- Posted by Joe Fahmy on February 11th, 2016 at 12:47 pm
1) Protect Capital – The best traders all preach defense first. I moved my clients to a large cash position at the beginning of the year and will keep it that way until market conditions improve. Raising cash isn’t for everyone, but I also don’t believe in being 100% invested at all times.
2) Keep positions light – If you normally buy 1,000 shares, there is nothing wrong with buying 100 or 200 shares. One reason is that it allows you to scale into some stocks you might like longer-term. Another reason is that smaller positions help you deal with higher volatility. That way, you don’t get stopped out of everything during wide market swings.
3) Keep a watch list – When we start a new uptrend, it is important to be ready to pounce on the strongest stocks out there. For example, after the March 2009 bottom, GMCR and NFLX were two of the first stocks to emerge to new highs, and they went on to become huge winners.
4) Protect your confidence – Don’t underestimate the importance of keeping a strong mind during these downtrends. I used to get discouraged and think we’ll never see an uptrend again. Now, I am highly encouraged because I know with 100% certainty we will see a brand new uptrend when this correction ends. The key is to protect your confidence so you are ready to take advantage of it!
5) Learn Patience – The technical damage so far this year is extreme and needs time to repair. How long? Nobody knows. It could be a few weeks, a few months, or even longer. Either way, all the major indexes are below their 200-day moving averages. My experience tells me that when bad news happens AND we are below this level, the bad news tends to exaggerate moves to the downside.
I realize there are other strategies to use during market corrections, but as I always say: DO WHAT WORKS FOR YOU. Have a sound strategy and know your timeframe. For me, I am finding no stocks that fit my strict investment criteria and I will continue to keep my clients on the sidelines until conditions improve. A strong new uptrend is coming in the future, just stay patient and disciplined and save your money for it! Good luck!
I can be reached at: firstname.lastname@example.org
- Posted by Joe Fahmy on February 8th, 2016 at 5:05 pm
For the past month, I’ve been writing on this blog how I moved my clients to 90-100% cash at the beginning of the year. The number one email question I’ve received is: “When do you get back in?” Before I answer the question, there are a few points I would like to make:
1) This blog is not investment advice. Please don’t follow anyone blindly (including myself). You should know your timeframe, risk tolerance, investment style, and have some financial objectives. If you don’t have a plan, I suggest you get one!
2) My concern is not when to get back in. My concern is to avoid further potential downside. I’m not thinking about offense, I’m thinking about defense. I have studied the best traders in the world and they all preach defense and cutting your losses.
3) I have no problem making decisions. I’m not worried that I’ll sit out for an extended period of time and miss the next rally. When market conditions improve, I am confident that I will identify the best fundamentally and technically sound stocks, and trade them as effectively as possible.
Now to answer the question. What I need to see is the major indexes get back above their 50-day moving averages, accumulation in the form of institutional buying, and sentiment to turn extremely bearish. Finally, and most importantly, we need to see strong fundamental companies with solid earnings and sales growth build sound technical bases.
For all this to happen, it will take some time. The truly patient and disciplined traders will be rewarded when this correction is over, but people who force trades will continue to get frustrated and hurt their confidence. In the meantime, I suggest keeping your positions light as I continue to expect more volatility. Again, know your timeframe, stick to your investment plan, and stay defensive until conditions improve.
I can be reached at: email@example.com
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Joseph Fahmy is the managing director at Zor Capital, LLC, a New York based investment management firm. Joe has over 17 years of trading experience...More »