I expect the S&P 500 index to trade between the recent high and low for a while, several weeks o...
Know Your Time Frame
10/22/2014 6:00 am EST
Bob Lang of ExplosiveOptions.net highlights the importance of knowing your time frame when it comes to trading, especially given the fact that trading markets has become such a challenge as of late.
‘The only thing we have to fear is fear itself’
—Franklin D. Roosevelt, 1933 Presidential Inaugural Address.
If you have a bit of an upset stomach watching the massive ups and downs in this market over the last couple of weeks, well you are not alone. I have been keeping a bottle of Pepto Bismol within reach (only kidding, actually more like three bottles). We can see and feel the anxiety with every market open and it soon becomes a game of chicken to see who can get out the door first. A far cry from the conditions we have been living with for the past few years, but then, when the landscape changes we have to identify and make our move.
Markets move with electrifying speed these days, far more velocity and acceleration than we are used to. Five % drops that years ago would have taken a few months to occur are happening within weeks. The scary nosedives are making us all wonder if this time is the big one and, naturally, we remove ourselves from the situation. The sidelines are not a bad place to be when you are uncomfortable, especially when one can’t sleep well. Especially now when it appears volatility is here to stay.
When volatility is low there is much higher confidence that markets won’t whipsaw but when the boat starts tilting from one side to the next then there is the potential for sea sickness. As the unknown outcome of recent news events expands we are left to wonder if the end is nigh. Of course, those betting on that outcome have always lost but that doesn’t mean some won’t be scared out of their pajamas.
The fear we see each day is created by our own internal uncertainties about the outcome of negative situations such as the Ebola crisis, the ISIS battle we are fighting, Russia/Ukraine or Israel/Hamas conflicts, and the Fed policy (among many other things). None of these have a clear cut positive resolution on the timeline, so if investors believe it is the end, due to one (or a few) of these issues, why should they be left holding the bag? It’s time to cut and run. Markets are still within striking distance of new highs and have tons of room to come down, without even damaging the long-term uptrend!
However, we can look at history as our guide and to the charts to see how uncertain outcomes eventually resolve in markets. Without a doubt, the fear of putting money to work fades every time. But what is your time frame? Are you trading short-term or for the long-term? Volatility creates great investing opportunities in long-term when prices drop because they usually head back up later, history tells us this. In the short-term, the wild movements create some trading chances.
Use the fear and uncertainty to your advantage because these moments are not common but offer some fantastic opportunities to profit. Yet, we always hear some of the best-timed investors/traders make the most money when crowd fear peaks. Is now one of those moments? Which side are you on?
By Bob Lang of ExplosiveOptions.net
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