Stocks lost over $1 trillion worth of wealth yesterday.
Now, if you read the Jump over the weekend, I laid out this piece of advice for you:
“You see, stocks are reacting to headlines which means you have to be nimble and take your profits fast because sentiment and trend can change quickly.”
On Friday stocks ripped higher on hopes of a trade deal… and on Monday they were crashing because those hopes fell apart.
But here we are today…
A choppy market to say the least.
Last week I told you to keep things small, take profits (and cut losers) fast.
Does that mean I’m going to bed with my portfolio in cash each day?
No. I’m still trading options… but I’m doing something different… and it’s been critical to my success…
My portfolio is balanced.
In other words, I’ve got a mix of longs and shorts which allows me to profit when sentiment is good or bad… No joke.
(Not only do I teach people how to trade options, but I share my alerts and portfolio feed in real-time, if you’d like to start receiving them, click here to get started.)
That said, I’d like to expand on the topic of trading smaller in a volatile market, how to construct a balanced attack, my current thoughts on the S&P 500, and where we might go from here.
The market has been pretty volatile over the past two weeks… and a lot of traders are having a hard time finding a clear direction. Now, if you have a hard time stomaching these volatile moves, it’s a good time to stay on the sidelines. You see, you can choose to be patient and wait until you see your best setups.
Over the years, I’ve learned how to trade more cautiously and roll with the punches, as well as some tricks to make money no matter which way the market goes… and they’re pretty simple to use.
That said, let’s take a look at how I’ve adapted to this volatility and still having 100%+ winners consistently.
Trade Smaller Sizes Than Normal
Now, when volatility is high (the $VIX above 20) and the market is selling off, that lets me know its time to scale back my size. With the market so sensitive to trade war headlines, the last thing I want to do is be heavy in any one of my trades… because all it takes is one headline to hurt me.
Since I’m trading options, if I size my trades too large in relation to my account size… it’s very easy to lose a bulk of the premium (if I’m long options), causing me to lose a chunk of my trading account.
For the most part, I have sized my trades smaller than normal and become more selective with my positions.
Now, that’s a pretty simple trick to use right now… if you can stomach the volatility. For example, if you’re used to allocating 5% of your portfolio to any one trade… consider cutting that in half and allocate 2.5% of your portfolio to minimize any potential losses.
Another trick I like to do is keep a balanced portfolio.
Keep a Balanced Portfolio
You might be wondering, “Jeff, what are you talking about here… what’s a balanced portfolio?”
Basically, I want to have bets in both directions. If the market goes up, I have positions on that should go up… and positions that should go up if the market goes down. In other words, no matter what direction the market goes… my bets are hedged and I can make money in either direction.
Think about it this way… if I just thought the market was going to catch a bounce… and bought the SPDR S&P 500 ETF (SPY) call options on Friday, well I would’ve been in a world of pain when the market opened on Monday.
Here’s what I’m doing in the markets now.
(If you want to stream my portfolio in real time, click here to get started)
Now, check out the snapshot of my portfolio this morning above.
Notice how I have 2 red positions and 3 green positions. When you add up those green positions, it’s a whole lot more than the “losing” positions.
You see, the Pinterest (PINS) and Five Below (FIVE) call options should go up if the market goes up… but since the market has been selling off, those options lost a bit of value. If I was only thinking the market will go up and just had those two positions on… I would’ve been in a world of pain.
However, I hedged my bets since I knew that volatility could accelerate and the market could continue selling off with all these news events.
For example, I bought the iShares 20+ Year Treasury Bond ETF (TLT) call options… and that trade was up 181%. You might be wondering, “Jeff, why did you decide to buy those TLT call options?”
Well, it’s simple. Bonds are considered a safe haven. In other words, when the market sells off, bonds tend to rise because traders start looking for places to park their cash… and bond ETFs are one of the best ways to protect yourself from a falling market.
Not only that, I bought put options in XPO Logistics (XPO)… so when the market falls, it would drag XPO down with it.
(If you want to learn how to profit from crashing stocks, click here to find out more)
Moreover, I bought call options in Kirkland Lake Gold (KL) – a gold mining company. Similar to bonds, gold is another safe haven for traders and investors. When the market sells off… gold prices tend to rise, which benefits gold miners and gold-related stocks or exchange-traded funds ETFs.
Now, I even let Weekly Money Multiplier clients know about this trade ahead of time (April 29).
Now, here’s how that trade turned out.
(Need the alerts to get these results? Click here to get started)
As you can see, maintaining a well-balanced portfolio and trading smaller size than normal could actually benefit your trading account when there’s heightened volatility.
The key here is to look for stocks that go up with the market, and stocks or ETFs that go up when the market goes down.
Let’s take a look at what I’m currently watching in the markets.
Key Level to Watch in SPY
I sent the chart below out to Weekly Money Multiplier clients, letting them know my thoughts on the market.
Yesterday, SPY broke below a key psychological level ($280), only to break back above it. Now, I think this level will be in play, and we have a short-term bottom to trade against above $280.
Here’s a look at the updated chart shortly after the market opened.
I don’t think I’ll be putting on any new trades today… I want to see the market stabilize and see the $VIX drop before I throw on any new trades. Right now, SPY needs to hold yesterday’s low and break out of the hourly range before I get aggressive.
Not only that, I’ll be keeping a close eye on my money pattern (waiting for the blue line to turn up and look to break above the red line) to signal a reversal. Now, if I do enter any new trades, Weekly Money Multiplier clients will be able to see them, and of course, they’ll get alerts about them too.