Well, there’s blood in the streets and it’s flowing freely — it’s the worst selloff since the Financial Crisis of 2008. Right now, I think it’s a great time to observe the market and learn… and it’s okay to be on the sidelines right now.
Remember, we want to be around for a long time, not necessarily for a fun time. Today, I want to talk to you about the mindset for navigating bloodbaths.
If you’re wondering, “Taylor, why don’t you just follow the trend and place bearish trades at these levels?”
Well, we are still in a bull market, and until that’s proven wrong, I’ll remain patient…
If you’re also wondering, “Taylor, why don’t you just buy the dip at these levels?”
We still don’t know exactly what’s going on with the whole coronavirus… and to just buy stocks randomly would just be gambling.
Instead of providing you with potential plays, I want to show you how you can think like a trader in this environment and try to be a guiding light amidst this market selloff.
The first step to navigating market selloffs it to remove any notion you have about trading that’s associated with gambling. You see, trading is not about bets, wins and losses, rolling the dice, doubling down, etc.
I think of it as income… it’s the way I provide for my family and buy the things I want in life… like my new Lamborghini.
At the end of the day, everything in your trading account is your money. When you’re up in a trade and it’s still open… that’s still your money. It’s not the market’s money.
When you start to think of trading as a form of income and are able to adapt to that school of thought, you’ll quickly realize how simple trading becomes… and your profits (income) could start to skyrocket.
At least, that’s what happened to me… and sometimes, it’s just as easy as staying on the sidelines when the market sells off.
It’s very easy to get caught up in the emotions and deviate from your plans. For example, examining crazy technical indicators doesn’t fit into my trading style. Now, I’m not knocking you, if you use it… but now’s not the time to make excuses if a trade goes against you.
Especially over the past few trading sessions… you’ve probably heard traders say, “I’m getting into this trade because the 20-day simple moving average (SMA) is a support level and the stock bounced off of it… I think it’s going up.”
Only to see the stock break below that… and for them to say, “Well, I could place my stop at the 50-day moving average, that’s the next support level.”
Then, the stock breaks below that level… and they continue to make excuses and use technical indicators as the reasoning behind why they are stuck in a losing position and giving up their income.
They continue to make excuses when the market breaks key levels.
Right now, if you really want to develop the mindset for navigating the markets amidst this market selloff is to look for key levels and have a trading plan in place.
No matter what strategy you use, make sure you have:
- A thesis. The reason you’re getting into the trade.
- Buy, stop-loss, and target areas. Execution is one of the most important factors of trading, and you should know what prices you want to get in, sell in case things go against you, and take profits.
- A watchlist in place. I definitely don’t want to randomly buy stocks or options in this environment, so I find having a basket of names to watch helps.
It’s really that simple… those actionable ideas could directly impact your trading during this selloff, and any market environment for that matter.