Bill Poulos is a retired automotive executive who has spent the last 20 years teaching others his proven methods for smart investing. He is the president and co-founder of Profits Run Inc., a financial publishing company. Profits Run created investing materials, including 20/30 Wealth Trader, Earnings Profit Alert, Automatic Income Engine, Premium Income Alert, and Rapid Income Engine. The company has assisted people in over 150 countries around the world with managing their wealth. Bill gives back to his community of Detroit through his website, www.fightforhope.com. He and his wife have been married for over 50 years. They have 3 sons and 2 grandchildren. Here, Poulos gives advice for investing during the Summer months.
As we move into the summer months, the stock market generally becomes a bit tricky to navigate under “normal” market conditions. When the conditions are less than “normal”, it could become downright scary if we do not know what we are doing. Thankfully, there are things we can do to mitigate the risk that comes with an unusually unpredictable market like we are seeing right now. The unpredictability this summer will continue to swirl around the issues of Covid-19, economic recovery and political news as we approach the upcoming Presidential election.
Regardless of what is causing a market to become unpredictable or less deliberate in how it moves, we need to have a way to combat what it is doing. Here are a couple of suggestions:
- Make sure you are following a set of rules that tell you when to enter and when to exit.
- Determine the amount of money you are willing to lose in each trade you take.
- Understand that sitting on the sidelines may be the best place to be in an unpredictable market.
If you do not have rules to tell you when to buy and sell, you are just taking a chance that the market will be favorable to you. This is not a good plan and traders who do this are less likely to be profitable and consistent in what they are doing. Take some time to consider your entry and exit rules.
Knowing how much you are willing to lose will allow you to know how much you should be buying when placing a trade. This amount should be the percentage you would be OK to lose if the stock hit your stop loss point. If it is more than this amount, you will not be willing to take the loss and the next thing you know, you will be down a significant amount. Only trade the amount you would be willing to lose.
Finally, sitting out of a trade is an OK thing to do. As traders and investors, we want to be only taking trades that meet our setup conditions and our entry rules. We do not just trade to say we are trading. Deliberately identifying the best setups will keep us out of the bad trades we should not be in.
Regardless of how you manage your trading during less deliberate market conditions, you need to have a plan to keep your account protected. Take some time to think about what you can do in your own accounts.
Today we are going to look at the daily chart of the SP-500:
This week we had some strong bearish movements as the concern over the increasing Covid-19 cases caused investors to become scared. In addition, we had information from the Fed that added to the uncertainty. Much of the movements we have seen recently have been very news driven which is likely to continue as we move through the summer months. On Thursday we saw an 1800-point drop on the DOW and an attempt on Friday to move higher, but it did not gain back all that was lost Thursday. In the chart above, notice that the price was able to break back above the 50 SMA last week and moved down this week to sit right on it. We will see if this area will be strong enough to support the drop in price and bounce up next week or if a failure to do so leads to another strong move lower.
Remember, make sure you are keeping your risk of loss at an appropriate level for what you are willing to lose in your account. Have a great week!