Traders and investors always look for market consistency. Unfortunately, all we’ve been getting is trading uncertainty.
As uneasy as you may feel, you must be willing to put your capital at risk when others are fearful. At the same time, you don’t want to lose your shirt or your sanity.
What happens when trading uncertainty won’t stop
If it’s not breaking news, it’s an out-of-left-field tweet or a new wrinkle in the China-US trade war. The markets have become nearly impossible to navigate, and it’s driving us batty. Yes, trading uncertainty is part of the game. It’s how we make our dough. But it’s been overwhelming lately.
Even with markets at/near all-time highs, traders are not jumping in the pool at once. Sentiment has been poor, because many traders are skeptical the markets can rally. That point of view is valid, as the erratic price action leaves us wondering if markets will ever settle down.
Each surprise leads to troubling price movements. Bid/ask spreads widen out, our stop-losses are triggered and volatility increases.
Traders don’t mind volatility swings, because it creates opportunity where there was none to begin with. When volatility hits, hot money is pushed to the side, and the big money steps in and buys stock. This is not new – but the frequency at which it’s happening is causing our heads to spin.
How to handle it so you don’t lose your shirt
Resist your first instinct to sell first and ask questions later. You may feel a bit of pain in the short-term, but it’s not likely to last very long.
Take last week, when the SPX 500 was blasted on Monday. At one point, the index was down more than 100 points, or 3%.
It was a rare down day, and could you blame anyone who threw in the towel? But that huge crash-like drop only lasted for a day, and in fact all of that loss was made up over the next three sessions. But if you fled the scene, you paid higher prices to get back in on the action.
It’s a pattern we’ve seen over and over again. One day, the dip buyers will not swoop in to save the market. I am not trying to predict when that day will come. So for now, hold your positions, take profits when you have them and keep index puts as protection.