Playing With Fire....Errr, Volatility

Hey Gang:

Don't know about you, but my head has been on a swivel as a trader (not a long-term investor) with the CRAZY market swings as of late. What looks to have been solid entry points on good trending stocks with good fundamentals has been as exercise in futility. So how can you defend yourself during such volatile times? Here are some suggestions from one of my INVESTools coaches:

1. Stay in cash until the market settles and SOME direction is established
2. Enter in positions HALF the size as normal, and make the Stop-Loss trigger TWICE as big to give yourself some good wiggle room on wild swings
3. For existing trades, leave the Stop-Loss triggers where you originally set them, DO NOT make them lower!
4. For existing trades, look to take profits at resistance levels
5. Finally, don't be real anxious to play downside breakouts for bearish trades. While many stocks are making "lower lows" it is too soon to say that we have actually started down-trending UNTIL we start testing old support levels as new resistance. Wait for the Lower Low AND the Lower High (and if you want to be really conservative wait for a subsequent lower low.)
6. Spread strategies can be used during these times as well.

That's it. Keep your powder dry and while this market keeps falling (12,600 on the Dow would be a 10% Correction from 14,000), there could be some EXCELLENT buying opportunities on the horizon.

Until next time, Happy Trading!