Is the Market Acting Strange? - When in Doubt, Get the Hell Out!
What should you do when something unpredictable happens in the market and you don't know how to trade it?
There will come a time in the market when you’ll be completely lost.
Things that shouldn’t be happening will be happening, such as stablecoins in the crypto market losing their peg to the dollar, banks going out of business over the weekend, the Swiss Franc losing its peg, or some crazy price action that simply makes no sense and has caught you completely off guard.
You’ll probably run to the news and social media platforms in search of answers, and more likely than not, this will only confuse you more.
When there’s chaos and blood in the streets, nobody knows anything!
No information will be reliable in the short term. Everyone will just be guessing and piecing together all the information they can. The narrative usually follows the price, haven’t you noticed?
Add to this the confusion of seeing some traders making good money in this chaos while others are losing their livelihood, and you’ll feel a weird mix of FUD and FOMO at the same time.
“FUD” - fear, uncertainty, and doubt; “FOMO” - fear of missing out; for the uninitiated among you.
“Holy hell, the volatility and the opportunity. As a trader, I must exploit this rare chance. This person said that this is free money. How is he trading this? What should I do?”
If you don’t know the answer to this question, there is really only one smart course of action.
Stop, close all your positions, and reassess!
Your first job is to protect your money and get your mind right. You’re of no use to anyone if you’re all emotional and either scared or hyped up! Take a step back, look at the big picture, and get oriented on the situation.
You don’t have to play in every market condition.
“Choosing your battles” goes for life as it does for trading. Different traders thrive in different conditions, and that is OK. You don’t have to master all of them to make money in the market. In fact, it is much better to focus purely on your bread and butter and then hit the gas when the planets align for your system.
The one big advantage we retail traders have, apart from being able to work in our underpants, is that we can choose when to play and when to stay away!
Take advantage of this choice and when you find yourself in uncharted territory, simply stay away, observe, and learn. There will be better market conditions again. There will be a time to play again. Don’t worry, nothing lasts forever.
Most importantly, don’t focus so much on the opportunity to make money in these scenarios. Focus on surviving and protecting your money! This is key.
Survive now in order to thrive later.
Having said this, it’s perfectly fine to play a little and dip your toes in the water. Buy that collapsing stable coin, buy the blood, short the pump, and jump on the news bandwagon. No problem. But, and yes, there is a but, do it with a small position!
Don’t risk much as you don’t really know how to calculate risk reward and probability in such events. Use only “play money” if you feel you must participate. Just don’t let greed take over.
It’s all fun and games until it’s not!
One mistake in such an unpredictable and volatile situation can wipe your account clean!
The stablecoin can simply die. It won’t be the first. The same for any other coin, stock, or bank, for that matter. There are no certainties in this game, only probabilities. Black swans do indeed happen and are, by definition, unpredictable and almost impossible. So treat every situation as such, and you’ll be just fine.
Knowing and understanding that every single trade and instrument in the market can do something completely unpredictable at any time will keep you safe, even in the darkest of moments. Play all you want, but protect yourself at all times against all dangers that prey upon your money.
What’s the news? Why is this happening?
Treat every information and news with some level of disbelief and skepticism because the truth is that you can never know the real, full story, especially not in the first hours or days of any given event. No one does, except maybe the most intimate insiders, who are at this moment only looking out for themselves and are already positioned accordingly in the market.
Insiders sell well before anyone knows that something is going on. That is the one thing you can count on, actually. So, believe nothing, double-check everything from different sources, and still always protect yourself in some way.
You cannot and need not take advantage of every single opportunity.
Markets are open all year long, crypto even 24/7. You’re not missing anything. You need rest too. Your time will come. In reality, a few good trades can make a year for a trader.
And on the other side of the equation, over-trading, and gambling can end his career in no time. Pick your moments, trade your EDGE strategies, and the markets where you thrive. Leave the rest to other traders.
When the situation in the market is unfavorable, take a step back.
Breathe, take a break, go on a holiday. There’s no point staring at the screen and feeling all that FUD and FOMO if you don’t know how to trade this situation. There’s no point risking money, either.
Or you can sit at the screens and absorb all the information that you can so that the next time something similar happens, you’ll be better prepared to take advantage of it.
The choice is yours, just know that you don’t have to trade in every situation and that sitting on your hands can save you a ton of pain and money.
So, to reiterate:
If you find yourself in a market condition or a situation, you don’t know how to trade or understand - stay away! It’s OK.
Always focus on protecting your money first, and seek opportunities for profit second.
If you still decide to trade this “problematic situation or market,” play with small amounts and see it more as a learning and fun experience than trying to make money.
You can never really know and understand the full story in the critical moments. It’s all guessing at that point. Trust nothing!
Anything can happen at any time. Never forget this fact of life and trading!
Stay smart and have fun out there.
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