We Quickly Doubled Our Money on Bad News

To say this market is "sensitive" to Trump and trade headlines is an understatement. The Dow lurched 231 points lower in just 10 minutes last Friday on news that a Chinese trade delegation wouldn't be coming to meetings in Montana after all.

This past week, stocks were directly tethered, for better and worse, to news of the president's fortunes and the ups and downs of U.S.-China trade.

Trading in an extremely headline-sensitive market requires a special mindset, even if, as it happens, the news doesn't really matter in the long run.

Some of my subscribers got the chance to make more than 120% gains in a single trading day managing headline volatility. It's surprisingly easy to do - and, of course, it's fast...[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]

Small Headlines, Big Profits

In the early afternoon of Friday, Sept. 20, Montana's Farm Bureau reported that China's agricultural trade delegation would not be visiting Montana as previously planned. Instead, the officials were heading home.

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As you can see on this chart of the Dow Jones Industrial Index, this instantly took the wind out of the market:

All in all, after previously being up on the day, the Dow Jones closed 167 points below where it opened that day.

Now, the Chinese delegation's planned visit to Montana was always symbolic; in the grand scheme of things, it was never going to change much for the U.S. economy.

But just because the trade troubles have been kicked down the road a bit - trade talks between the U.S. and China are slowly underway in D.C. - doesn't mean they're not at the top of most traders' minds.

Under this market narrative, any bit of news about trade, however minor, will send the markets into overdrive.

That means it's more important than ever that every one of our trades is made with the right risk-to-reward ratio. As you might know if you're a subscriber or if you've been with us for a while, I look for the trades that have the probability to move the fastest. I never chase trades, and I always recommend using proper risk management before setting up a trade. That means knowing your own risk tolerances, keeping sensible position sizing, and having a get-in/get-out price in mind before you risk a cent of capital.

Let me give you an example that proved very profitable to my premium subscribers...

China Volatility Delivers a Big Profit in Just One Day

Last Thursday, Sept. 19, I sent an email to premium subscribers in which I recommended that they buy calls on Eaton Corp. Plc. (NYSE: ETN), a power management and parts company with operational headquarters in Beachwood, Ohio, as well as calls on SBA Communications Corp. (NASDAQ: SBAC), a wireless tower and technology provider operating in North, Central, and South America.

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I intentionally targeted two companies with strong potential to move fast, but otherwise with very little in common. With its focus on power and vehicle parts, Eaton was highly sensitive to trade, especially with China. SBA, on the other hand, focuses only on the Americas and on wireless service, an industry that will continue to grow regardless of what happens with China.

I instructed readers how to automatically close the trades if they fell by 50% or if they doubled in value. That way, the reward was twice as high as the risk.

Here's what happened when the news from Montana hit just after 1 p.m. the next day. The red line represents ETN's share price, and the blue line represents SBAC's:

As you can see in the red circle, the news about the Chinese trade delegation hit Eaton about as hard as it hit the wider market. That trade quickly dropped to the 50% stop, where we exited it automatically.

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But as the blue line shows, traders quickly went looking for companies unaffected by the trade troubles. Before the day was over, SBAC shares were up strongly, giving subscribers the chance to cash in over a 100% profit in just one day!

Had the market had something more positive to react to, the results could well have been reversed. But once we set up proper risk management, profit goals, and a good risk-to-reward ratio, it didn't really matter. We were set up for profits either way.

This kind of approach will continue to be important. The ultimate end to the trade war is a long way away, but Trump's trade tweets or announcements from China will still send the market careening from one extreme to the other.

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About the Author

D.R. Barton, Jr., Technical Trading Specialist for Money Map Press, is a world-renowned authority on technical trading with 25 years of experience. He spent the first part of his career as a chemical engineer with DuPont. During this time, he researched and developed the trading secrets that led to his first successful research service. Thanks to the wealth he was able to create for himself and his followers, D.R. retired early to pursue his passion for investing and showing fellow investors how to build toward financial freedom.

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