Avoid Unnecessary Pitfalls In Dicey Market

2021-08-17

On a day when the market tanked into the red, traders were looking for ways to play it safe and not get caught on the wrong side of this fast shift.

The Dow closed at 35,343.28 points to fall .79% (dropping 282.12 points on the day). The Nasdaq dropped to 14,656.18 points for a .93% tumble while the S&P 500 fell .71% to 31.63 points.

Every sector from retail to technology to commodities was rattled in the midst of events from Middle East turmoil to U.S. political tension to a major earthquake to an academic chat with the Fed Chair. As the closing numbers show, the market — and many traders — took one on the chin today.

When the market environment is this chaotic, what’s a trader to do?

Aside from taking a margarita break (Texas traders particularly), Simpler’s traders default to choices that avoid mistakes while navigating the volatility.

Not Checking Position Size

Everything traders work on eventually leads to a trade. When all the “take the trade” elements are lined up, don’t go overboard.

A trader’s position size — how much of the total account is invested in a trade — should be well within already established risk management plans. Never be too confident.

Manage the size of the trade to avoid getting caught in a sudden and unexpected chain of events, like a country falling apart or a spike in inflation.

Leaping Too Soon

Follow the rules — your rules.

Every session of trading there seems to appear a tempting ticker to take… if only you bend your rules for entering a trade. This temptation leads to trading trouble.

Wait before leaping by making sure all trade setup requirements are met. A valid trade setup is more valuable than any potential for a “hot stock” to take off.

This also includes piling onto the latest rally or dip. No matter how good it looks, insightful traders are already setting up to take advantage of those who rush into a “hot” trade. Make sure the setup fits your trading plan and risk tolerance.

Not Taking Cash When You Can

Traders who follow their own rules, wait for valid setups, and execute trades within their plan stand a higher probability of cashing in.

So take the money.

When a setup works, it makes sense to take the win either for some or all of the projected gain. If you stay in the trade, enjoy the cash you take out, and keep working the trade.

The goal of a trader is to make money, so take advantage of the wins and keep moving.

We Saw: Market indexes take hits across the board —

  • Big Tech battling crypto with gold buying?
  • Feds opening up about changes next year
  • Inflation appearing to dig in for long haul

We’re Watching: Midweek pole position: what hits next? —

  • Will market drop go deeper or is this another dip and rally?
  • Home builders struggling with market changes
  • Setups that won’t send accounts over the edge