While I’m the last person to prognosticate where things are headed, there is a feeling I’ve gotten in recent days that says be prepared for volatile times ahead to the downside. That doesn’t mean being a perma bear and thinking you know for sure markets are going lower everyday, it simply means preparing yourself to take advantage of volatility when it comes.
I remember during the 2008 crash, previous unthinkable amounts volatility became normal after a while. SKF and FAZ moved $60-$80. A day. Both long and short. Several times during the day. As support levels were blasted through, new lows would print followed by gigantic bounces. Those times really were a day traders paradise.
Are we headed that way again? I don’t know. Nobody does for sure. The markets could keep rising forever. But that’s about as likely to happen as going to zero. Corrections happen. All I’m saying is be prepared to trade when the time comes.
For what it’s worth, here’s my thinking on the subject:
- Keep an ultra open mind on the direction and amount things can move. .85 moves will no longer be a great play. Multi dollar moves become the norm.
- Selling pressure comes in waves. Lower prices make even more lower prices.
- Fear is a much greater motivator than greed. I will for sure run out of a burning building, while I would not run into a conflagration to grab a million dollars. When the pain is too great, there is a” get out at any price” mentality.
- Fundamental analysis is meaningless. Technical analysis is hobbled. Momentum is everything.
- Profit taking will be the hallmark of your success. Even more so than now, take the money after huge moves.
- The speed at which new information is filtered in is increased. Violent moves happen in both directions.
- If needed, pare the # of active plays down. Focusing on two plays and nailing them may work better than spreading your attention over four or five plays. Things move fast. Do not turn into a slack jawed yokel staring blankly at your screens.
- Move more dollars into the trading account to be able to take advantage of bigger dollar stocks. They move more.
- As always, trade small spread, liquid stocks. Don’t get trapped.
- Work with market orders. Don't waste time with limit orders as you'll end up missing out. Level 2 info is useless to me normally, more so in these times. With liquid stocks, who is buying or selling is irrelevent.
- At the end of a trading day if you made more than you normally average in a week or month, do not gloat, boast or think you are superman. In fact forget about it because tomorrow is a new day. It is only the unique conditions giving you the gains.
- Cut losers quickly.
- Be robot like in the application of your trading plan.
Be quick or be dead.
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