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No matter how tempting it might be to try and jump on stocks in the news, the truth is, trading the headlines won't get you very far.
Frankly, it can even put you behind - I'll share a horror story in a minute.
I understand how tough it can be. How often do you find yourself watching the news and all of a sudden, you see some story on a stock you own? Whether it's good news or an "uh-oh" moment, you get the urge to pop online and check your positions.
If you resist the temptation, good - that's the right move, and I'll show you why in a second. Otherwise, you might run in and make a buy or sell decision... in a rush, in an emotional state. That never really ends well.
Turns out the smart thing to do is actually pretty simple...
Don't Lose Sight of the Big Picture; Do Turn Off the TV
Even in the short-term, news can end up having less of an impact than you might think.
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For one thing, there's the whole "buy the rumor, sell the news" thing. That almost always crops up around earnings season. Folks bid up a stock ahead of earnings, earnings hit, and they sell - even on a positive report and the stock drops. I don't even want to think about how many people run screaming from a good thing that way. If you're smart - unemotional - you'll use that as an opportunity to buy more.
Remember last year, when some bad guys used some drones to blow a huge hole in Saudi Arabia's oil mega-infrastructure? The price of crude oil hit the stratosphere and investors hit the roof. I think Brent crude went up 20% in a matter of minutes. Everywhere you looked "experts" were saying it as a "knockdown blow" to global oil markets that would last "weeks."
The Saudis had that thing up and running in two days! Investors panicked for basically no good reason, because things seemed bad. A lot of traders had to scramble to unwind trades that looked like stone-cold winners on Monday, but had been smoked by Wednesday morning. Some of these headline-traders lost millions.
And of course there's the 2020 election - an event that's literally tailor-made to provoke an emotional response. I know: It feels like it's never going to end, but we've got less than a week to go. Less than 10,080 minutes, but for pretty much every single one of those minutes, we're going to be bombarded with news, ads, opinions... This guy will be great for the market, this guy will kill the market. This guy will be great for that sector, that guy will be great for this sector... yadda, yadda, yadda.
Well, as it turns out, presidents from both parties are usually pretty good for most investors - and even better for traders who used leverage to boost the gains by multiples. Below are some ballpark gains on the S&P 500, with presidential terms running from start to finish, but you've got four Republicans and two Democrats here over a span of 40 years...
Ronald Reagan... 118% in gains;
George H.W. Bush... 51% in gains;
Bill Clinton... 210% in gains;
George W. Bush... a 40% loss - chalk it up to the dot-com crash, the Sept. 11 attacks, and the financial crisis. He's an outlier here, along with Richard Nixon and Jimmy Carter, who also presided over tough markets.
Barack Obama... 182% in gains;
Donald Trump... 47% in gains;
Looking at even more stocks, even further back, you've got...
Calvin Coolidge... 230% in gains;
Gerald R. Ford... 40.6% in gains;
You get the idea.
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When you look at it that way, at the bottom line, there's a whole lot less to worry about - at least for your portfolio - than the relentless ads might have you believe. That should make it easy to stick to the plan and remember what really matters in the market: price action and price momentum.
But people will nevertheless be spooked, and they will generate big swings we can capitalize on - particularly my 1450 Club and Project 303 Members. Not only that, but big institutional players, backed by trillions of dollars, will also be making moves.
And that's critical...
Here's "the Plan" for Trading This Market
It sounds almost ridiculously simple, but if you know volatility's on the way, well, then you know it's on the way. You expect the unexpected. You're already ahead of the game. You're ready.
And you're armed with the knowledge that, virtually no matter what happens in the short term, the bulls will likely come back no matter who wins or how crazy the election gets. You can, in a way, predict the future, which, I'll tell you right now, is a luxury a trader who jumps at every headline doesn't have.
Maybe if everyone read this, they'd chill out, and the markets wouldn't be so volatile, but then again, we wouldn't make any money, either.
Right now, the Chicago Board Options Exchange (CBOE) Volatility Index is almost at 40. It will probably move above 40, which tells you right away, the next month or so is probably going to be wild, and a lot of that movement will probably be to the downside. Put some hedges on your long-term holdings.
You could buy puts on the SPDR S&P 500 ETF (NYSEArca: SPY) that will pay off the further the S&P 500 sinks; other optionable exchange-traded funds are the SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) and the Invesco QQQ Trust Series 1 (NASDAQ: QQQ) that tracks the NASDAQ 100. You can buy puts on every single one of these, and the more stocks go down, the more profits you make - often lots more.
Taking sensibly-sized long positions in leveraged ETFs can put serious money in your pocket, provided you watch the position like a hawk, prepared to sell when the trend reverses.
One "secret weapon" I like to use is a little something called the "zero-cost collar." It's perfect for protecting your long buy-and-hold positions - stocks you've already made good profits on and want to hang onto for a while. You won't necessarily make a killing on it, but you can make some money and, just as importantly, protect what you do have.
To pull this strategy off, you sell an out-of-the-money (OTM) covered call on a stock you own, while you buy an OTM protective put on the same stock. Make sure everything has the same expiration date. The premium you pull in on one leg will offset the premium you pay for the other.
I'm not typically a buy-and-hold kind of guy, but profit's profit, and it's tough to go wrong buying quality stocks you like or are interested in on the way down, particularly when they fall through key support levels. I've recently recommended International Business Machines Corp. (NYSE: IBM) and Procter & Gamble Co. (NYSE: PG), for instance.
There are a few other strategies in my trading plan I can't really talk about - it wouldn't be fair to my paid subscribers - but you can always go right here to learn some more about how to get them. They've helped give my Project 303 Members, for instance, a shot at 32 double- and triple-digit winners, including 209% on DELL and 118% on STM.
At the end of the day, the smart plan is to trade for short-term bearish action with some or all of these strategies, while keeping your eyes peeled for the bulls to come back. The traders who keep that in mind are going to be just fine - and probably very deep in the black.
In the meantime, you could recession-proof your portfolio with this system...
You see, a lot of investors watched their hard-earned money evaporate during the 2008 Financial Crisis and Great Recession.
But I was collecting thousands per week by developing the ultimate indicator. I was able to use it to identify the moves all the big players were quietly making, which helped put me "in the know" weeks before others caught on.
About the Author
Andrew Keene is a globally known trader and a renowned expert on all things options.