There are no "playbooks" for this morning despite what some may tell you. This type of move occurs once a decade, sometimes twice, and sometimes it skips a decade, so don't buy it. There are no rules, only general guidelines, and even the past is only moderate help. It seems after every big correction or crash if you will, the powers that be implement new rules to prevent a 1929 or 1987 from happening again. Untested rules equate to no playbook.
There's a difference between playbook and guidelines. A playbook in this definition is a set plan based on exactly what you see. Today, we're dealing more with past experience to guide us. There are generalities that should help you survive the day.
Here are my 10 thoughts on surviving the market apocalypse:
- Don't panic. Yes, it is easier said than done, but do what you need to in order to control emotions today. Going "tilt," a situation when you are multiplying your normal trading size or loss tolerance (buying or shorting aggressively) or throwing your process out the window is a recipe for disaster.
- Do not let trades become investments.
- Remember your time frame. This somewhat goes hand-in-hand with the previous note, but if you bought a stock with the idea you would be holding it for a decade, then, before you sell it, re-examine the holding. Has anything changed, other than price, that would have you avoided it at these lower prices? And keep your time frame in mind. Yes, you may avoid it as a trade, but if you bought it as an investment, selling in the whole to buy back at some future time may not be the best play.
- Don't anticipate. Both traders and investors love to catch a bottom. There's nothing sweeter than entering a position and watching it turn green, then never look back, but bottoms are incredibly difficult. Have a process and follow that process. Friday, I presented the intraday strategy I'm using in this environment. It never catches a bottom, and I'm fine with that, because the approach allows me to know where my stop on a trade will be placed. When you are buying at a low, knowing where and when you are wrong on your thesis is much more difficult.
- Avoid "market orders". This will be a fast-moving, volatile market. Do NOT place market orders. I repeat: Do NOT place market orders. Use limit orders.
- If you can be at your desk/in front of your monitor, then consider using alerts rather than stops on trades. As I mention, the market will be fast-moving. It is likely we will have a dislocation of bid-asks near the open and maybe during the day, especially after a halt should one occur. This creates an opportunity for HFTs and Algos to go stop-hunting.
- Find a friend. Whether it be on the phone, through messaging, on social media, or via email, find someone you trust you can talk with this week. Don't celebrate publicly and don't go looking for sympathy on Twitter. Find someone you trust who will celebrate with you or talk you through tough moments.
- Ignore headlines. Headlines are meant to generate clicks. Fear and greed are the best way to accomplish that. Guess which of the two dominate currently?
- Do listen to your gut. If you can't sleep, eat, or calm shaking hands, then something needs to change. Figure it out (this is where that trusted friend or advisor comes into play).
- Protect your capital. Even if this is the bottom, there will be plenty of upside and opportunities in the markets to come. If this isn't the bottom, you'll appreciate having cash to buy names at lower prices.
Stay safe out there today.