HOW SHOULD YOU TRADE THIS MARKET?
Markets for the past 6 months have been very volatile and good trades have been difficult to find. You may have many trading strategies in your trading toolbox but how do you decide which to use in these current markets? This is difficult, the current market swings as markets have been without a clear direction but as the saying goes “Trade the market you have, not the market you want”.
With 10 year US Bond yield going below 1.6% for the first time in 3 years this is giving us some indication that bias of the market is down as many are running for cover and going into safety. Gold is up 16% year to date, this is another indicator that there is a flight to safety. The S&P 500 volatility index has remained under 30 this indicates an orderly exit from stocks as opposed to panic selling. In addition this is a presidential election year which is another ingredient in the cocktail. It is the end of a two-term president with no clear front-runner. As I read the tealeaves they are telling me that 7-year bull market might have run its course and we are heading into a bear market.
Back to the original question: what strategies do I trade in this market? Short term trades with protection in place. Protecting profits would seem the sensible thing to do at this moment until this market gives us a clear signal as to its direction. One final market saying is “Bulls make money, Bears make money and Pigs get slaughtered”. What does this mean? It means pick a direction and trade it until the market changes course. I have been called a perma bull by some. A perma bull means I’m permanently bullish. But after reviewing what these markets are doing my bullish call has been met with the reality of this market and I must trade accordingly. We will see if this bull is dead or is it just a severe correction after which the bull will resume its run.