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Stocks

Navigate the Markets with Knowledge and Skill

Brandon Wendell
Instructor, CMT

During the recent volatility and turndown in stock prices, I have been receiving a lot of emails and panicked phone calls from brokers, traders and investors who want to know what to do with their positions should the market drop like it did in February and March.  I wish I had a magical solution for all of them to preserve their capital, but there isn’t one.  Oh wait, there is… Education! Before attempting to trade, invest in yourself with trading courses.

Those who have been fortunate enough to attend one of Online Trading Academy’s trading courses know that there are three things that you should know before placing any trade or even entering into any position.  Those three things are: Entry, Target and Stop Loss levels.   We need to identify those three criteria while we can remain somewhat objective.  Once we have entered a position we do not enjoy losing, so we will have an emotional attachment to that position and often cut our winners short or worse, hold on to losers.  Planning the trade before you take it is something that is relatively easy to do with the proper knowledge, and will also reduce the effect of fear and greed in your trading.

Free Trading WorkshopFor those who are already in a position or investment they did not plan ahead of time, you need to evaluate the security and see if you should still remain in it.  When you do this, you need to forget your cost basis, (the price you entered into the position).  Look at the security as if you did not own it.  Analyze the trend, supply and demand zones, and ask yourself, would you buy this security right now?  If the answer is no, then why would you want to still hold it?

The equity markets are consolidating currently on both weekly and daily charts.  Typically, the longer and tighter it consolidates, the more violent the move will be when prices break out.  This will be fine for investors if it is a break upward, but are you prepared for a break to the downside?

The best way to protect yourself against a market crash it to have the knowledge to actively manage your investments.

What to do when you are in a trade you didn't plan.

A lot of people will advise you to average down to lower the cost of your investments.  This is something I have never understood.  If the price is likely to keep dropping, why would you buy more now?  Wouldn’t it be better to exit and then buy later when your analysis shows there is likely to be a bottom?  You would buy back at a cheaper price and profit more.  Cost averaging is costing you money.  The security may take years to come back to profitability and even worse, you are losing the opportunity to make money somewhere else while your money up trying to save a losing investment.

Look at the losses sustained by those who froze and held on during the 2008 crash.  They experienced a 57% drop in value in the markets.  Prices did return, but it took over five years to do it!  If you held on to your losers, you are likely now up over 72% currently after your pain.  However, if you had the knowledge and skill to have identified the turning points, you could have sold before or during the crash and re-entered the market even after the bottom for a 164% gain!  Just imagine how much better off your portfolio would be today if you did that.  Now imagine if you could do that for the next crash? Your trading courses would pay for themselves!our trading courses would pay for themselves!

Riding out the markets leaves your profits at a loss.

Timing the market is possible for us.  I was featured on CNBC television after the dramatic market drop back in February.  The anchor claimed that the February 8th drop was something that could not have been predicted and was sure there was more to come.  Imagine his shock when I said, ‘Not only was it predictable, we have also dropped into a great buying opportunity as prices are in a larger timeframe demand zone!’

The difference between success and failure in anything is knowledge and skill.  Having the proper knowledge and skill when navigating the markets is essential for your portfolio.  Markets do not move straight up, nor do they move straight down.  There are many excellent opportunities to enter both on the long side and short side if you know what to look for.  Gain the proper knowledge and begin to build and master your skill under the tutelage of professional traders.  Visit your local Online Trading Academy center today and sign up for an introductory trading course!!

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.