As I am writing this, the DOW is off over 500 points and the S&P is off over 50 points. Not a fun day if you are long. In fact, as you may or may not know, this has been the worst trading start for January of all time. I feel very fortunate that since the beginning of the year I have remained mostly in cash. Am I psychic? Did I know something beforehand? Of course not, but I saw warning signs and red flags to be careful. Sometimes these are easy to spot, sometimes they are more subtle, and sometimes there is no warning. While over the last month, watching the FED, bonds, crude oil and the China market, it was pretty easy to see signs, but the speed and the severity of this decline has surprised everyone.
So how do we position for something like this? I tend to lighten up too often when I get a feeling, and this has cost me to miss good moves in the market, but more often it has kept me out of trouble. Whether you lighten up before a market correction or lighten up during a correction, there is one thing you can do … nothing.
Lately, I have been so tempted to try and bottom fish or jump on a trade, but as my father always told me…. “When in doubt…. Don’t”. Those are very true words for us traders. Sometimes the best thing to do is nothing at all. Sit on cash and wait on the storm to pass.
Lastly, I reflect back on my old trading days and a mentor that always reminded me to never “force a trade” or “make a trade just to make a trade”. Or his favorite, “trades are like buses, just wait and another one will come along soon enough.”
I hope these words will stay with you as they have with me and remind you that sometimes doing nothing is the only thing to do.