The noise in the market can be jarring.
Last Friday, President Trump tweeted that he and the first lady had tested positive for the coronavirus.
The uncertainty from that tweet spiraled like a game of telephone. We don’t know the severity of the situation, how many people around him may have it, if it will hamper his reelection efforts or if it will bring up more talks about any stimulus.
That’s the truth: We don’t know.
Yet, with every news article and tweet that followed, the news became more and more dire. Pundits are talking about what to do if he can’t operate as the president or, God forbid, passes away … neither of which was ever a likely outcome.
This helped create panic in the market.
As soon as the bell rang Friday morning, the major indexes were down over 1%. Were you one of the ones panicking?
Here’s a simple trick to avoid market noise and never panic…
Stick to Your Strategy
All you need is to understand your investment approach. Whether it’s a trading strategy or buy and hold, you have to stick with it.
If you are a buy and hold-er, then I have great news — you do nothing.
You sit on your hands. Because you have already done the research into the companies you’ve bought, and nothing about the president having the coronavirus impacts the operations of your stocks. In fact, this may be a time to look at expanding your positions.
The market generally climbs higher over any large period of time. Take a look at a chart of the last 10 years for the S&P 500 Index:
It has tripled over that time frame.
But if you are a trader, then short-term moves like a 1% drop in the markets can have a huge impact on your returns.
You can see how the market has essentially gone nowhere, but also moved all over the place so far in 2020:
That’s the challenge we face when we are looking for double-digit and triple-digit moves in a matter of months, not years or in a lifetime. All this noise in the markets that many investors can simply ignore — because they are in it for the long haul — does impact your trades.
If traders panic on wild swings like this, it can be devastating.
That’s why the No. 1 way to avoid getting sucked into this game, whether you buy and hold or trade the market, is to stick to your strategy.
The No. 1 Strategy in Uncertainty
Last Friday, I knew exactly what I wanted to do. My strategy was very straightforward.
But it had nothing to do with the news in the markets. The news is just noise.
Instead, I follow proven patterns and trends where the market is vulnerable. There are times when the market is flat-out wrong about something and we can come in and capitalize on the mispricing that occurs.
The one I took advantage of last Friday was oil prices.
Oil prices fell after the news that the president had the virus. But on my radar, I was watching a bearish seasonal trend for oil prices that began in early October.
When prices dropped on Friday, it happened to be our cue to jump in and profit from oil prices falling even further.
This trend is still early, so there’s plenty of time to get in and have a chance at a quick double-digit gain in the coming weeks.
But I want you to understand my full strategy first.
That’s why I put together this interview to explain all about seasonal trends and how I use them to stack profits.
Chad Shoop, CMT
Editor, Automatic Profits Alert