What a crazy three weeks it has been. Markets have shed closed to 30% as I write this. There is absolute mayhem in the world markets, future looks bleak. While this craziness unfolds, here are a few things that I recommend based on my experience with 2008 crash.
I am also writing this post for all those who have lost or are loosing considerable parts of their trading capital in these markets, either through trading or in their investing portfolios.
If you don’t know what’s happening stay off the tracks - In other words if you have not seen this kind of volatility and you don’t have systems and rules to structure your trade based on such volatility numbers, stay away. Always better to be flat than be in red. None of the systems designed for usual volatility regimes would work. We are in a totally different regime now, VIX at 62 is something totally different, I cannot emphasize this enough. I have friends and people who have written to me after having lost more than 60 to 70% of their trading capital.
If you are not well capitalized and trading as a novice these markets are not for you - Let me help you understand what is well capitalized. I personally do not recommend that you trade with any capital that is greater than 20% of your liquid net worth. Trading as a novice means, you do not have any back + forward tested systems, you are either trading on your hunch or on someone else’s hunch, which can be lethal.
Stay clear of Snake-oil vendors who promise 1% per day type returns or promise that they would help you recover your losses - They are leeches meant to suck blood out of people, that’s their business model. Please stay away from such promises. If you want to use their services just for fun please do, but do not put your money at risk.
If you have long term investments, either hedge them or move out - We are in all probability at the onset of a recession or a depression. Hopefully it stays within the median duration of a recession which is somewhere around 7 to 8 months. So there will be plenty of time for you to invest your capital. But holding on to your investments through a recession is a risky proposition. Unless you have surplus funds to deploy later.
Use the time to observe & learn and may be move on - There is absolutely nothing wrong is getting off the “trading mill” and re look at your approach to trading, your systems, and all that. May be time to leave trading all together and look at some new area. This may not be for you. Which is okay. You will have plenty of opportunities to invest and earn, if not trade.
Are there trading strategies that work in these environments? - Yes, there are but you cannot learn them overnight and deploy them the next day and recover all that you have lost. In other words, stay calm, learn slowly, trade very small, not to recover but to learn what works and what doesn’t
Lastly nothing is worth loosing you peace over - So don’t leverage, don’t take un-hedged overnight positions, the gaps in such volatile times can literally take you off trading for the rest of your life. As they say, its better to panic more than to panic less and lose it all.