’ll have the skills to get back in before the turnaround.
DO: Make Adjustments
Stocks are moving faster and are experiencing larger swings. So consider reducing your position sizing on trades.
For example, let’s say you typically give yourself a $0.50 stop on a trade.
However, the increase in volatility means you have to give your trade more room– so you adjust the stop to $0.80.
But to make it work, you MUST decrease your share size accordingly.
Adjusting your share size (or contract size if you trade options) and modifying your stops are two steps you can take to improve your trading right away.
However, there are other improvements you can make too.
For example, consider changing your trade hold time. What I mean is, if stocks are moving off news headlines and tweets– which we have no control over– then why not just take profits quicker when you get them.
Another adjustment is for those who have portfolios. If you must hold overnights then consider having a balance of longs and shorts. An idea that should work exceptionally well for my Weekly Windfalls service.
In other words, become more nimble.
Don’t try to do it on your own
This is my best year trading since launching the Jason Bond Picks trading service, and of course, I can give you a number of reasons why I think that is.
But near the top of the list has to be my network of traders. I can’t tell you how many times I leaned on Kyle Dennis or Nathan Bear to pick up a trading idea, or technique that helped me add an extra five to six figures to my trading results.
Why try to trade this market alone when you don’t have to?
The best athletes in the world practice together and the best traders in the world trade together. Imagine having little to no stock market experience but are able to rub elbows with multi-millionaire traders for tips, trade alerts, and knowledge – you’ll cut the learning curve down to the bare minimum.
I leave you with these words of encouragement: You are in control. If you don’t like this market then go to cash. No one is forcing you to trade.
However, I’ll be trading stocks and options… and excited about the opportunities this market volatility will give us.
If you’d like to trade momentum stocks alongside me, you can – when you join Jason Bond Picks, you’ll gain access to a feed of my life portfolio, as well as receive my trade alerts in real-time.
However, if you’re interested in trading options with me, then you’ve got to go with my Weekly Windfalls service.
That is if you want something that is “set-it-and-forget-it”, highly reliable, extremely profitable, wins often, and promotes a risk-defined strategy. If so, then click here to join now.
[Ed. Note: Jason Bond runs
JasonBondPicks.com and is a swing trader of small-cap stocks. In 2015 he earned a 180% return on his money. Then in 2016 he turned a $100,000 account into $430,000! Discover How He Did It]
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