Tom Gentile here.
Looking back on the roller coaster of a week we’ve had, I’m reminded of an important lesson…
On Wednesday, the Federal Reserve delivered its latest decision on interest rates.
Immediately following the announcement that the Fed would once again raise interest rates – this time by 25 basis points – the market had a very negative reaction.
But the very next day, following comments from Fed chair Jerome Powell that suggested the worst of the interest rate hikes may be coming to an end soon, the S&P 500 bounced right back to nearly where it had been the day before.
This snapshot of the S&P 500 from Wednesday into Thursday should tell you all you need to know about what a wild week we’ve had…
We’ve already discussed just how much extreme volatility the Federal Reserve can cause in the market
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And with all of the other concerns and issues that have weighed on the market these last few years – COVID-19, supply chain issues, inflation, etc. – I’m sure most of you can relate to having entered a trade only to watch it immediately fall into the red due to something outside of your control.
Worse still, if you attempted to exercise good portfolio management and exit the trade to preserve your capital, you may have watched that trade bounce right back after you bailed on it.
As a rules-based trader, I believe everyone – no matter how aggressive or conservative a trader you are or how large or small and account you have – should have a plan in place to manage their risk.
Many traders use a stop loss on their trades, planning ahead of time to exit a trade when it reaches a set loss amount.
You may be asking yourself, “with the market so incredibly volatile, how do I avoid getting stopped out of a position that may well bounce right back?”
While it’s important to have a set of rules that you adhere to in your trading, every now and again we need to make an adjustment to extreme market conditions.
So today, I have a trade management strategy that I want to share with you for your consideration.
It’s called Cost as Risk – and I’m going to let my friend and colleague Jay Harris explain all of the details in this brief video.
Click here to watch…
To your success,
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