You need to have a plan in place BEFORE the correction occurs. Let the amateurs do all the rubber-necking while you confidently wait for the scenario to play out as you anticipated. Once the HFTs pile in, you’ll be in the right place at the right time.
Learn From the Mistakes I Made Early in My Career
However you decide to position yourself, have your exit strategy planned out as well. If you read my book, you know that I mishandled exiting the monster INTC Call position that I had. I still made great gains, but it could have been several MULTIPLES more.
Have a Contingency Trading Plan for Multiple Outcomes
When a correction hits, it catches most people by surprise. This is a negative Black Swan. You, however, can be prepared by writing out several potential scenarios when it hits by using history as a guide.
All you have to do then is execute. Mozart’s compositions are said to be flawlessly written with no mistakes. He simply transcribed the music that was already written in his head. You can do the same with your trading.
1. What will you do if the S&P 500 opens Limit Down?
2. What will you do if Limits are expanded and you see further substantial weakness?
3. How will you protect your capital in the other positions in your portfolio (from Floor Creep, for example)?
4. What is your low-risk method to trade a snap-back upswing?
If you watch the video, you need to come up with a macro plan first. Once you do, the technical part of entering the trade is easy.
Here is some recent feedback from the market from widely followed money managers that has come out since the video was recorded.
Marc Faber: We are in a massive speculative bubble
Howard Marks: Heed this Omen: The risks of 2007 are back
Please consider sending this to anyone who you think will benefit from it.
Students of my Trader Coaching and Mentoring program are busy watching the follow up video on how to put on the trades.