By Matt Hensley, Two Roads Trading
For the past few months, the superlatives used to describe the market by swing traders, including crazy, untradeable and irrational, have been all over the place.
In reality, no market is untradeable, though today’s market is certainly giving that thought a run for its money. We simply have a large amount of macro news right now weighing on the big money from the China talks, to Brexit, to the various other political news. It doesn’t matter how you feel about these topics; they affect the market the same way regardless.
We as retail traders should not lose any sleep about the anxiety of the fund managers, but we do need them moving the markets. As they try to decide where to take these markets, what concrete steps should retail traders take to protect their capital in this volatility?
- Only trade your setups and be strict about entry.
This is good practice regardless of the market climate, but long based strategies over the past couple of years have let us get away with sloppy entries. This is a good chance to revisit and refine your rules to make sure your entries are tight. You can also figure out very quickly whether your idea was right or not.
- Consider cutting your position size.
This is always good practice when you’re struggling, no matter what the market is doing. Removing some of your risk allows your head to be a little clearer when making decisions.
- Develop and paper trade short strategies.
Most day traders have, or should have, at least a couple of short setups in their arsenal. But most swing traders, especially those who have learned to trade in this always up market, seem to forget there’s another whole world available to them in short set ups, whether in actually shorting a stock or taking a short position via puts. As with all new set ups and strategies, make sure you sufficiently paper trade them before putting any real money in.
- Take the morning, afternoon or a full day away from your desk.
One of the worst things you can do as a trader is just sit at your computer when you’re struggling or when your setups aren’t firing. Days like this happen from time-to-time no matter what the markets are doing. It’s perfectly okay to get up and walk away for an hour or the rest of the day. If you are, or want to become, a full-time trader, you need to learn to manage your stress. Most of this is accomplished by having systems you trust based on preparation and paper trading, but even then, there are days you need to take some ‘you’ time and wind down a bit.
This market will sort out those who don’t have the mental tools to trade yet. And, if you’re one of those, the good news is the mental tools can be learned.
Disclaimer: The author is not a financial advisor and the following should not be taken as financial advice. This is by no means a complete discussion of the pros and cons of trading and/or investing. Please consult your own qualified advisors to determine what is appropriate and best suited to your specific investment objectives and risk tolerance.