I’m back, Evolvers!
After taking yesterday to celebrate a Jewish holiday with my family, I’m excited to dive back into this insanely volatile market.
The past four trading sessions have seen the S&P 500 ETF Trust (NYSEARCA: SPY) soar 8%, destroying short positions and delighting bulls.
But this morning, bears are attempting to grab the reins again. After gapping up 2% at the open, the SPY immediately started selling off.
At the time of writing, the index is up just 0.68% on the day, having given back more than half of its gains already.
In times such as these, it’s hard to make sense of the price action in the stock market. I find myself going back to the basics, trading more conservatively, and thinking over the many lessons I’ve learned from my mentor, Tim Sykes.
Over a decade ago, I joined Sykes’ Pennystocking Silver service, and then later his Trading Challenge. And let me tell you, seeking out guidance from Sykes was the best thing I ever did…
Sykes has been trading for 20+ years. Unlike me (and probably most of you), he traded the 2008 crash, one that many traders are referencing as a parallel for today’s market.
With that in mind, I think it’s a good time to go over a few lessons Sykes has taught me throughout our many years of working together.
Keep reading and I’ll show you…
Find Your Perfect Position Size
Newbie traders often struggle with volatility in the stock market.
So, as you can imagine, this year has been a doozy for those first entering the markets.
I was lucky to have Sykes’ guidance when I was first starting as a trader. Since then, I’ve proven that I can take small accounts and turn them into massive ones…
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Let us help you create your own stock market strategy….
Get a plan, chat with top traders, enjoy alerts, commentary, regular webinars, and video lessons…
This is what you get inside Tim Sykes’ Trading Challenge
(Earlier this year, I took a small account from $10,000 to $130,000+ in a little over a month.)
But to grow a small account in a volatile market, you need to follow a few crucial steps…
First, you need to limit your risk by taking fairly small position sizes. I know it’s not exciting to trade small … but this is how you get accustomed to price movements and grow a small account gradually.
This is especially true in the kind of hyper-volatile trading environment we’re in this year. You should be aiming for singles, not home runs.
You should determine your risk tolerance. Figure out the amount of money you’re comfortable risking and don’t exceed that amount until the market is in a more stable place.
But how do we know when the market is calming down, providing a point where traders can stretch their wings a bit?
This brings me to our next lesson…
Know Your History
One of the most clutch tips Sykes has given me is this — know your history.
And this lesson is more true now than ever.
Even though the stock market is filled with numbers, Sykes says he views himself as more of a history teacher than a math teacher.
The market isn’t a perfect science. You’ve gotta understand the historical context of how stocks tend to trade.
No matter what stock you’re trading, you should learn everything you possibly can about its history.
Pay particularly close attention to the following historical metrics:
- Prior price action in the chart
- The company’s earnings history
- Major catalysts in the past
Study how the chart has reacted throughout time. Then you can form a strong plan for what may happen in the future.
Right now, as we’re stuck in one of the most brutal bear markets in history, there’s no better chart to understand historically than the SPY.
The Last Time I Made a Prediction This Bold… Traders Had the Chance to Make 8X Their Money
Now, I’m doing it again…
But this small profit window closes in a few days…
Understanding how the broader stock market has reacted to certain periods throughout history can potentially help you prepare for future moves in the major indexes.
Think about the price action in the major indexes this year. Had you really studied prior bear markets, you likely could’ve predicted certain moves that happened before they took place.
For example, if you knew that stocks generally struggle as interest rates rise, you might’ve had the foresight to buy puts as soon as the Fed began to pivot.
Bottom line: Know your history and you’ll be a better trader for it!
Final Thoughts
Internalize these lessons and remember to trade safe out there, Evolvers!
I’m still catching up from my short vacation, but I’m looking for trade opportunities as I sit on the sidelines.
Right now it’s time for patience, practice, and discipline.
