How to Trade Volatile Markets
The fear and uncertainty of the COVID-19 pandemic have thrown the markets out of whack… to say the least.
Investing and trading in this environment is tricky. Wild swings up and down make it hard to plan your entry and exit points.
Good news is as a tech investor you already have a lot of the tools you need to trade in a volatile market environment. The same trading rules you would use to invest in highflying tech stocks can be used here.
Today I want to go over some tips to trading in our current market environment.
For the chance at the biggest gains, you must pay close attention to the market and its price action.
With today’s volatility, you should only use “speculation” money to buy stocks.
Never, under any circumstances, buy any stocks with money than you need to pay the mortgage or feed your family.
Risk management and position sizing are very important. So I repeat: You should NEVER trade with money you can’t afford to lose.
Also, you should keep your positions small — no more that 2% of the money you have set aside for trading should be used on any one trade.
2 Musts for Buying Stocks in a Volatile Environment:
- Every time you buy a stock, you should use a limit order. This allows you to set a ceiling on the price you’re willing to pay. If the price goes up quickly, a limit order protects you from paying too much.
- Every time you buy a stock, you should also have a stop-limit strategy in place. That means you know exactly how much you’re willing to lose on a position before you even buy your shares.
Here’s what you need to know for max profits when it’s time to cash out.
Right now stocks are moving fast… up and down.
That’s why you need to have a predetermined sell price figured out ahead of time when you make a buy.
A good rule of thumb for stocks is to take gains until you earn your initial stake back.
Typically, a 100% gain. Then sell half your position and let the house money ride.
In today’s conditions pulling in a 25–50% gain before selling half is advisable if you want to be more defensive.
Bottom line: In today’s market environment it is more important than ever to have a trading plan.
To a bright future,