Tuesday was one of the most bearish days in recent memory for the overall market.
Traders are rapidly trying to position themselves as the regional banking crisis puts enormous pressure on equities.
Tensions are high, volatility is elevated, and share prices are moving all over the place.
When the market gets this swingy, it’s important for traders to adjust their game plans appropriately.
In other words, if you think you can trade this market like the last few months … think again!
With the SPDR S&P 500 ETF Trust (NYSEARCA: SPY) down 3.5% and the Volatility Index (VIX) up nearly 50% in the past five trading days, it’s time to focus up…
This price action is a serious sea change. And if you don’t change your outlook accordingly, you could get smoked.
With that in mind, keep reading and I’ll give you three tips for surviving this major market shakeup…
Why This Week Feels Different
2022 was the worst year for stocks since 2008, with the SPY returning -19.64%.
There were plenty of red days to be wary of throughout 2022, but most of them were missing one thing … a huge VIX spike.
Volatility was surprisingly muted throughout the second half of 2022.
Theories range as to why this occurred, the most common of which is that the bad news in 2022 wasn’t particularly surprising.
For the VIX to spike hard, there needs to be a shocking negative catalyst.
But most of the negative catalysts in 2022 were expected or predicted.
Example: A lot of smart market analysts predicted an increase in inflation and thus, interest rates, prior to the actual policy changes.
However, this week’s rollercoaster price action feels different…
The Silicon Valley Bank collapse and associated regional banking crisis came out of nowhere, like a wrecking ball to Wall Street.
This is an example of a legitimately shocking negative catalyst, and I think that’s why the VIX has been spiking so hard.
Now, that doesn’t mean I think this is gonna lead to a historic market crash. (It probably won’t…)
But it does mean I want you to be extra cautious with your trading…
3 Tips for Trading Through Volatility
As I mentioned earlier, you’ve gotta employ special considerations in your trading when the market gets this volatile.
Here are three suggestions to help you trade through the volatility like a pro:
Tip #1: Avoid Swing Positions
When the overall market is on a rollercoaster of volatile price action, don’t try to make swing trades.
Holding swings in this up-and-down environment is a recipe for disaster. After all, anything could happen overnight.
When the market’s as volatile as it is currently, the price action can shift on a dime…
Why carry the burden of wondering what’s gonna happen in the premarket, after hours, or over the weekend … when you could day trade and sleep like a baby?
I’d rather close my positions out before the close and not have to worry about what headline events occur overnight (or over the weekend). And I suggest you do the same.
Tip #2: Control Your FOMO
When a big market catalyst occurs — be it positive or negative — traders of all stripes try to rush into plays that could benefit from the news.
I don’t blame them. After all, this is what traders are supposed to do!
That said, in times such as these, the temptation to trade setups that don’t fit your strategy becomes greater…
Giving in and trading a subpar setup just because other traders are talking about it is one of the worst things you can do.
If you do this, you’re letting FOMO control your trading…
But I want you to do the opposite. Control your FOMO!
Tip #3: Don’t Overtrade
When the market is in a period of uncertainty and volatility, you should probably be trading less.
Think about it…
If the near-term market direction is less clear, why wouldn’t you slow your trading down?
There’s no reason to press an edge you don’t have.
The more questionable trades you make, the more you open yourself up to the possibility of unrecoverable losses.
On the other hand, if you don’t make any trades over the next week, your account will be intact. You may not make a fortune, but you won’t lose a cent either.
That way, you’ll be able to deploy your capital once the market direction is clearer.
If a five-star setup comes across your screen, by all means, trade it!
But in this environment, don’t try to force positions that aren’t ideal.
Stay safe out there, Evolvers!
This volatility is no joke.
Be patient and don’t let FOMO or overtrading get the best of you.