How to Give Your Trades a “Volatility Boost”

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 volatile 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: Doesn’t the market need a break?

Greg Guenthner
“It’s easier to row down river than up river”

– Jim Dines

We’ve experienced an impressive market rally (and maybe even some bubbly stocks moving way too far, way too fast).

This has led to every single financial pundit asking the same question: Doesn’t the stock market need a break?

Markets always need to correct (eventually). But that doesn’t mean you’ll be able to accurately spot a turn before it begins to materialize on the charts. Ultimately, your best bet is to go with the trend. That doesn’t mean taking any unnecessary risks. But you need to remain aware of the direction of the trend to ensure your portfolio is properly positioned.

Don’t waste your energy paddling upriver or fighting the price action. If you’re constantly working on figuring our short positions in a market that’s sporting a strong uptrend, you’re going to miss out on countless other opportunities that are there for the taking.

— Greg Guenthner

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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...

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