Be Nimble In Historic Down Market

Be nimble and stay in cash is the mantra of moderators at Simpler Trading as the market completed another historic session by trading more than 4% for the eighth consecutive day.

The Dow at one stage cratered 2,000 points before closing down 1,338 points at 19,898.92 for a 6.4% loss. The S&P 500 dropped 5.18%, down 131 points at 2,398.10 while the Nasdaq fell 4.7%, down 344 points at 6,989.84 points.

Simpler’s traders are focusing on trades during potential bigger moves each day at the open and close. They’re also maintaining mostly cash positions while looking for strong setups that can yield maybe a trade each day. That may equate to just a trade or two each week for less seasoned traders.

The current market decline hit harder and faster than the financial crisis in 2008. It’s been just a few weeks for this bear market to take over compared to a 17-month spiral from 2007 to 2009.

Moderators in Simpler’s online chat room caution traders to be as nimble as possible. If mistakes are made on trades, it’s OK to cry (unlike in baseball), but get back in the batter’s box as soon as you’re ready. (We believe that, in trading, a sense of humor helps when things get rough.)

Thoughts for a simple trading plan in this market are:

• Identify stocks that are bucking the trend, i.e. moving higher.
• Indexes – that’s it. Trade just the indexes.

Keeping trading this focused creates a plan to simplify the process and acknowledge that most stocks are moving with the indexes.

Traders are also encouraged to maintain cash positions and avoid overnight trades.

In a market environment this volatile and uncertain, traders would do well to step away from trading as needed to help them clear their thoughts until after the next bell.

We Saw: another historic day of market volatility – 

• Dow falling below 20,000
• Promises of government bailouts not helping
• Another market halt amidst limit-down trading

We’re Watching: … direction trend in overnight markets –

• Shortage of US dollars and possible panic into dollar
• The indexes and trend-bucking stocks
• Tickers on the radar: ZM, WMT, NFLX, AMZN, LLY, EVBG

Want to know how to trade the Fed’s intervention (and what not to do)? Follow our urgent market update TONIGHT.