We can’t escape the big “R” word right now. Since we have no control over economic policy, let’s talk about how to adjust your trading strategy in the face of a possible “recession 2025”.
Indices have been shedding 1-2% of their value on heavy volume every day. A long-term trading strategy based on mostly bullish trends will not work right now. It’s time to play defense.
Three ways to adjust your trading strategy
First and foremost: Raise your cash levels. There is nothing more defensive than cash. Your risk of trading losses drops (obviously), but more importantly, you will be ready to scoop up bargains – names with strong fundamentals and a great long-term outlook – when the time is right. That time could be a deep oversold condition or a huge rise in the VIX when short term holders cry “uncle”.
Second, hold puts in your portfolio. I always have them, not necessarily to make money but to limit losses and reduce volatility. Insurance is a necessary evil in life, and if you’re buying insurance against portfolio losses, then you’re doing it right.
Finally, sell calls against your stocks. Why not earn some income against your stocks that are dropping or simply moving sideways? This may sound crazy, but it’s not. When volatility rises, so do option premiums. You can earn a new income stream by writing calls against your stock. This plain vanilla covered call strategy is something we’ll be talking a lot more soon.
Don’t let “recession 2025” fears send you into a panic
No one wants a recession, and no one wants a self-imposed one. But as they say in sports, “Defense wins championships.” Defending your hard won portfolio gains by following the three strategies above will help you weather this stormy time.
