Staying Disciplined In A Volatile Market
Paying attention to the current day-to-day activity in the markets right now is probably giving you an ulcer… unless you’re an active trader. One day the market is up 100 and the next day its down 100. Stocks plunge for successive days and then make it all up the next. Over the last couple of weeks the markets have really been at an all time high in volatility.
In a volatile climate you must stay disciplined. Not only because you have big swings each way, but because these swings can have no reasoning behind them whatsoever. Getting scared out of a position could cost you a lot of missed profit.
Taking a look at a snap shot of the Dow (other major market charts look similar), we can actually see that the market is in a very stable uptrend despite what may feel like a crashing downtrend in the short-term.
Understanding The Source
The key is to understand what is causing the volatility. In this case, much of it is due to options expiration.
Not finding source of the volatility will usually result in unnecessary selling of your positions as you think they are the problem.
Stay Cognizant Of Your Time Frame
Like we saw in the chart above what may feel like a downtrend is actually just part of a prolonged uptrend pattern. If you were planning to hold the stock for some time to begin with, then don’t get too worried about what is happening now. Feel confident in your reasoning behind the stock.
Don’t Sell To Chase
Probably the most common mistake most traders make in this type of market is to sell one of their current holdings to buy another stock that is making a bullish run. Suddenly the new stock goes down and the one you just sold goes up. A classic case of chasing and compounding your losses.
Know Where To Go
Sometimes we just don’t want to wait or we actually want to buy something. In this case, it is always good to create lists of go-to stocks in various market conditions. It makes your work much easier in the long run.
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In the end, you want to make sure to have a solid game plan and not wing it as the news comes in. Be ready for what the market throws your way.
Check out my 16 successful trading strategies.
