I've been reading a lot of blogs lately and the common theme I am hearing has to do with confusion. People are unsure of what is going on in the market, are we in for a deep correction, will the market continue to climb, is the recession over, etc. For many there seems to be more questions than answers.
Unfortunately, I've also noticed that many people continue to trade even though they have so much uncertainty about what is going on with the market and many are losing money as the result. Some even continue to hold on to long positions even though the market seems weak and prices are continuing to fall as the result. Now is the time when poor investors and traders alike are prone to get poleaxed. Smart and unemotional traders are doing three things right now:
1) Closing out of weak positions, regardless of their P&L. Based on technicals and/or fundamentals, some positions need to be liquidated if they are not working out as originally planned. I am not saying to jump ship too early but if your original thesis for entering the market is no longer valid based on current indications then only a fool would keep the position on. In other words, cut your losses short.
2) The brave and equally intelligent traders are taking small positions in strong names that have a high probability of taking off should this turn out to be a mild pull back from recent highs. However the wise are not building their positions at once. Instead, they are carefully scaling in to their positions little by little, as per their PLAN while remaining willing to quickly admit if they are wrong by selling said positions before taking any large losses.
3) Many traders are simply sitting on the sidelines until they get a better sense for what is going on. There is nothing wrong with not doing anything when you are unsure of yourself and/or the market. Protect your capital and simply don't trade; just wait it out a while.
The following chart of the VIX will suggest that while fear and volatility are increasing, there is still more room for it to get worse before it gets better. Again, perhaps it is worth waiting it out a little bit before putting any money at risk
As for me and my day trading, I am trading cautiously by trading light. As an intra-day trader focusing on a 3 and 15 minute chart, I am not all that concerned with the big picture. I am aware of it of course but I am not overly concerned by it since it does not directly impact my trading time frame. However I am trading light and conservative in the event I enter a trade that goes hard against me.
My longer-term portfolio is in cash at the moment other than a few option trades that I am taking that can turn a profit regardless of market direction. I just need enough volatility in price to get through my break-even zone but I am willing to take that risk in this environment. Otherwise, I am not choosing a direction at the moment because I am personally unsure of what might happen. But this is just me.