The market just entered a healthy correction when it felt for second time more than 100 points in a day (-3.75%). Unless you got caught in a wrong trade this sell off is a great opportunity to buy more shares of cheap stocks.
Unfortunately, people blow up their accounts or are fully invested and they cannot take advantage of this event. To many, the correction look more like a crash (to me too in fact). And many got scared. Many now think, this is the end of the world, bear market from which we will not recover.
But this is not an end!
I met an investor who asked me to trade his account, so I did. Everything went well until this correction hit the markets and everything went south. He said, he could no longer bear the pain and he closed all his positions. Realizing huge loss. Panicking.
But there is no need to panic. This sell off is not the end of this bull market and we will see more growth. We just went so up lately that this correction was needed.
If you are participating in the markets, you must have a plan! You must know what you are doing! Many people out there have no plan! A few do, but do not stick to it.
There is a saying: “Everybody is a long term investor until the next bear market.”
Don’t be one of them!
If you are an investor, have your goal in front of you during the days like this. Remind yourself about your time horizon for which you are investing! If you are an investor, you are not in the markets for the next 20 days! You are invested for the next 20 years! Have that always in your mind!
And if you are in the market for the next 20 years, then sell offs like this is nothing, it means nothing but it creates a great opportunity to be buying cheaper. Or at least reinvesting your dividends cheaper!
Let me repeat it:
Long term investor – stay invested, do nothing, do not sell, buy more!
But make sure you are buying a good quality stocks, dividend stocks! Do not listen to anyone who says dividend stocks are worthless and that they won’t make you enough money. Those who say this do not understand how dividend stocks work.
Here is my dividend stocks watch list. I do not even know which stocks to choose from. All are in a correction mode and great candidates to buy:
I wish the list would stay like this longer so I can keep buying high quality stocks.
And what if you are a trader?
You too have to have a plan! And strictly follow it. In my last post I wrote about selling options with delta 16 or less and people kept telling me that I am wasting my money, risking too much to make too little.
A few years ago I would agree with them.
Not anymore. I came to realization that I want to make money but I want to make money safely, preserving capital. Capital I used originally to trade and capital I made.
After a week and a half of large losses the S&P 500 entered officially correction.
The market dropped -10.13% today.
And thanks to my delta 16 options I am still alive.
Of course, it is not just the delta which helped me to sustain this carnage but also my money management and strictly investing no more than 50% of my available capital (although today many trade repairs ate much of the capital, I am still near 50% limit). And I am still floating!
Although my “ship” looks like this after a week in the markets:
But, if you are still floating, you can repair your ship and continue the journey. How do you keep floating? Stick to your rules to overcome the bad days in the market. Use margin sparingly mainly when the market makes new highs, do not over trade, and do not be greedy! I sometimes struggle with this and later I regret it.
If you follow my blog or Facebook group you know that I was guilty of over trading my accounts. And I paid dearly for that!
As of today, most of my accounts are now back on track and protected. Even with this huge selling, I should start making a progress towards my trading to independence goal.
The good thing on all this is that VIX didn’t spike too much (very little gain compared to Monday’s “crash”, higher than yesterday but only by a small margin and definitely not matching Monday or Friday levels) so this leg down looks more like a standard re-test of the previous lows. Usually, VIX will start making lower highs although the market may continue making lower lows but this is a bullish sign for the market.
We have officially fulfilled a 10% correction today and although we may see some downward drift smart money will be buying here (and I dare them not to).
There is an analogy to 1987 market when Reagan cut taxes (in 1986) and it propelled the market to all time high after that well into 1987 so we may expect Trump’s tax cut to have a similar effect. If so, we will see this market going higher to ATH one more time before it finally loses steam and possibly reverses into a bear market.
So, now, it is about surviving this turmoil without a big damage (bigger than your account can handle) and later we will see some nice relief and those who remain standing will see nice profits. But, be aware, we are most likely in a final stage of this bull market.
As of now, my IRA account lost over $14,000 dollars of paper losses. I didn’t close any of my positions for a loss. I rolled my trades down as much as possible. And i am closing my trades for a profit or they expire worthless. And I fight to keep those trades up and floating. And once this selling is over, and it will be over, the account will once again return up to its original value (provided I will not have to close the trades for a loss).
Stay safe, stay calm no matter how difficult it may be or seem to you. This selling is temporary and it will not last forever.
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How do you tell that you are predestined to lose? Look at the list of trait of an unsuccessful trader or investor. If you find a single statement listed below that you personally do or think about then you need to work on your state of mind and break the bad habits. You must work on attaining the right mindset of a trader.
To become a winner is a hard work. Trading itself is simple and easy, but being a winner is hard. And that’s what makes trading hard because you are fighting the biggest enemy you ever had – you!
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