“What do I do, Jess?” It was my mom, calling me in a panic.
She’s a 30-year veteran of IBM’s project management team, so she’s not prone to panic. (The amount of projects and deals IBM is making at any given time is stupefying.)
When life throws something unexpected her way, she just rolls her eyes and cracks out her backup plans — from Plan A all the way to Plan Z.
But the market makes her wary, and with good reason. She’s not a trader. In fact, she has a habit of getting out at bottoms and entering near tops. I kind of want to name an indicator after her.
So, understandably, the markets’ recent moves have her worried about her savings.
As you likely know, the markets have been incredibly volatile this year, seeing enormous swings practically every day. As of last month, the S&P 500 had tripled the number of 1% moves seen in all of 2017.
Meanwhile, the Dow Jones Industrial Average saw 29 moves of at least 1% — the most of any year (through April) since 2009.
It’s enough whipsawing to make anyone duck and cover their money.
So what’s the reason? Anything from solid economic data and corporate earnings to fears of inflation, trade wars and more.
But no matter the individual reasons, there’s still the big question: What does this mean for the markets ahead? After all, earlier this month the S&P 500 recorded its longest run in correction territory since 2008.
So some are calling for a bear market. Others are convinced the bull run isn’t over.
Either way, one thing is certain: We’re not done with this volatility yet.
So when my mom asked me what to do, I told her something that I want you all to keep in mind, and it’s this…
It’s time to profit from the volatility.
Easier said than done, of course. How exactly do you find a safe way to grow your wealth while the market is bucking like an angry bull trying to unseat a rider?
Well…
3 Ways to Profit From Volatility
The answer is to find a strategy that makes money during these whipsaws.
Here are three to keep in mind:
- Follow stocks that follow the market’s trend: This is for investors who like charts and identifying trends. Volatile markets have a habit of increasing a stock trend as the volatility kicks in. So stocks trending in the direction of the overall market are golden opportunities for quick profits. They afford more chances at profits than they would in quieter markets — although there is more risk.
- Watch for consolidation breakouts: This is called buying the breakout. Simply identify a support and resistance range. If the price breaks out to the upside, it’s time to buy in. In normal markets, without high volatility, breakout stocks can lose momentum and even fall back. But rapid-moving price periods mean investors get exuberant during breakouts, so there’s more of a chance to ride the wave. Just be careful of false breakouts, which can reverse quickly. I suggest using a stop-loss strategy with this one.
- Grab a short-term strategy: This simply means closing trades earlier than normal. No buy-and-hold strategy here. Just set a tight price target, and sell part of your position when it’s hit. Hold the rest for a chance at further profits. As for when to sell, use an overbought/oversold indicator such as the Relative Strength Index, then sell when it signals the stock is overbought. Also use a tighter stop — or trailing stop — than normal.
Now, for those who want a specific system to follow, I suggest the Pure Income strategy. It’s one I’ve been following for about five years — and it thrives during periods of market volatility.
The system delivered:
- $1,040 on December 20…
- $3,640 on December 13…
- $2,720 on December 6…
- $3,700 on November 8…
- $1,700 on November 1…
That’s five different trades totaling $12,800 in just two months. And as the market gets more volatile, more of those opportunities pop up in the system. Near the end of April, the system had collected steady cumulative returns of more than 200% in 2018.
To read more about this strategy, just click here.
Hopefully my mom is reading this column today as well. But if she isn’t, I think I’ll forward it to her. Ultimately, these are the types of strategies that will keep you calm while other traders panic.
Catch you next week.
Regards,
Jessica Cohn-Kleinberg
Managing Editor, Banyan Hill Publishing
P.S. If you want the chance to diversify your investing strategy and make gains off of volatility, to the tune of $4,000 per month — and a FREE laptop — click here to learn more about a unique trading system!