The challenge: make money when the market is going to Hades in a handbasked. When the GBP/JPY falls apart like a high school relationship, and the US Stock Market turns traitor and rejects the demand that it perform well if interest rates go down (and think about it: if interest rates are headed down because the economy sucks, then no one is going to buy any stocks for the short term).
So, what to do now? I was looking at some order flow / retail positioning information today, and I was shocked to see how many traders are still hanging onto long GBP/JPY positions. The carry trade is exploding all around them, and there is a huge overweighting of traders on the buy side. They are hanging on, hoping that it comes back.
Here are five things that you can do right now in times like this:
1. Stop hoping that the market comes back. Make a realistic assessment of how much further down the market can go before you've lost your entire account. Talk to a friend, a spouse, anyone who you can trust that will hold you accountable to get yourself out of the bad trades that are threatening to destroy your account.
2. Ask yourself: was I ready to benefit from the recent implosion? Was I prepared to make trades that benefit from a market decline? If you are familiar with options, ask, "Was I protecting the downside by buying some options as insurance?" If the answer to this is no, think about how you can do things differently next time.
3. Get in touch with someone who knows more than you about the market -- someone who is making money right now and has been for a long time -- and show them your portfolio.
4. Consider the benefits of having a (substantial) portion of your portfolio invested for the long term rather than the short term.
5. Remember that no one knows where the market is going tomorrow. Anything can happen. Given this truth, what are you going to do about it? How are you protecting yourself from the downside risk?
