{"id":22094,"date":"2024-08-22T07:30:43","date_gmt":"2024-08-22T11:30:43","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=22094"},"modified":"2024-08-22T07:30:43","modified_gmt":"2024-08-22T11:30:43","slug":"the-smart-way-to-tackle-volatility","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/the-smart-way-to-tackle-volatility\/","title":{"rendered":"The Smart Way to Tackle Volatility"},"content":{"rendered":"

Managing Editor’s Note:<\/strong> Today, we’re handing the reins over to colleague Larry Benedict – a market wizard and legendary hedge fund manager.<\/p>\n

Today, he’ll share with you one of his most crucial risk management strategies… one that preserves capital and prevents a losing year for trades…<\/p>\n

Here’s Larry with the insights…<\/p>\n

\n

Most folks don’t like uncertainty.<\/p>\n

We’re much more comfortable when we know what’s going on. Then we can set our sights and plan accordingly.<\/p>\n

That trait can become a massive hurdle in the financial markets, though…<\/p>\n

Shocks come along all the time. And many are unpredictable.<\/p>\n

We saw that on August 5. The unwinding of the Japanese yen “carry trade”<\/strong><\/a> set off a wave of selling around the world.<\/p>\n

And I’ve seen plenty of other shocks throughout my 40-year career…<\/p>\n

At the beginning of my career, there was the 1987 crash. Then I saw the bursting of the dot-com bubble and the financial crisis of 2008. And in 2020, we were hit with COVID.<\/p>\n

All of these downturns caused huge damage to investors and threw global markets off-balance.<\/p>\n

But by understanding one simple premise, I’ve been able to successfully navigate these shocks and countless others that have come my way…<\/p>\n

Futile Predictions<\/h2>\n

Over my decades of trading (including my time running a multimillion-dollar hedge fund), I learned you can’t avoid market shocks.<\/p>\n

You need to accept that they’re going to come.<\/p>\n

And no two shocks start the same way. So trying to predict the next shock is a futile exercise.<\/p>\n

There are too many moving parts. The crosscurrents across global markets and the major economies are too complex.<\/p>\n

And most of the dire warnings of imminent collapse vanish into thin air.<\/p>\n

With that all in mind, the best way to navigate shocks is based on what we can actually control.<\/p>\n

It’s simple: Manage your risk<\/em><\/strong>.<\/p>\n

By fastidiously controlling risk, it doesn’t matter how big a shock might be. It won’t be able to put you out of the game…<\/p>\n

Trade Size Matters<\/h2>\n

The first rule I applied to my own trading was to only allocate a small portion of my account to any one trade.<\/p>\n

It’s a case of mathematics.<\/p>\n

If you only allocate 2–3% of your trading capital to any one position, then no trade can break you. That’s true even if the market crashes.<\/p>\n

Even if that trade goes all the way to zero, you’ve still got 97–98% of your account intact.<\/p>\n

I learned this the hard way after blowing up my trading account several times early in my career.<\/p>\n

But from those harsh lessons, I took this another step further…<\/p>\n

If I was down 2–2.5% in any month across my entire portfolio, I’d liquidate all <\/em>of my trades and start over fresh the next day.<\/p>\n

And I’d reduce the size of my positions. I’d cut my trading size in half. If that didn’t work, I’d cut it in half again.<\/p>\n

<\/p>\n

\n
\n

Free Trading Resources<\/strong><\/p>\n

Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/p><\/div>\n<\/div>\n

<\/p>\n

Only when I started making money consistently would I start to increase my trade size again.<\/p>\n

Doing this enabled me to rack up 20 years without a losing year during my hedge fund days.<\/p>\n

And ultimately, it led to Jack Schwager featuring me in his book Hedge Fund Market Wizards<\/em> in the chapter just after Ray Dalio – the billionaire founder of Bridgewater Associates. Schwager noticed how critical my risk management skills were to my success.<\/p>\n

Rather than trying to predict the future, I learned to manage the one thing I could control: my risk.<\/p>\n

That enabled me to withstand all the inevitable market shocks that came.<\/p>\n

Like we saw on August 5, shocks can come out of nowhere.<\/p>\n

But if you have strong risk management principles and steadfastly stick to them, it will ensure you come out swinging on the other end.<\/p>\n

Happy Trading,<\/p>\n

Larry Benedict
Editor, Trading With Larry Benedict<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

You can navigate the market\u2019s biggest shocks if you manage risk the smart way\u2026<\/p>\n","protected":false},"author":55,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"ep_exclude_from_search":false,"service":"","footnotes":""},"categories":[1],"tags":[],"publication":[10],"person":[58],"newsletter-type":[],"ticker":[],"class_list":["post-22094","post","type-post","status-publish","format-standard","hentry","category-market-minute","publication-market-minute","person-larry-benedict"],"acf":[],"_links":{"self":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/22094","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/users\/55"}],"replies":[{"embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/comments?post=22094"}],"version-history":[{"count":0,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/posts\/22094\/revisions"}],"wp:attachment":[{"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/media?parent=22094"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/categories?post=22094"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/tags?post=22094"},{"taxonomy":"publication","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/publication?post=22094"},{"taxonomy":"person","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/person?post=22094"},{"taxonomy":"newsletter-type","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/newsletter-type?post=22094"},{"taxonomy":"ticker","embeddable":true,"href":"https:\/\/jeffclarktrader.com\/market-minute\/wp-json\/wp\/v2\/ticker?post=22094"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}