When markets pivot, it is time to protect your account and exploit the opportunities that are unique to the market turning points we are seeing now. After a choppy start to the year, we have seen a nice rally since March that has recently lost steam and started to reverse. Here are 5 tips to use right now.
Inverse ETFs
One of the easiest ways to exploit a dropping market is with ETFs that go up when the market goes down. They trade just like a stock and give regular traders access to trading tools that used to only be available to big money. Check out an article about them here.
Volatility
Keep an eye on the VIX, the indicator that shows what volatility the market is expecting in the coming months. Typically, as the VIX rises the market will fall. We have recently seen a spike in the VIX and while it doesn’t necessarily show exactly when a drop will start, it offers some confirmation that it is more than just a dip.
Position Size
Markets dropping and higher volatility mean it is wise to consider scaling back position size in your trades. With smaller amounts in each trade, you are still in the market but a trade that goes against you is much less likely to wipe you out. This allows you to stay in and find your next trade and learn as you go.
Put Options
Buying put options is another way to take advantage of a sliding market. Look for underlying stocks or ETFs with higher volume and liquidity so you are able to get in and out of these positions quicker and closer to your target price. Options offer better leverage and can be a smart way to get more out of the smaller positions you are taking. Be sure to do your homework before jumping into any position in an environment with higher volatility.
Have Rock Solid Exit Rules
Don’t wish a bad trade to turn around. Get out. Set a hard limit and don’t think twice about what you “might” make if your trade recovers. This is easy to say but it is also very easy to fall victim to when you are in the trade.
When things get wild it is very smart to revisit your trading goals and rule. Rewrite them on a piece of paper on your desk. Text them to yourself. The act of writing or typing them makes them more concrete and will increase your likelihood of sticking to them.
Keep learning and trade wisely,
John Boyer
Editor
Market Wealth Daily
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