Do THIS if the Market Drops Today…

Stocks are stabilizing after posting a rough start to the week.

Investors considered what another round of shutdowns would look like that could be needed to rein in the covid spike in the U.S. and Europe. Protests are once again breaking out across the country. And Trump is stirring more controversy as the media presses the president to commit to providing a peaceful transition of power if he loses the race…

As you might have guessed, investors aren’t exactly feeling upbeat about the market right now. In fact, most folks are becoming downright bearish on our fourth quarter prospects as the averages correct this month…

It’s difficult to fight our natural human instincts when market volatility ratchets up.

Anxiety over losing hard earned money (and just being plain wrong) increases in the hyper-information media world that blurs the line between manufactured news and disaster.

But volatility can also be an opportunity for you to take advantage of big price moves — if you know how to react.

Here are five simple tips that can help you stay calm during these difficult trading sessions:

  1. Think Long Term – All short-term trades should already have a stop-loss exit strategy built in so that panicked buying or selling is not needed. That disciplined risk control plan must be created prior to position entry. Other assets that may be locked in for years and even decades can be evaluated monthly or quarterly to shift allocation if market conditions change.
  2. Turn Off the TV – Financial news channels dramatize events to ensure your continued dedication to their programs. They are in the business of boosting ratings with market infotainment and advertisements. Their goal is to make money for themselves…not you!
  3. Take a Walk – Get up from your computer and clear your mind with a distraction. A five-minute stroll to get a coffee can prevent reactionary chasing of the market that is rarely profitable. Breaking the focus on your fears does wonders in seeing possible opportunities.
  4. Remember, It’s Only Money – Nobody died on the operating table… tomorrow is another day. Proper dollar allocation and asset diversification should prevent any catastrophic damage to your portfolio. If any one day can do that much financial damage, then your risk control needs a redo.
  5. Fade the Crowd – Sheeple (sheep-like people) will get sheared! Opinions are often wrong when everyone is on the same side of the trade. Think about every crisis we’ve faced over the past decade. Things never developed as predicted by doomsayers!

Often times, the best buying opportunities are when you cannot think of any reason for the market to move higher. The risk-to-reward ratio is in your favor after that big break or you can just keep your hands down, stay in cash and wait for another day…

Keep it In the Money,

Alan Knuckman

Alan Knuckman
Editor, In-The-Money

Trading Tip of the Day: Don’t get “caught” in quick market rotations.

Greg GuenthnerIt has been especially difficult to pinpoint trading opportunities in this choppy market.

The market was looking especially vulnerable heading into mid-week. When the dust settled Wednesday afternoon, the Nasdaq had dropped more than 3%. The S&P lost more than 2.3%, and the Dow coughed up a little less than 2%.

The mega-cap tech names aren’t giving us much direction, either. While the FANG+ names attempted to perk up earlier in the week, they led the market lower on Wednesday. Amazon Inc. (AMZN)Apple Inc. (APPL), and Alphabet Inc. (GOOGL) each lost more than 4% — while the others weren’t far behind.

Yet on Thursday, these same names were stabilizing while other stocks and sectors took a hit. Go figure…

If you get stuck in a formerly hot trade that starts to go south, you’re going to give back your hard-earned gains.

With speculators yanking the market around this week, it’s important to know your timeframe when you’re trading. Always have your goals and an exit plan in place before you buy a stock.

It’s inevitable — the market will try to take back its money sooner or later. Stay on top of your trades and take profits early and often!

— Greg Guenthner

You May Also Be Interested In:

Alan Knuckman

Alan hails from the home of options trading in Chicago, where he began working as a clerk on the floor of the Chicago Board of Trade (CBOT). Beginning with his days on the floor, Alan’s worked with all aspects of the options markets for the past 25+ years.

Transitioning from a clerk to a floor...

View More By Alan Knuckman