Bill Poulos is an investor, financial educator, author, and President of Profits Run, Inc. He created this website, https://billpoulos.com/, to share his work with the community of Profits Run. Read reviews and discover more about Bill Poulos at https://www.profitsrun.com/bill-poulos/. Bill has authored several books that can be purchased at https://www.amazon.com/Bill-Poulos/e/B00IQA2ZL8. Below, he shares a current stock market analysis.
This week was another very volatile week in the stock and equities market. On Wednesday, we saw the Dow jones drop down 800 points. While this wasn’t the biggest move we have ever seen, for new investors, this was a significant drop in the markets. If you were not expecting or prepared for this type of drop, you might have been surprised by how much it moved. This type of movement can cause lots of fear and anxiety among investors, especially if you have taken too much risk in your account.
As you develop your trading style, you will want to consider how much risk you are comfortable taking. Too much risk and you could find yourself in a deep hole, while too little risk won’t give you the type of returns you may expect. A good rule of thumb is to start with small risk, then increase it until you reach a level that feels right. Many will begin by having a risk of just 0.5 – 2.0% to start. Whatever your risk amount is, just make sure you feel good with that amount of risk.
During this week’s trading, we saw many of the moves happen because of news events that were reported. Some of the days it had to do with the US-China trade tariffs while others it had to do with talk about interest rates. On Wednesday, the big news was surrounding the inverted yield curve which may be a sign of an upcoming recession. We will want to continue to look for trades that are meeting our setup conditions, then enter with the proper position sizes based on our risk level. Look at the 3 charts below to see how the market traded this week.
This week, we will talk about each one of these as if they were one chart. This is because the moved almost the same. You could also compare these charts to many of the stocks as most of the market moved closely together.
There are a few things to point out on these charts. Notice the big candle that happened on Tuesday. This was looking like we might see prices try to move back up again after the drop several weeks ago. Then, on Wednesday, talk of the inverted yield curve turned things completely around and we got the gap down, plus the major move lower. Thursday turned out to be a relatively quiet trading session, then on Friday we close higher on the day after a gap higher on the open.
DJ-30:
SP-500:
NASDAQ:
This type of price action is very volatile thus making the markets mostly non-deliberate in how they are trading. As this cycle of volatility slows down, we will move back into a more deliberate price pattern where we can identify more setups that meet our trading conditions.
Take some time to review what news may be coming out this week and make sure you are prepared for additional volatility. As you do this, you will keep your risk and emotions under control.