U.S. stocks are hitting record highs on an almost-daily basis as we close in on the end of the year.
But the whipsawing we've had to endure to reach this point is enough to give you saddle sores.
The Standard & Poor's 500 Index has gained a healthy 11.6% in 2014 through the closing bell on Friday. From Sept. 18 to Oct. 15, however, the bellwether index fell 7.4%. The downturn ended quickly, and stocks reversed course. In the month that followed, through Nov. 14, the S&P 500 surged 9.5%.
On three other occasions this year, the S&P endured sell-offs of 4% or more.
It's been downright dizzying. But for us, a ruckus of a market like this can be a fantastic opportunity.
Today, I want to show you my secret "risk-busting" strategy that's perfect for rough rides such as this. It's just the tool you can use to turn a volatile market to your advantage.
Keep reading, and I'll show you how to harness this strategy out on the range…
Buy Some Fear
This is what's happening out there in the markets. As the markets keep reaching new record highs, investors get nervous and panic sell.
That can leave long-term investors who believe in their stocks shaking their heads in bewilderment.
But one of my favorite trading tools lets us buy other investors' fear in an easy-to-use, systematic way. It's like "Mr. Market" is dropping $100 bills on the sidewalk – with this strategy, we can pick them up.
I call it the Cowboy Split. Simply put, it means making staggered entries.
Here's how it works. You buy less than your usual amount of shares – say, half – of a tech stock you like at market. Then, you put in a "lowball limit order" to buy the rest at a discount – say, 20% or even 25%.
With a lowball limit order – more commonly known as a "buy limit order" – you tell your broker to buy more of the stock at or below that specified price.
If a $100 stock you believe in keeps rising – good news! – your order is never filled. However, if it falls to $80, you pick up more shares at a discount – and make even greater gains when the stock starts moving again.
For individual investors, this is a great way to invest for the long haul while turning the market's volatility to your advantage.
That's why you all should use this strategy on a regular basis.
Now then, let's take the Cowboy Split for a spin.
About the Author
Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.