Many traders were left stunned on Monday when selling intensified even after a morning rally looked to end what began earlier last week. Volume swelled as sellers rushed to sell at any cost. Volatility spiked with the VIX ended near 40. We have not seen this type of fear in quite some time. The low volatility market finally woke up. What is important to keep in mind is we will certainly see an opportunity to bounce. Whether or not that leads to new market highs or not is another question to be answered later. The here and now is whether or not you obeyed your exits? Were your positions sizes on point? We were able through hedging and stops to capitalize on this selling. Bears will come out of the woodwork here, but we have come out well by obeying our strategy. It is time to let the dust settle and act within our strategy. We will see if we can find a bottom.
Sharp sell-offs aren’t abnormal and while we haven’t seen corrections like this it isn’t surprising. We have been warning to have stops in place and position sizes on point to avoid major losses. Those who were adhering to this did not panic as they followed a simple process. There were plenty of traders panicking with this sell-off because they were trying to be heroes. Without a doubt our process will overcome this market and we will be ready for whatever the market throws at us next. This type of selling may take some time to settle down, but odds are we do find a floor and move higher. In the event this does not take place we simply cut our losses and move to the next signal. Could it be a new bear market? Time will tell, but what is most important is to follow sound risk management principles and to avoid trying to be a hero.
This selling is quite impressive. At Tuesday’s open we are going to find ourselves in EXTREME oversold conditions. Does this mean we are going to go out and buy this falling knife? No. We will be patient and will stalk our prey. No need to be a hero. Longevity wins in this game and you do not succeed by trying to be a hero. Big Wave Trading hasn’t existed since 2007 out of luck. Simple rules wins in this game we call the stock market. The faster you learn to live by these rules the more success in the market you will enjoy.
Best of Luck to your trading this week!
