On Friday, we talked about what happens when the market wanes. During the last newsletter, I talked about the technical parameters for trading this type of move.
But, what about the emotional side, and the actual logistics of trading a day like this?
Well, currently I’m in Hawaii and woke up at the crack of dawn to news that the Dow was down 1000 points. Definitely not an ideal way to wake up on vacation, but, the reason why I began upon this career path is because I wanted to be able to trade, wherever I was. I suppose I got what I wanted, right?
Days like today are purely emotional, here’s why…
It starts with everybody and their brother being incredibly long in a very strong market. What goes up, must go down…! And quickly.
So, what’s a trader to do?
The first thing is to maintain a sense of calm. This is something that is pretty tricky to do, but it helps if you focus on patterns and numbers instead of dollars.
There are two questions traders always ask:
- Can we hedge?
- Can we start buying?
For me, I was almost close to flat when this hit and I was long TSLA and LK. These are both getting hit today. In an instance like this, I always just wait it out. This is because more often than not, we bounce after days like this.
The market’s pretty volatile, but as traders, we have several options:
- Wait and do nothing, perhaps the market falls, perhaps it trades higher — but the idea is to wait until the direction is more clear
- Start nibbling to the buy side with SMALL size — often times with excessive down days, we see at least an oversold bounce, if not a complete oversold rip
- Shorting — try to short and make money to the downside as it continues to fall
I personally use a mix of option one and option two.
I like to go back and compare previous times where the market fell — and see how it reacted after the fact.
And keep in mind, even when I’m travelling, I’m always updating members via push notification in my Mastery program on entries and exits. When I start to see the market shift, that’s where I can let you know.
I think the most important factor to keep in mind is that capital preservation, and holding onto what you made in January and February, is of utmost importance.
As for me, I started a nibble on MSFT and AMD, but I’ll see how it acts tomorrow. I’m headed out to my cabana, and I’ll see how the futures trade overnight. But as for tomorrow, it’ll most likely not be dull.
Let’s see what happens then!