“Yes, but what if…?” This thinking is making its way around, which is understandable. Even though price action has left us stunned and markets completely oversold, traders don’t want to miss out on a market rally. I’m normally in that camp, but this time around, my advice is to pause your trading strategy.
Pause your trading strategy
Your job is to grow your capital, which is a precious resource, while managing risk. Though you are always aware of the risk when it comes to trading, the risk is typically small and therefore worth it. The more risk you take, the more you’re in jeopardy of losing a lot of money. In today’s market conditions, heed that fear.
The future is incredibly uncertain right now, and the markets are grappling with it. Will the markets correct next week or next month? We just don’t know. When that is the case, it’s best to just sit on your hands.
Buy the dip doesn’t work right now
During the 11-year bull market, “buy the dip” was the right approach. This time, it’s different. The coronavirus is still spreading like wildfire, both here and around the world. Infectious disease experts have provided guidance and models as to how much faster it’ll spread and how many will be affected around the globe. It’s not a pretty picture.
But that hasn’t stopped some pundits! Over the past couple of weeks, I have heard various talking heads urging viewers to buy the dip. “They are the best opportunity in twelve years!” they say. “These are once-in-a-generation lows!” they holler.
The same garbage advice was spewed by slick snake oil salesmen in 2008 – before the markets dropped another 35%. A rich bailout by the Fed was necessary to save those early buyers.
If you listened to Jim Cramer, you probably made it out OK. He told his viewers to cut back, take money off the table, sell what you can and WAIT for the smoke to clear. It’s no different today. Good thing Jim is still around to give that same advice today. Use it! It’s the best advice money can buy.