{"id":8599,"date":"2018-02-23T07:30:41","date_gmt":"2018-02-23T12:30:41","guid":{"rendered":"https:\/\/www.jeffclarktrader.com\/?p=8599"},"modified":"2018-02-23T07:30:41","modified_gmt":"2018-02-23T12:30:41","slug":"how-to-profit-when-the-market-goes-nuts","status":"publish","type":"post","link":"https:\/\/jeffclarktrader.com\/market-minute\/how-to-profit-when-the-market-goes-nuts\/","title":{"rendered":"How to Profit When the Market Goes Nuts"},"content":{"rendered":"

All traders struggle when the market goes nuts.<\/p>\n

\u201cNuts\u201d isn\u2019t a technical term. You won\u2019t find it in any stock market glossary. But you know what it means.<\/p>\n

It describes an environment in which stocks go through large swings \u2013 both higher and lower \u2013 in no consistent or predictable pattern.<\/p>\n

There\u2019s really no better way to describe the current market environment than by calling it \u201cnuts.\u201d<\/p>\n

The problem most traders have is that we want to be involved in every big move the market makes. It\u2019s hard for us to watch from the sidelines as the S&P 500 rallies 30 points in a day. It\u2019s worse to be on the wrong side of the move. We want to be active. We want to take advantage of the increased volatility.<\/p>\n

The problem is\u2026 these moves are nuts.<\/p>\n

Nobody in their right mind was looking to buy stocks at the end of the day Wednesday. The stock market had reversed from a HUGE move higher and was in the midst of a sharp decline. The S&P 500 lost 47 points in about 47 minutes.<\/p>\n

But, if you didn\u2019t buy into that decline, you missed out on yesterday morning\u2019s HUGE gap higher.<\/p>\n

Then, as the S&P was powering higher above the 2730 level, nobody in their right mind was thinking about shorting stocks. The computers were firmly in \u201cbuy\u201d mode. Shorting stocks into that sort of momentum rarely pays off.<\/p>\n

But the S&P dropped a quick 20 points from that level. Traders who didn\u2019t step up were left wishing they had.<\/p>\n

In this sort of \u201cnuts\u201d environment, traders will do well to remember one thing\u2026 You\u2019re not going to catch every trade. And if you try, you\u2019ll likely end up taking losses<\/a>.<\/p>\n

It\u2019s a far better strategy to take a step back. Map out a plan for where you think the market is headed over the next few weeks. Then\u2026 ignore the short-term swings and stick to that plan.<\/p>\n

The stock market\u2019s job is to shake us out of positions. It\u2019s going to test our thinking. It\u2019s going to make us second-guess our well-thought-out plans. In short, the market is going to make us nuts.<\/p>\n

But, if we step back and look at the bigger picture\u2026 if we avoid the temptation to profit on every short-term move\u2026 then we can ignore the \u201cnuts\u201d moves. We can stick to our strategy and hopefully profit if\/when we\u2019re proven right on the trades.<\/p>\n

For example, when the stock market moved lower earlier this month, I told subscribers the three levels at which I was looking to buy into the S&P 500 \u2013 2650, 2595, and 2535. I used technical analysis to determine those levels well ahead of time. And, as the stock market sold off, I was buying stocks at each of those points.<\/p>\n

It almost killed me to do so.<\/p>\n

Just like almost everyone else, I was shocked when the S&P traded below its 200-day moving average at 2535 two weeks ago. Nobody was looking for that large of a pullback off of the highs. And I was taking on plenty of heat from the long positions I had purchased at 2650 and 2595.<\/p>\n

But here\u2019s the thing\u2026<\/p>\n

When I set those price targets, I did so while the S&P 500 was trading well above those levels. There wasn\u2019t any emotion in my decision. I simply thought, \u201cWouldn\u2019t it be nice if the S&P would pull back to these points and I could use it as a chance to buy stocks.\u201d<\/p>\n

We got the pullback and I bought at those levels (to be completely honest, my assistant bought for me at those levels. I told him how much money to put to work at each level and I said to ignore me if I changed my mind. His job security was based on him following those instructions. He earned a nice bonus based on those trades.)<\/p>\n

Then, as the stock market bounced, I once again used technical analysis to determine the upside levels at which I would look to sell those positions and maybe even establish short trades. Based on previous similar corrections, I figured the S&P 500 could rally to between 2680 and 2730. So, I started taking profits as the market hit those levels. And I told subscribers to add short exposure as the S&P reached 2730.<\/p>\n

In the meantime, there have been all sorts of wild swings back and forth. The market has pushed higher. It has fallen lower. It has done everything possible to shake traders out of their positions.<\/p>\n

But when I set the target for our current short position, I did so based on similar previous conditions. Those conditions suggested that a move above 2754 on the S&P would mean we\u2019re wrong on the trade and we ought to cut our losses at that point. Otherwise we could look for a move back down to retest the closing low on the S&P at about 2581.<\/p>\n

So, no matter what sort of wild swings we see in the stock market, I\u2019m only looking to close our current short trade on a move above 2754 or a move towards 2581. Whatever action we get in the middle of that range is just \u201cnuts.\u201d<\/p>\n

We can\u2019t try to profit on every move the market makes in this environment. That\u2019s just too hard.<\/p>\n

But we can<\/em> set our price targets. We can<\/em> place trades according to where we project prices to be a few days or weeks from now. We can<\/em> pinpoint the levels where we\u2019ll admit we\u2019re wrong and take a loss on the trade. And we can<\/em> identify where we\u2019ll take a profit.<\/p>\n

And we can ignore everything that happens in between.<\/p>\n

That\u2019s really the only way to profit when the market goes nuts.<\/p>\n

Best regards and good trading,<\/p>\n

<\/p>\n

Jeff Clark<\/p>\n

Reader Mailbag<\/strong><\/h2>\n

Today, a question about a good problem to have.<\/p>\n

But first, a few letters of praise\u2026<\/p>\n

Jeff, your thoughts on short-term and intermediate-term trades<\/a> puts things in perspective.\u00a0Well done on your hard work and analysis. Thank you.<\/p>\n

\u2013 K.D.<\/strong><\/p>\n<\/blockquote>\n

 <\/p>\n

Very excited to read your Guide to Technical Analysis<\/a> this weekend. Thank you so much for the effort! A quick skim impresses me with its polished format.\u00a0Reminds me that I probably want to go back and re-watch a couple of your training videos, now that I know more, to fill in any knowledge gaps I don’t realize I have.<\/p>\n

Thanks again for all the education!\u00a0I sleep better, invest better, and trade better because of your service.\u00a0We’re just beginning an exciting year in the markets. I’m now realizing why volatility can be our friend<\/a>.<\/p>\n

\u2013 Tim<\/strong><\/p>\n<\/blockquote>\n

 <\/p>\n

Thanks for your service!<\/p>\n

\u2013 William<\/strong><\/p>\n<\/blockquote>\n

 <\/p>\n