This week is turning into a major event for several market-wide catalysts … and it’s only Wednesday!
Yesterday, the regional banking crisis came back to haunt the market, with the S&P 500 ETF Trust (NYSEARCA: SPY) falling as much as 1.4% intraday.
U.S. regulators seized now-delisted First Republic Bank and sold it to JPMorgan Chase & Co (NYSE: JPM).
This is, in turn, raising concerns from traders about the health of the rest of the regional banking sector…
The SPDR S&P Regional Banking ETF (NYSEARCA: KRE) was down nearly 7% yesterday, dragged by shares of PacWest Bancorp (NYSE: PACW) and Western Alliance Bancorporation (NYSE: WAL), down 26% and 20%, respectively.
Meanwhile, Bitcoin (BTC) and the ProShares Bitcoin Strategy ETF (NYSEARCA: BITO) surged 3% as crypto continues to strengthen amid doubt in the legacy banking system.
And all of this is colliding with an even more crucial event … the Federal Reserve meeting that’s currently underway, where the central bank will deliver its next interest rate decision.
While a flurry of catalysts seems to be coming to a head, I’m playing it safe. Notice that I didn’t make any trades yesterday…
Let me tell you why. Keep reading and I’ll give you four ways to potentially trade smarter in this crazy market…
My first piece of advice is to avoid overtrading at all costs.
For some reason, a lot of traders feel the need to make a trade every single day.
But I’ve never understood this. The stock market is constantly changing…
If they’re sticking to a consistent strategy, how are they finding excellent setups to trade every day?
The answer is … they aren’t. They’re likely overtrading. In reality, even in bullish markets, finding five-star setups is rare.
It’s important to remain patient during periods when good setups are hard to come by. Then, act aggressively when the ideal trades do appear. (Remember “the 3 Ps!”)
Overtrading can potentially lead to some of the worst trades in your career, as it can be mentally taxing and cloud your judgment.
While it’s natural to want to grow your account in a fast-paced market, it’s important to avoid spreading yourself too thin.
When there are no excellent plays available, exercise patience and wait like a zen master.
However, when the right setups arise, act quickly and decisively, like a samurai warrior.
And luckily, there’s a simple way to help avoid the temptation to overtrade…
Narrow Your Watchlist Down
If you’re finding yourself tantalized to trade subpar setups, do the following:
Keep things extra simple … limit your watchlist to no more than five promising tickers.
By giving yourself limited options (excuse the pun), you can focus on the best setups only.
That way, when one of those stocks makes the move you’re looking for, you’re more likely to see it in time and capitalize on the play.
Think about it…
If you’ve got 30+ tickers on your watchlist, are you really gonna notice the best move right when it happens? Probably not…
But if you keep your list small and selective, you’re far more likely to identify actionable plays in a timely manner.
Additionally, your watchlist isn’t the only thing you should keep small in these uncertain times…
Size Down Your Positions
If you’ve been following my recent alerts, you’ll notice I haven’t been trading big positions.
I have a seven-figure trading account, and I’m still only trading 30-100 contracts at a time right now.
Why? Because I think this market can flip at any moment, and I don’t want to be left holding a large bag at the wrong time.
Smaller positions can give you more wiggle room to make mistakes (especially if you’re trading a small account).
The most important thing is that you go on to trade another day. NEVER risk more than you’re willing to lose.
REMEMBER: You can always add to a winner (which is much better than cutting a loser).
I can’t tell you how many traders I’ve seen blow their entire careers on a few poorly-sized trades.
Don’t be like these failed prospects. Be very deliberate with your position sizing and you’ll be a better trader for it.
Then, you should also be very deliberate with something else…
Always Have a Game Plan
Too many traders fail to form a solid game plan before entering their trades…
Why? Because they’re impatient, greedy … or both!
Every successful trader I know has their game plan prepared before they enter a trade.
On the contrary, many newbies like to throw their entire accounts on one options trade, dreaming of making millions in a day.
Just look at r/WallStreetBets for thousands of examples of this mentality. But the vast majority of these wild fantasies will never come true…
You can’t take more than the market’s willing to give. You’ve gotta choose your trades carefully and be consistent with your game plan.
So, what details should go into your trading plans? Here’s what I always include…
- Key price levels
- Why there might be volatile price action — I want high volume and a catalyst
- Position size — the number of contracts I want to trade
- Potential entry and exit prices — prepare for profits or small losses
If you make a trade without knowing those five things, you’re practically begging to lose.
But the opposite is also true. So, make sure you’re ALWAYS forming an airtight game BEFORE you enter any trades!
Be careful in this crazy market, Evolvers!
Embrace these four tips and practice waiting for ideal setups and perfect chart patterns.
It’s not always easy, but I bet you’ll be a better trader if you do.