YouTube video (19 Jan 2020) by Alberto Costa about how to manage investments when the US stock market is strongly rising. The speaker warns against emotion-driven decisions, recommends trailing stop-losses (using 1 ATR below the low of the last candle), suggests taking partial profits or hedging (selling puts, buying options or inverse ETFs) rather than flipping to shorts, and advises cautious entries (wait for retracements or use non-correlated ETFs). He demonstrates with an example on Core XLC and references SPY as the S&P 500 ETF.
Questions this video answers
19 January 2020.
SPY.
Core XLC (referred to as XLC).
Place the stop loss 1 ATR below the low of the last candle (trail the stop on dips).
Low = 56.3; ATR = 0.49.
Chapters
Hi, welcome to this new video. Today is 19 January 2020 and the topic is US Market. If you follow this channel, you know that I like the Singapore market for the real estate investment trust, but mainly US market. If you also trade and invest in the US market, you will know that recently it has been going up really strongly. Here we have the tinkorswim platform and you can see from the chart of the SPY, the ETF tracking the S&P 500 index that the market, especially the last month has been going up making new highs. So what to do in this situation? This is a very important question because in this kind of situations it's very easy to make mistakes driven by emotions. So let's see what you should do. Depending on the situation you are in now, you may have already some position, you may be long on some stocks and you may be sitting on very good profits, paper profits. Because remember is not a realized profit unless you close the position. So if you are in that situation, you may be feeling that well, the market is going up so much I am afraid it will go down. So maybe better to close my position and take profit now. There is nothing wrong with that. The only problem is that you may be missing the rally because nobody say that the market will stop going up. Nobody knows. It seems crazy now, really overextended. If you look at the the difference between the price here and the moving average seems really overextended. But nobody said it will stop tomorrow or next week or next month. So if you close your positions now, you may be suffering because you don't profit from this rally. So what to do? Well, one option is you can close partially your position. Another thing that I suggest, and that's what I'm doing if you are trading, is to trail your stop loss. What do I mean by that? Let's say for example that you enter around here, okay? And now the price is here what you can do. And this is one of my strategies. Every time there is a dip, I raise my stop loss. So now for example, the stop loss could be put around here, right? And then if it's going up even more, you can raise it to here. The question is how to do that. If you watch one of my previous video I mentioned to use the ATR indicator to decide how to place a stop loss and you can do the same here. You can put the stop loss 1 ATR below the low of the last candle. This way even if there is a correction, so even if the market will go down, you will still get a Decent profit. Because if you keep your stop loss here and the market eventually is going there, you will lose all this money. Another option, if you know how to do it, is to edge. Edge means you can take positions that are going opposite to the market. For example, you can buy some option. If you want you can buy some inverse etf. But this is only for hedging. What you should not do is stop going long and just start to take short position because you feel that the market will go down soon. Why? Because you don't know when it will happen. So remember, we don't predict the market, we just follow the market. For now, the market is telling us that the trend is up, then it's fine, we just go long, we just follow the trend. The moment the market will start to change direction, then we can think about going short. But for now, the only concern is that it seems a little overextended. So as I said, if you are in this situation and you already have some stocks or ETFs, what you can do is raise your stop loss and maybe take partial profit. If this is your strategy. What if you don't have any position now and you are looking at the market now. In this case, the emotion that may be affecting you is not the fear of losing money because the market will turn, but is the fear of missing out because you see this crazy trend going up and then you feel that you need to enter otherwise you will lose more. Well, there is a problem with this. The problem is that as I said before, we don't know when the market will change direction. And especially if you are doing investing is very bad decision to enter when the market is high. Because if you are investing, you would like to enter when there is a retracement. So in this case you have to wait or you may sell put option to take profit for the premium. But if you are a trader at this point, what I would suggest you is look for opportunities. Maybe look at ETFs because there are some ETFs that are not strongly correlated with the market. So what I do usually in this situation, I look for long position and sometimes even short if the correlation is not very strong on the market, on the ETF market. But for stocks in this case, I definitely will not look for long, sorry, short position. I may take a long position only if the setup is really really good. But my preference in this situation is either do nothing or just look for something with the etf. So to recap, if you already have some position, trade your stop loss, put Your stop loss tighter. And if you want you can take partial profit. If you are not invested. Now, you can either wait for a retracement or in the meantime you can sell put options for getting premium. And you can also, of course you sell put option if you know how to do that. And when the price is retracing because you get paid more when the price is going closer to your strike. If you don't know what I'm talking about, don't worry. Option is another topic you will have time to learn is not. You know, there are so many ways to make profit in the market, so many instruments that the more you know, the more opportunities you have. But it doesn't mean that you need to know everything to make profit. And as I said, you can consider the ETFs to find opportunities, good setup, both short and long that are not correlated with the market. According to my rules, the best thing to do in this case, I want to repeat it again is to trail your stop. And don't be greedy, don't be fearful, don't let your emotion affect. Just follow the strategy. And about trailing, I want to show you one position that I have is this ETF Core xlc. So if you see this one is even more, more parabolic than the S P. Especially the last days it has been going up like that. So what I'm doing now, I basically place my stop loss 1 ATR below the low of this candle. Okay, so it's around here. Now maybe I can zoom in so you can see. Let me see. Yeah, so the low of this candle is. You can read here. The low is 56.3. The ATR is 0.49. You can read here. So I took low minus the ATR and that's where I place my stop loss. So this way even if there is a drop in the market and let's say the market is going back to the moving average, I will not lose all this profit. Because remember, when the market is overextended, usually what happens is that it will go up like that and then boom, it will go down because a parabolic increase or also decrease is not sustainable. So I hope this video will help you because these kind of situations where the market is rallying up a lot or is going down very fast are usually those situation where people can lose a lot of money. And by knowing what to do, by listening to what I suggest you, I hope that you can better manage this period and even profit from it. Thank you again. Subscribe to this channel if you have not done so and like this video if you like. And as usual, see you next time.
