When there is a period of low market volatility, you might feel like you can relax a bit. But don’t relax too much. This market condition can be dangerous.
I always pay attention to market volatility, as it allows me to track the movement and range of the market. When volatility is rising or sitting at a high level, it means traders are fearful. They sell and head for the sidelines when markets start trading in a wide range.
This is often the worst time to leave, but fear of trading losses is a powerful emotion.
Don’t be complacent about low market volatility
They are not worried about a market retreat.
As the days wear on and weeks become months, you may have difficulty believing a downturn could ever happen.
THIS is the belief that worries me, and it should worry you, too.
When everyone stays on one side of the boat, it eventually tips over. When volatility is low for a long period of time, that is the case.
It is dangerous and simply ridiculous to believe there won’t be a corrective period coming. And as we all know, a correction often hits without warning.
How to protect your portfolio during low market volatility
What can you do to protect yourself? Pay attention!
If low market volatility hangs around for more than a few weeks, consider:
- Buying put protection
- Selling winners to lock profits
- Holding onto cash
If you reduce your exposure, you’ll be in the lifeboat when others are looking for the exit doors.
But even more important, you won’t miss out on profits when the markets turn back up. If you cut and run too soon, you’ll have to watch as those names turn back up and go higher.
Want to improve your options trading skills further? Take our 30 day trading challenge. Every day, you’ll receive an email with a new tip or strategy to add to your trading toolkit. Sign up today.
