What You Need When the Market Turns Volatile

Volatile Market - Stock Market Bargains

The Aussie market took a whack yesterday. We haven’t seen a day like that for a while.

There were some big drops in some stocks. For example, Afterpay fell 8%.

Let me tell you now about a quote I read 10 years ago.

It has always stuck with me.

It shows you how to cope when the market turns volatile…

Jim Rogers: A multimillionaire at 37…

I have a confession to make at this point. I don’t remember which book I read this line in.

I think it was from Jack Schwager’s original Market Wizards book. But I can’t find my copy anymore to check.

He was interviewing Jim Rogers.

I’ve mentioned Jim many times in Profit Watch. He turned himself into a multimillionaire by age 37 (working with George Soros probably helped a lot).

At one point in the interview with Schwager, Jim said a line that still sticks with me today. I’ll have to paraphrase because I don’t have the book on hand.

Jim said most people worried about their positions in the market but not him. He ‘hit the pillow asleep’.

That’s because he did so much research he knew exactly what he was in for.

Now, I’m no Jim Rogers. No one is!

But that sentiment has always struck a deep chord with me. Experience rammed it home.

Early on I found I couldn’t hold positions when I hadn’t done my homework. I was a ‘weak hand’.

It makes perfect sense too. If you have your money at risk and don’t know why you’re holding something, then the market is highly likely to expose you.

You might get lucky once or twice. Rarely more than that.

I currently have eight trades on for my service, Catalyst Trader. One is down as I write this morning.

Was I worried yesterday? No.

You have to expect the occasional volatile and down day. It goes with the territory.

But I have done my homework on these too. I know exactly why we’re trading them and what is an acceptable risk level relative to their potential.

One of them even bucked the wider market and rose 10% yesterday.

Am I saying all my trades are awesome and nothing can go wrong and I never take loss?

No way.

All I can say is that over the years I’ve learnt one of the key things in the stock market is conviction.

This is the inner steel you need to buy or hold when the market turns volatile.

Occasionally you will be wrong. That goes with the territory too.

But I believe it keeps you out of poor trades where your positioning and mindset are weak and potentially ripe for the market to take your money.

Let me relate this in a more personal way…

A bull market is coming! Are you sure…?

There’s an idea going around that uranium could be the next hot sector.

There are rumblings about its big bear market leading to a huge deficit of uranium supply.

It’s essential for power utilities. It had an epic run in the years into 2007.

Already some of the explorers and developers on the ASX are catching a bid. They’re likely to attract momentum traders and speculators.

All this may be true (drop me a line at letters@profitwatch.com.au if you think so).

But I haven’t done any research on this sector and have no conviction. Therefore I haven’t taken any uranium trades.

That’s not to say I won’t in the future.

But I don’t want to find myself or my subscribers holding some piddly uranium explorer on some vague market notion with no more substance than those billowy clouds nuclear plants spew out.

That’s how days like yesterday can take your money.

Perhaps that speccy little stock you bought on the fly turns very red.

Do you cut your loss or hold? What if it keeps going down? Do you know if it’s likely to get buying support?

Trading throws up a lot of questions.

My approach is very simple. I look for asymmetric trades with a lot of upside, but risk as low as I can get it.

For example, gold stocks were roaring back in late July and early August as gold topped US$2,000.

I get the gold bull argument. I’ve taken gold trades along the way.

But in that moment the risk wasn’t worth it. I told my subscribers so. The outlook for gold was baked into prices at that point.

That was a good decision. Gold stocks retreated. They’ve steadied for the moment.

That gives us the opportunity to get access to the gold bull run at lower prices — with more potential upside.

If you’re keen to learn more how I go about navigating the market, sign up to my free event here.

I think you’ll find it very useful — and get a high potential trade to takeaway.

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch