Invariably there is the economic cycle there is ups and there is downs. A recession will come at some point now I’m not saying it’s tomorrow, I’m not saying it’s next month I’m not saying next next year, but at some point the economy and the stock market will pull back. This is how to be prepared.
So today I’m gonna talk about the top five ways to prepare and as well as deal with the eventual recession. The first way I want you to start looking at getting prepared to deal with a recessionis start looking at different patterns.
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Start Looking at Different Patterns
Listen, we’ve been in an amazing bull market ever since the last recession. If you were around trading in 2007, 2008, that’s actually when I got started. We had some extreme volatility with most of it to the downside, much more short seller friendly.
Now we’ve been seeing this gradual uptrend the last 10 years and then really the last two or three years we’ve gone straight vertical. So what I want you to do is be prepared for the eventual change. Patterns of work today probably aren’t gonna work when the market shifts.
You know, we’re not when you’re looking at these all day late day breakouts, you’re probably not gonna get a late day breakout in a recession type market. You’re gonna get stocks that spike and then fail late day. So you’re looking for these varying patterns and different ways to approach the market.
And the great thing about stocks to trade is we have the paper trading module. So even if you’re maybe not well versed or even skeptical of a specific pattern with stocks and trade, you can actually test it out. See how it works and then prepare for it. Even mechanically the buys and the sells with our real time paper trading are just like real live buys and sells. So it’s a great way to test these strategies.
So remember the market in my opinion, and this is just my opinion, it’s a big circle. It’s almost like fashion. What’s old is new again and there’s always a rotation in the market. So don’t be caught off guard the next time the market shifts.
Be Well Versed and Ready to Get More Aggressive
Second thing I want you to prepare for, and I teased it a little bit a minute ago is be well versed and ready to get more aggressive on the short side.
I talk about when I got started in 2007, 2008, this is when Bear Stearns failed, Lehmann Brothers failed. We had the mortgage crisis and so many of these, particularly financial stocks would just crater. And then if they did bounce, they would just crater the next day.
So there were some great, great short-selling opportunities out there. And if you’re not familiar with shorting I talk about it a lot in the other articles. Definitely jump in the library.
But just real quick, remember you can make money when stocks go down. I know this is something that a lot of people are a little confused by, but the beauty of short-selling is even when stocks go down, you can wake, make money.
So start researching this check out the articles where we mentioned short-selling and look at these patterns I mentioned in the previous point paper trade and if you see some big gainer know that’s up on dubious news and starts to fade late day, paper trade short that to kinda get familiar with the mechanics.
Remember in shorting your selling before you buy and then you’re buying to close out your position. That might sound really backwards and really confusing with you. That’s why I want you to learn this stuff. So when the time comes to get aggressive shorting, you’re not confused about this strategy.
You’re like, okay, I know the mechanics. I know I got a borrow shares. I know I get a reserve shares, I know I need to sell before I buy it et cetera.
Get Outside of the Usual Sectors
Third thing I want you to focus on is get outside of the usual sectors. I’m recording this video in late 2019 and you know, marijuana stocks have been hot, cryptocurrencies have been hot, biotechs are always hot, but we’ve had these hot sectors in the past, but when the market shifts, the sectors shipped as well.
And just like I mentioned in the previous point I remember 2007, 2008 almost 9/10 of the trades we were making were in the banking sector the finance sector, because of all the extreme volatility the failures. Remember, this is a little bit of history.
The government was stepping in, bailing out some of these financial institutions. So when they got bailed out, they would spike. So now fast forward to today as of right now in momentum stock lane, we barely trade finance related stuff.
They just small finance instruments, higher price. They just don’t really have any sort of volatility because nobody cares. Back in 2007, 2008, that was all we cared about because they had the most volatility.
So be prepared to step out of your comfort zone. If you only trade biotechs, maybe it is the mortgage companies, maybe it is the finance, maybe it is the banks, maybe it is the commodity. So just be prepared to know that what’s hot right now sector wise can rotate real quick and be prepared to step out of your comfort zone.
Do More Research
Four thing is do more research. But you know, if you read these articles, I always say you should always, always, always be learning. And it’s doubly, I think it’s always important, but it’s doubly, triply quadruply if that’s a word, more important when the market shifts because everything changes, and you need to be prepared for when these things change.
So be study, look at the patterns, read the books. If you want to be successful in this game, remember short term day trading even longer term trading, even investing there is an extremely high failure rate. Why is it so high?
I think one of the biggest things is people don’t take it seriously. They don’t immerse themselves. I don’t know if it’s true or not, but Warren Buffet supposedly reads 500 pages a day. He’s read 500 pages a day for I don’t 40 years or something.
That’s SEC filings. That’s press releases. That’s books, that’s newspapers. It’s analyst reports. But I tell you what, what Warren Buffet isn’t reading is Entertainment Today or Sports Illustrated or E Weekly or any sports or E Games Monthly or whatever.
He’s not reading any of that unless it can make him a smarter investor, a smarter trader. So always be learning all, you never know what book, what tip is gonna make you that better trader.
Don’t Panic
Last thing is keep a level head don’t panic. I mentioned Warren Buffet. I know Warren’s a way different than day trading. What we do, Warren buys and holds forever, but his favorite quote is, or one of my favorite quotes of his is “Be greedy when others are fearful “and fearful when others are greedy.”
And the idea there is when everybody’s losing their mind if you’re level headed, if you’re managed properly, if you don’t have too big of a position or if you’re in cash.
Remember one of the best ways to keep a level head in extreme volatility is just being in cash. That’s the beauty of short term trading.
If you don’t like what’s going out there, you close your positions, you close your laptop and you see what happens the next day. I think back to just last week on Monday and Tuesday, overall markets were down huge.
I’m running my scans, barely saw anything, but I knew we’re still in this crazy bull market. Just dial back and wait. Here we are three days later all the way back to all time highs, so keep that level head. Don’t be afraid to go to cash. Don’t be afraid to not trade, especially if you’re under the PDT.
It’s a great time during when you don’t have a good read, when the market’s doing crazy things, you can save those day trades and attack later.
So let me know in the comments were you trading back in 2007, 2008. It was a wild time. I think about it now. It was amazing how different the patterns were back then. So let me know again in the comments.
Where are you trading during the last recession?
