My Top 8 Trading Tips for Volatile Markets
Is volatility rocking your trading game, or does it make you excited?
More importantly, how can you put it to your advantage?
Being able to to navigate volatile markets is a crucial skill for any penny stock trader.
High volatility is associated with uncertainty and risk. And when it’s high, there’s potential for big price swings. I embrace high volatility for the stocks I trade.
And more importantly… I can teach you to do the same.
Here are my top 8 tips for how you can make volatility work for you.
1. Identify the Reason for the Market Volatility
When you see an increase in market volatility, it’s a good idea to try to understand the reason.
The cool thing is that, as with individual stocks, it’s usually something you can identify.
For example: News can drive volatility.
Think big world news events. Over in the UK, the Financial Times Stock Exchange (FTSE) went through a period of high volatility when the Brexit deal was announced.
Other times, the reason might not seem so obvious …
It might be the storm following a long period of calm or steady movement in one direction. If you look at a VIX chart for the second half of 2018, you’ll see a massive spike in volatility in October — right after a long period of relative calm.
Some traders call the calm period a listless or stagnant market. Eventually, volatility becomes necessary to get things moving again.
2. Acknowledge That the Market Has Shifted
Sometimes we all need a little wake-up call. Markets change — and when they do, you have to change with them.
Otherwise you can get pummeled.
One of my first big trading lessons happened in the spring of 2000, when the easy money of the dot-com boom came to a screeching halt.
The Nasdaq tumbled along with all those cash-eating, no-revenue companies. Suddenly, the patterns I used to go from a small account to well over six figures were not available.
Volatility was through the roof at the time, as panic followed panic.
It was enough to put a little fear in me, so I sat on the sidelines for a while and watched things unfold.
I’ve always been conservative that way.
I wasn’t aware at the time how good my instinct was. I was itching to trade — and it forced me to start looking for new plays.
3. Evaluate Other Potential Opportunities
When things seem out of control, take a step back and look at the big picture. Then start looking for other opportunities.
It’s the classic ‘one door closes and another opens’ scenario. The stock market can imitate life in that respect.
Back when I was forced to look for new plays, I discovered short-selling.
Now it’s one of my favorite strategies.
In case you don’t know, short-selling means you borrow shares to sell and then buy shares at a lower price to pay back those you borrowed.
In other words, it’s a bet for the stock price going down.
4. Refocus on Your Education
When things get a little rough — and I know the market behaves erratically at times — the best thing to do is take a step back and dig into your education again.
Trading is a lifelong skill. It takes time and massive effort to master. Once you’ve been through a few up and down markets and high-volatility periods, you’ll have a better idea how to respond.
For now, understand that you should be studying all the time.
When in doubt, say during a high volatility period, study more.
Consider it your chance to witness firsthand what kinds of price swings can happen.
I’d also recommend paper trading during this time. Prepare yourself for next time — because high-volatility markets seem to come and go.
5. Look at Who Is Making Money
I think this is a very underrated and overlooked concept.
What would you do if you wanted to be really good at something? Would you go hang out with someone who was bad at it? Would you listen to the advice of someone who sucked?
Unless you want to fail — No. You wouldn’t.
You’d seek out the best.
You’d figure out what they did to get where they are.
Trading is the same. Find the traders making money.
Figure out where they hang out online, and hang out there. Pay attention to what they’re doing. Ask them questions.
Learn the mechanics of how they’re trading.
Find traders that are totally up front about both wins and losses. That’s something you should take advantage of.
There are a lot of so-called guru traders who are full of crap and don’t share all their trades with you.
Model success. It’s the fastest way to get there yourself!
6. Remember: Panic Is Not a Strategy
I’ll go one step further with this one and say — Some traders panic. Don’t be like them.
As you get better, you’ll start to recognize this more and more.
Go one step further: Have a strategy in place for when others do panic.
Understanding this can make the difference between the 90% who lose and the 10% who win.
The easiest way to avoid panic is by having a plan in place.
Then, practice the plan. Go over it mentally several times.
Paper trade your plan until it’s second nature.
Then, when you trade the plan with real money, you’ll know exactly what to do when things go wrong (it happens to every trader at some time).
Heck, I only win 74% of the time. I know very profitable traders who only win a little over 50% of the time. The key: They don’t panic. They trade their plan.
So make a plan and stick to it. If things go wrong, cut your losses quickly and learn from the trade.
7. Consult With Your Mentor
This is huge.
Trading can be a very lonely profession. When the market seems to be going mad and you’re trying to figure out what to do, your mentor can be an excellent sounding board.
Too many traders lock themselves away researching, watching stocks, watching the markets.
The benefit of networking with other traders — especially your mentor — can’t be over emphasized. If your mentor has been around a while (I have 20 years in the trenches and 10 years teaching) they’ve probably been through periods of high volatility.
Take advantage of this knowledge.
To be perfectly clear: I’ve “been there and done that” in almost every type of market. It’s one of the reasons I decided to start teaching.
My goal is to help traders go from newbie to self-sufficient trader in the shortest time possible.
You gotta study your ass off to do it. But, oh yeah, it’s worth it.
8. Don’t Give Up
I have story after story of students who wanted to quit at one time or another but stuck it out.
Now they’re crushing it.
It’s all about gaining experience and learning from mistakes. And never giving up.
Do you know how many people quit just when they’re so close to putting it all together? Ever known someone to do this?
I like to use the example of a baby learning to walk to explain it.
Imagine what the world would be like if parents said to their toddler, after the 50th time they fall, “Better give up. You’ll never walk.”
That would be absolute bullshit, right? So why do so many adults give up?
After spending so much time preparing, they give up when they experience failure. What a waste!
The best traders learn from their failures. For that matter, the best in almost any field seem to be those who experienced a lot of failure but didn’t give up.
Do you know Thomas Edison’s story?
It’s said that Edison failed 1,000 times in his attempt to create a light bulb. When a reporter asked him what it was like to fail that many times, his reply was simple: “I did not fail 1,000 times. The light bulb is an invention with 1,000 steps.”
Remember that as you work to become a successful, self-sufficient trader. Don’t let the market volatility get to you.
The Bottom Line
Market volatility can be the penny stock day trader’s friend.
Now that you’ve read this primer, it’s time for you to go do some research.
Learn as much as you can about volatility and how it applies to trading. See how it fits with the chart patterns you’re studying.
And if you aren’t already paper trading, start now. Use what you’ve learned here to learn more.
Editor, Penny Stock Millionaires