Stocks

Take Action During Times of Market Volatility

BrandonWendell
Brandon Wendell
Instructor, CMT

There is no doubt that volatility has returned to the equity markets.  Between the economic issues in China and the waiting/guessing game of the Federal Reserve, investors are left in a panic.  Many watched with horror in late August as markets tumbled quickly only to recover shortly afterward.  Since that time, there have been many guests on business TV and in the media asking investors to remain calm and hang on.  This is absolutely ridiculous and will deter from your potential returns.

Free Trading WorkshopIn a recent article from the Associated Press, the writer stated that the markets experience one down year in every five on average.  Those of you who have been watching the markets since the 2009 bottom know that we are overdue for that year.  The article also went on to quote brokers who were telling clients to stay in the markets and not withdraw money in a panic.  Their rationale was that the public invests for 20 to 30 years, not for one year.  Additionally, they mentioned that if you followed this investment strategy, you would be rewarded with an eight percent average rate of return per year.

This is not only holding your investments back but is also robbing you of some great potential gains in the markets.  At Online Trading Academy, we not only stress that market timing is possible, but is a preferred method of investing and trading to gain better overall returns in a shorter period of time.

Think about the investor who bought into the markets after the bottom was put in from the tech bubble burst.  If they bought an index fund, they were able to realize a nearly 90% gain in a little over five years.  But if they did not exit from the markets in the 2008 bear market, they would have lost all of their gains in their retirement money in a drawdown.

2003 market gains

Now, the investment brokerage community would be quick to point out that if you held on long enough, you would have recovered that money in the current bull market that began in 2009.  The aforementioned article even went as far as to state that those who panicked in 2008 were likely the same people who came back to invest late in the bull move in 2013.  The article says that they missed out on a 36% gain from the 2009 lows.

This is flawed thinking.  They did not miss out on gains; they missed out on recovering 36% of the losses they would have suffered had they held on during the crash.  So what could an investor have done instead using market timing?

If you were astute and educated in Market Timing, you could have exited near the market peak in early 2008 as price indicated a shift to bearishness.  You would have missed out on over a 50% drop in your portfolio.

2008 crash - market volatility

To time your portfolio entry back into the markets, price gave you your signals once again. By entering near, (not at) the lows of the bull market, your portfolio would have enjoyed a 105% gain to date! This makes the 36% gain paltry.

2009 bull market

In Online Trading Academy’s Extended Learning Track, one of our instructors even went as far as to identify the demand zone that the S&P 500 index used for the low of the 2008 bear market. Buying there increased your current returns to 184%!

timing the market

So far, we have been operating under the assumption that you would be sitting idly by as the markets crash while your portfolio is in cash or money market funds.  What if you knew the right strategies in order to profit in bearish markets as well as bullish ones?  You do not have to waste months or years while the bear growls as your account languishes in cash.  Instead you could get a rate of return equal or even greater than you experienced in the bull market.

Time is the most valuable commodity we have.  We have limited time to be able to invest and build wealth so that we can enjoy our lives the way we want to, not being limited by what we can afford because the markets and our brokers limited our gains and wasted our time.

So looking at current price, the markets are definitely not as strong as they have been.  Watch for signs of the markets changing from bull to bear and take action to protect your portfolio.  Do not accept the conventional wisdom that says you have to take the bad with the good.  You can time your portfolio entries and exits in order to achieve your financial goals and dreams.  Be sure to get educated on how to time the markets before you and your retirement suffers.

Brandon Wendell

bwendell@tradingacademy.com

Disclaimer
This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.